10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 0-19941

MEDQUIST INC.

(Exact name of registrant as specified in its charter)

New Jersey	22-2531298
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1000 Bishops Gate Blvd, Suite 300, Mount Laurel, NJ 08054-4632

(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock (no par value)

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  o No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o               Accelerated filer  x               Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No  x

The aggregate market value of the outstanding common stock held by non-affiliates of the registrant as of June 30, 2006, was $145,821,030. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the “Pink Sheets” on June 30, 2006.

The number of registrant’s shares of common stock, no par value, outstanding as of May 31, 2007 was 37,483,723.

Documents incorporated by reference

None

MedQuist Inc.
Annual Report on Form 10-K
Table of Contents

		Page
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	25
Item 2.	Properties	25
Item 3.	Legal Proceedings	25
Item 4.	Submission Of Matters To A Vote Of Security Holders	29
PART II		30
Item 5.	Market For Registrant’s Common Equity, Related Shareholder Matters And Issuer Purchases Of Equity Securities	30
Item 6.	Selected Financial Data	31
Item 7.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 8.	Financial Statements And Supplementary Data	70
Item 9.	Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	70
Item 9A.	Controls And Procedures	70
Item 9B.	Other Information	77
PART III		77
Item 10.	Directors and Executive Officers of the Registrant	77
Item 11.	Executive Compensation	89
Item 12.	Security Ownership of Certain Beneficial Owners and Management	106
Item 13.	Certain Relationships and Related Transactions	109
Item 14.	Principal Accountant Fees and Services	115
PART IV		116
Item 15.	Exhibits and Financial Statement Schedules	116

i

SPECIAL NOTE ABOUT THIS REPORT

This report is our first periodic report covering periods after September 30, 2003. Readers should be aware that several aspects of this report differ from other annual reports. This report is for the annual reporting period ended December 31, 2005; however, it contains, among other things:

·Consolidated balance sheets as of December 31, 2005, 2004 and 2003, and the related consolidated statements of operations, cash flows and shareholders’ equity and other comprehensive income for each of the years in the three-year period ended December 31, 2005;

·Regulation S-X, Article 10 Interim Financial Statements for each fiscal quarter in 2005 and in 2004 (including comparable information for the corresponding quarters in 2003, which information contains restated numbers from our previously issued consolidated interim financial statements for each of the first three fiscal quarters in 2003);

·Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) liquidity and capital resources disclosure as of December 31, 2005, 2004 and 2003 and as of the end of the first three fiscal quarters in 2005, 2004 and 2003. In addition, we are including MD&A results of operations disclosure (including a comparison to the comparable period in the prior year) for (i) the year ended December 31, 2005; (ii) the year ended December 31, 2004; (iii) the year ended December 31, 2003; (iv) the three months ended December 31, 2005; (v) the three months ended September 30, 2005; (vi) the three months ended June 30, 2005; (vii) the three months ended March 31, 2005; (viii) the three months ended December 31, 2004; (ix) the three months ended September 30, 2004; (x) the three months ended June 30, 2004; and (xi) the three months ended March 31, 2004; and

·A restatement of our previously issued consolidated financial statements included in our Forms 10-Q filed during 2003 and our Form 10-K for the fiscal year ended December 31, 2002. Please note that on November 2, 2004, we filed a Form 8-K disclosing our board of directors’ conclusion that our previously issued consolidated financial statements included in our Form 10-K for the fiscal year ended December 31, 2002, our Forms 10-Q filed during 2002 and 2003, and all earnings releases and similar communications relating to such periods, should no longer be relied upon. For a discussion of the events giving rise to such restatements and this determination, see the discussion below under the caption “Significant Events Since Our Last Regular Periodic Report” contained in Item 1, Business.

PART I

Item 1.Business

General

We are the leading provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S., and we employ approximately 6,300 skilled medical transcriptionists (MTs), making us the largest employer of MTs in the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development to leverage Philips’ technology and professional expertise to deliver industry-leading solutions for our customers.

We perform a substantial majority of our medical transcription services utilizing the DocQment™ Enterprise Platform (DEP), our proprietary, web-based dictation and medical transcription management

1

system. Our proprietary technologies enable our customers to efficiently manage the clinical documentation workflow from dictation through coding.

Clinical Documentation Workflow

The clinical documentation workflow begins when physicians or other medical professionals dictate findings and plans of care into one of several input devices, including standard telephones, handheld devices, or PC-based dictation stations. Once dictated, the voice files securely route through our DEP to either an MT or our speech recognition engine for conversion to text. The resulting draft report may then proceed to the editing and quality assurance process prior to being routed back to the physician or other medical professional for review, finalization, execution and incorporation into a patient’s medical record. Throughout this process, our DEP utilizes security measures that assist our customers with their compliance with privacy and security standards and regulations, including those adopted under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and the protection of the confidentiality of medical records. We also provide document retention services and manual and automated coding services that facilitate reimbursement to our customers.

Significant Events Since Our Last Regular Periodic Report

It has been over three years since our last periodic report, which was our Form 10-Q for the quarterly period ended September 30, 2003 and filed with the Securities and Exchange Commission (SEC) on November 12, 2003. A summary of significant events that have occurred since that time is listed below. This summary should be read together with additional disclosures concerning us contained in this report.

In November 2003, one of our employees raised allegations that we had engaged in improper billing practices. In response, our board of directors undertook an independent review of these allegations and engaged the law firm of Debevoise and Plimpton LLP, who in turn retained PricewaterhouseCoopers LLP, to assist in the review (Review). On March 16, 2004, we announced that we had delayed the filing of our

2

2003 annual report on Form 10-K pending completion of the Review. Subsequently, on March 25, 2004, we filed a Form 8-K detailing our determination that the Review would not be completed by the March 30, 2004 filing deadline for our 2003 Form 10-K. As a result of our noncompliance with the SEC’s periodic disclosure requirements, our common stock was delisted from the NASDAQ National Market on June 16, 2004.

On July 30, 2004, we issued a press release entitled “MedQuist Announces Key Findings Of Independent Review Of Client Billing,” which announced certain findings in the Review regarding our billing practices (July 2004 Press Release). The Review found, among other things, that with respect to our medical transcription services contracts that called for billing based on the “AAMT line” billing unit of measure, we used ratios and formulae to help calculate the number of AAMT medical transcription lines for which our customers (AAMT Customers) were billed rather than counting each of the relevant characters to determine a billable line as provided for in the contracts. With respect to these contracts, our use of ratios and formulae to arrive at AAMT line counts was generally not disclosed to our AAMT Customers.

The AAMT line unit of measure was developed in 1993 by three medical transcription industry groups, including the American Association for Medical Transcription (AAMT), in an attempt to standardize industry billing practices for medical transcription services. Following the development of the AAMT line unit of measure, customers increasingly began to request AAMT line billing. Accordingly, we, along with other vendors in the medical transcription industry, began to incorporate the AAMT line unit of measure into certain customer contracts. The AAMT line definition provides that a “line” consists of 65 characters and defined the term “character” to include such things as macros and function keys as well as other information necessary for the final appearance and content of a document. However, these definitions turned out to be inherently ambiguous and difficult to apply in practice. As a result, the AAMT line was applied inconsistently throughout the medical transcription industry. In fact, no single set of AAMT characters was ever defined or agreed upon for this unit of measure, and it was eventually renounced by the groups responsible for its development.

The Review concluded that our rationale for using ratios and formulae to determine the number of AAMT transcription lines for billing was premised on a good faith attempt to adopt a consistent and commercially reasonable billing method given the lack of common standards in the industry and ambiguities inherent in the AAMT line definition. The Review concluded that the use of ratios and formulae within the medical transcription platform setups may have resulted in over billing and under billing of some customers. In addition, in some instances, customers’ ratios and formulae were adjusted without disclosure to the AAMT Customers. However, the Review found no evidence that the amounts we billed AAMT Customers were, in general, commercially unfair or inconsistent with what competitors would have charged. Moreover, it was noted in the Review that we have been able to attract and retain customers in a competitive market.

Following the issuance of the July 2004 Press Release, we began an extensive review of our historical AAMT line billing (Management’s Billing Assessment) and in August 2004 informed our current and former customers that we would be contacting them to discuss how they might have been impacted. In response, several former and current customers, including some of our largest customers, contacted us requesting, among other things, (i) an explanation of the billing methods employed by us for the customer’s account; (ii) an individualized review of the customer’s past billings, and/or (iii) a meeting with a member of our management team to discuss the July 2004 Press Release as it pertained to the customer’s particular account. Some customers demanded an immediate refund or credit to their account; others threatened to withhold payment on invoices and/or take their business elsewhere unless we timely responded to their information and/or audit requests.

3

In response to our customers’ concern over the July 2004 Press Release, we made the decision to take action to try to avoid litigation and preserve and solidify our customer business relationships by offering a financial accommodation to our AAMT Customers. In connection with this decision, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing or damages nor was the performance of the Accommodation Analysis intended to reflect any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers totaling $65 million. This amount was subsequently adjusted in 2005 to $65.4 million. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006, we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8.7 million beyond amounts previously authorized.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequence of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be approximately $9.8 million.

Of the authorized cash accommodation amount of $65.4 million, $57.7 million was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction of revenues in 2005. The balance of $7.7 million plus an additional $2.1 million has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005. A table detailing these adjustments to revenues is presented elsewhere in this report under the caption “Sources of Revenue” in Item 7, Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

Customer Accommodations

As discussed above, based on the Accommodation Analysis, our board of directors initially authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65.4 million. In 2006, this amount was adjusted by a net additional amount of $1.2 million, resulting in an adjusted aggregate amount of $66.6 million. Also in 2006, our board of directors authorized management to establish an accommodation program for certain AAMT Customers that involves the issuance of credits up to an additional $8.7 million that can be used as an offset against the future purchase of goods and services from us. A large number of customers have accepted our offers under the accommodation program and, in return, released us from any and all claims and liability regarding AAMT line billing and

4

other billing related issues that they may have had against us. As of May 31, 2007, we have entered into agreements with certain customers who have accepted cash accommodation offers and paid or credited to their account an aggregate amount of $53.3 million. In addition, as of May 31, 2007, we have made cash accommodation offers to certain other customers in the aggregate amount of $1.4 million. Further, as of May 31, 2007, we have entered into agreements with certain customers who have accepted credit accommodation offers with a total credit value of $4.7 million and have extended credit accommodation offers to certain other customers with a total credit value of $1.2 million.

We intend to continue making cash and credit accommodation offers in the future, although the timing and amount of such offers have not yet been determined and our plans may change. The accommodation offers made to date, and those offers which may be made in the future, are not an admission of liability by us of any wrongdoing or an admission or acknowledgement that our billing practices with respect to such customers were or are incorrect.

Governmental Investigations and Civil Litigation

Disclosure of the findings of the Review, along with the delisting of our common stock, precipitated a number of governmental investigations and civil lawsuits. These events are discussed in summary below. A fuller description of these events can be found in Item 3, Legal Proceedings.

Governmental Investigations

The SEC is currently conducting a formal investigation of us relating to our billing practices. We have been fully cooperating with the SEC since it opened its investigation in 2004. We have complied and are continuing to comply with information and document requests by the SEC.

We also have received an administrative HIPAA subpoena from the Department of Justice (DOJ) on December 17, 2004. The subpoena sought information primarily about our provision of medical transcription services to governmental and non-governmental customers. The information was requested in connection with a government investigation into whether we and others violated federal laws in connection with the provision of medical transcription services. We have been fully cooperating with the DOJ since it began its investigation in 2004. We have complied, and are continuing to comply, with information and document requests by the DOJ.

Developments relating to the SEC and/or DOJ investigations will continue to create various risks and uncertainties that could materially and adversely affect our business and our historical and future financial condition, results of operations, and cash flows.

Civil Litigation

·Customer Litigation—In September 2004, a purported class action was filed against us and some of our current and former officers on behalf of certain of our customers claiming, among other things, that they were wrongfully and fraudulently overcharged for medical transcription services based primarily on our use of the AAMT line billing unit of measure as discussed above. In January 2006, plaintiffs filed a third amended complaint which expanded their claims to include certain of our customers whose charges for medical transcription services were based on other, non-AAMT billing units of measure. On March 30, 2007, the Court issued an order holding that plaintiffs could not make out a claim that we had violated the Racketeer Influenced and Corrupt Organizations Act statute (RICO), thus eliminating any claim against us for treble damages. The Court also found that plaintiffs could not make out a claim that we had engaged in any unfair or deceptive acts or practices in violation of state law or that we were liable for any negligent misrepresentations to plaintiffs. In its ruling, the Court, without reaching a decision of whether any wrongdoing had occurred, allowed plaintiffs to proceed with their claims against us for fraud, unjust enrichment and

5

an accounting. The Court denied our motion to compel arbitration regarding those customers whose contracts contained an agreement to arbitrate. We have appealed that decision to the Third Circuit Court of Appeals and moved to stay all proceedings pending appeal. Plaintiffs oppose any stay and have filed a motion for summary action in the Third Circuit to dismiss the non-arbitration plaintiffs from the appeal.

·Shareholder Securities Litigation—In November 2004, a complaint was filed, and thereafter amended twice, against us and some of our former and current officers, directors and auditors, purporting to be a class action under the federal securities laws on behalf of those shareholders who purchased our common stock during a period beginning March 29, 2000 and ending June 14, 2004. A hearing on our motion to dismiss was held on August 17, 2006. On September 29, 2006, the Court issued an order denying our motion to dismiss. However, in the same order, the Court granted the motion to dismiss filed by our former and current external auditors. On March 23, 2007, we entered into a memorandum of understanding with the lead plaintiff in which we agreed to pay $7.75 million to settle all claims, throughout the class period, against all defendants in the action. On May 16, 2007, the Court issued an Order Preliminarily Approving Settlement and Providing for Notice. The Court scheduled a final approval hearing for August 15, 2007. The settlement is subject to final documentation by the parties and conditioned on final approval by the Court after notice to the putative class. Neither we nor any of the individuals named in the action has admitted or will admit to liability or any wrongdoing in connection with the proposed settlement.

·Shareholder Derivative Litigation—In November 2004, a shareholder derivative lawsuit was filed against our majority shareholder, Koninklijke Philips Electronics N.V. (Philips), some current and former members of our board of directors, and us, as a nominal defendant, alleging that the defendants had breached their fiduciary duties. This matter was dismissed with prejudice in September 2005. In December 2005, plaintiff filed an appeal, which was denied on May 25, 2007.

·Medical Transcriptionist Litigation—Between November 2004 and October 2005, three separate actions were filed by different parties against us and some of our current and former company officials, purportedly on behalf of an alleged class of our current and former employees and statutory workers, alleging among other things, breach of contract, breach of the covenant of good faith and fair dealing and unjust enrichment. Since the causes of action in each matter were substantially similar, the three cases were consolidated into one action. A hearing on our motion to dismiss was held on August 7, 2006. On December 21, 2006, the Court issued an order denying our motion to dismiss, and the case has proceeded to the discovery stage.

Developments relating to third party litigation and governmental investigations will continue to create various risks and uncertainties that could materially and adversely affect our business, financial condition, results of operations and cash flows.

Industry Overview

As a provider of medical transcription technology and services, our revenues and growth are affected in part by certain trends in healthcare.

Increased Spending and Demographic Factors in Healthcare Industry

Spending for healthcare in the U.S. has grown rapidly over the past few decades. According to estimates published by the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary, the healthcare sector is growing faster than the overall economy. Healthcare spending increased as a share of U.S. gross domestic product from 13.3% in 2000 to 16% in 2005, as growth in healthcare spending outpaced economy-wide growth.

6

In 2005, healthcare spending in the U.S. was approximately $2 trillion. CMS estimates that by 2016 healthcare spending will have increased to $4.1 trillion, which will represent 19.6% of the projected U.S. gross domestic product. Demographic factors contribute to long-term growth projections in healthcare spending. According to the U.S. Census Bureau’s 2005 interim projections, there were approximately 35 million Americans aged 65 or older. The number of Americans aged 65 or older is expected to increase to approximately 40 million by 2010 and approximately 70 million by 2030, or 20% of the U.S. population. We believe that the aging of the U.S. population and the continuing growth in healthcare spending will increase demand for our products and services. Older age groups receive proportionately greater numbers of procedures, medical tests and treatments that require clinical documentation. We believe that the high demand for medical transcription services will also be sustained by the need of providers, third-party payors, consumers, regulators and health information networks to share electronic health information.

Competitive Environment

The healthcare industry is increasingly choosing to outsource services such as medical transcription to reduce personnel and administrative burdens and fixed costs as information needs and volume of dictated reports expand. The medical transcription industry itself is highly fragmented and difficult to size based on a general lack of public market data and analysis. As such, we estimate that the U.S. medical transcription market is between $9 and $12 billion on an annual basis, including both outsourced services and medical transcription performed internally by healthcare providers. We believe that the top 10 medical transcription outsource providers based on revenues, of which we are the largest, account for less than 15% of the industry including in-house operations.

Although we are the leading provider of medical transcription services in the U.S., we experience competition from local, regional, national and international businesses. We believe that there are hundreds of companies in the U.S. and India currently performing medical transcription services for the U.S. market. There are currently two large service providers, one of which is us and the other of which is Spheris Inc., several mid-sized service providers with annual revenues of between $15 million and $100 million and hundreds of smaller, independent businesses with annual revenues of less than $15 million. We believe that a substantial portion of the medical transcription market is serviced internally by MTs directly employed by the healthcare providers.

We believe the outsourced portion of the medical transcription services market will increase due in part to healthcare providers seeking the following:

·reduction in overhead and other administrative costs;

·improvement in the quality and speed of delivery of transcribed medical reports;

·access to leading technologies, such as speech recognition technology, without development and investment risk;

·expertise in implementing and managing a system tailored to the providers’ specific requirements;

·access to skilled MTs; and

·support for compliance with governmental and industry mandated privacy and security requirements and electronic health record (EHR) initiatives.

Our competitive position in the market is characterized primarily by the following factors:

·We are the leading medical transcription provider in the U.S., with a strong customer base, the largest pool of MTs and leading technologies capable of handling large volumes and complex workflows.   As the largest medical transcription provider in the U.S., we are recognized as the leading brand in the industry. We have a well-established customer base, comprised of hundreds of health systems,

7

hospitals and large group medical practices located throughout the U.S. We have an integrated, flexible and scalable technology platform that can be tailored to meet our customers’ needs. We are the largest employer of MTs and have the most widely deployed technology platform. As health systems, hospitals and large group medical practices increasingly seek to outsource their medical transcription and other clinical document workflow needs, we have the resources to quickly and efficiently provide our customers with comprehensive, scalable solutions.

·We offer a comprehensive array of products and services.   We offer a comprehensive array of products and services for dictation, medical transcription, speech recognition, electronic signature and coding through a combination of remote and on-premise solutions. These solutions are designed to maximize the efficiency, accuracy and security of our customers’ documentation and coding processes, while enhancing their patient care, accelerating their revenue cycle and lowering their costs.

·We have the strongest financial profile in the medical transcription industry.   We continue to maintain a substantial cash balance and have no debt.

·We face aggressive price competition from competitors providing offshore services.   As the outsourced portion of the medical transcription services market continues to increase, the growing acceptance of offshore alternatives has led to increased offshore competition, primarily from India, and corresponding reductions in price. In addition to the increased use of offshore firms, medical transcription rates are reduced increasingly by technological advances, particularly in the area of speech recognition.

Business Strategy

We intend to maintain our position as the leading provider of medical transcription technology and services while transforming into a leading provider of complete clinical documentation workflow. We plan to achieve this objective through the following strategies:

Retain and Expand Customer Relationships.   We constantly seek to improve turnaround time, medical transcription quality and customer communications. We believe that advances in these areas improve retention of existing customers and increase our ability to secure new customers. In addition, in the past we grew our revenue base through acquisitions, and we did not have a centralized sales force for medical transcription services. Today, we have a centralized sales function and have strengthened our marketing team to better focus on customer executive level decision-makers to enhance sales opportunities for new and existing customers.

Enhance Efficiencies.   In response to competitive price pressures driven by increasing market acceptance of speech recognition and offshore labor options, we have improved our operations through the following initiatives:

·consolidating over 60 operating facilities and transitioning of all MTs to virtual employment;

·enhancing speech recognition technologies to increase the efficiency of the delivery of our products and services;

·transitioning to a single national service delivery and support organization for all of our products and services to improve both levels of service and quality for our customers and reduce costs; and

·partnering with offshore subcontractors to provide us with access to international labor pools to expand and improve our service delivery capabilities.

Leveraging our DEP.   For medical transcription services that we perform on our platform, we have completed the migration of our outsourced medical transcription customers from disparate and older

8

technology platforms to our DEP. We believe that the combination of standardization, advanced functionality and transparency with respect to service metrics provided by this platform will significantly increase our customers’ satisfaction and retention. Our commitment to our DEP allows us to accelerate the rate at which we can offer new functionalities to our customers. In addition, we currently offer and plan to expand the offering of our DEP to healthcare providers and other companies in the medical transcription industry for use as their medical dictation and transcription platform.

Expansion Into New Markets.   We believe our breadth of products and services, spanning from dictation through coding, positions us to bridge the gap between traditional medical transcription and the EHR. The U.S. government has developed plans that call for all Americans to have an EHR by 2014. The EHR is directly tied to the national Health Information Technology (HIT) initiative—the creation of a transparent, interoperable and digital system designed to improve patient care and reduce healthcare costs. The EHR concept, which has been endorsed by the current presidential administration and a host of national healthcare associations, is a longitudinal electronic record of patient health information generated by one or more patient encounters in any care delivery setting. The EHR includes patient demographics, past medical history, progress notes, medications, vital signs, health problems, immunizations, laboratory data and radiology reports. The EHR streamlines the providers’ workflow and, in addition to having the ability to generate a complete clinical record of a patient encounter, can also support other care-related activities, including evidence-based decision support, outcomes reporting and quality management.

We intend to leverage our market leading position and proprietary technologies to provide comprehensive solutions to our customers related to the management of health records. Historically, we have provided a combination of traditional medical transcription services, stand-alone products and other professional services to healthcare providers. We anticipate aggregating these existing services and products and new services and products into a comprehensive clinical documentation workflow solution.

Pursue Strategic Acquisitions.   We may pursue acquisitions or relationships that expand our customer base or increase our network of labor pools. We may also explore opportunities to acquire technologies which could enhance our product or service offerings and improve efficiencies.

Customer Base

We have a large and prestigious customer base. We believe that over 30% of non-federal acute care U.S. hospitals use at least one of our products or services, and we currently provide products or services to 8 out of the 10 “Best Hospitals in the United States” in 2006 as ranked by U.S. News & World Report. Additionally, we have the largest customer base of any medical transcription company in the U.S., currently serving over 1,500 hospital systems, clinics and large physician practices, including approximately 40% of hospitals with more than 500 licensed beds. We believe we are the medical transcription company of choice for large, complex hospitals and health systems in the U.S. due to our size, scale and scope. We provide services to entire healthcare systems as well as discrete departments within hospitals, such as health information management, emergency, radiology, pathology and cardiology departments and all types of clinic settings. None of our customers accounted for more than 10% of our annual revenues in 2005.

Products and Services

For the year ended December 31, 2005, approximately 80% of our net revenues are derived from our medical transcription technology and services. In addition, we also derive net revenues from, among other things, maintenance services, medical records coding, SpeechQ for Radiology™ and DocQment Ovation.

9

Medical Transcription Services

We provide health systems, hospitals and large group medical practices with comprehensive solutions to meet their medical transcription needs. As the largest medical transcription services provider, we employ approximately 6,300 skilled MTs. This scale allows us to continually offer our customers effective, tailored medical transcription services that meet organization-wide or departmental needs. We perform a substantial majority of our medical transcription services utilizing our DEP. In addition, we also service a specialized area of the medical transcription market—specifically, radiology—whereby we retrieve voice files from, and transcribe directly into, customer-hosted transcription platforms.

In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services.

10

Our DEP and flexible dictation solutions provide our customers with easy access to advanced technology and the confidence that medical reports will be completed quickly and accurately. Our DEP, which is a web-based dictation and transcription management system, integrates dictation capture, workflow management, speech recognition, medical transcription, and document distribution through multiple distinct yet integrated modules as follows:

Features and benefits of our DEP include the following:

Security and Scalability

·supports all standards required by HIPAA and other applicable laws and regulations

·utilizes data centers along with 24-hour system monitoring and maximum uptime

·allows for universal and simultaneous user upgrades through server-based web technology

·fulfills increased clinical document workflow demands through seamless scalability

Cost Effectiveness

·provides one interface for health information systems

·eliminates the costs and challenges of supporting multiple dictation and medical transcription systems for individual hospitals and departments

·integrates with and builds on existing systems

·allows for the centralized maintenance of all system hardware and software at our data centers

·allows MTs and editors to work remotely

·eliminates traditional phone charges and other overhead costs associated with home-based medical transcription

Workflow

·allows viewing of medical reports on a real-time basis from multiple locations through a single and secure login, password and company identification

·increases the level of our customers’ management control over medical transcription workflow across healthcare enterprises

·reduces the amount of time reports spend in queue as well as MT downtime

·takes transcribed text and matches it to user pre-defined templates using automatic post-transcription formatting

11

Auditing and Reporting

·facilitates transparency in the billing process with detailed character count logs for every processed document

·provides audit trails with detailed information regarding access to patient health information

·offers quality and turnaround time reporting for tracking of service metrics

Maintenance Services

We provide onsite maintenance, remote “break-fix” services, and application, hardware and software technical support for our products. We also provide product management functions for released solutions, including service support guides, maintenance contract pricing, parts planning and service policies.

Medical Records Coding

Our health information management coding solutions involve the translation of written narratives of diseases, injuries and procedures into numeric or alphanumeric descriptions to identify the diagnosis, treatment and severity of illness of a patient’s medical episode for reporting and reimbursement purposes. We offer professional coding services for both inpatient and outpatient settings, including same day surgery, emergency and ancillary departments and clinics within the hospital environment as well as physician offices and ambulatory surgery centers. Our coding solutions provide the coded data required to support the reporting and billing requirements of healthcare organizations and professional practices and allow for some of the services to be provided remotely through CodeRunner™, our proprietary, secure, internet-based computer-assisted coding and workflow management application, by our staff of credentialed coders and/or our customers’ coders. CodeRunner accepts electronic text documents, whether generated by dictation, speech recognition, transcription and/or structured templates, as well as electronic imaged documents, generated by scanning. Additionally, CodeRunner automatically generates comprehensive audit trails and reporting of access to the medical records as well as of the coding activity. Its coding management tools provide customers with real-time coder activity monitoring, visibility into medical record coding workflow (including automated quality assurance and auditing capabilities), and the ability to workload balance, all contributing to a more efficient coding process and thus enhancing coder productivity.

SpeechQ for Radiology

SpeechQ for Radiology is a flexible front-end speech recognition software application. It allows radiologists to dictate, edit and sign their reports in a single session or send them to an editor following dictation. SpeechQ for Radiology continuously learns from changes to a specific radiologist’s dictation made by either the radiologist or an editor, increasing the speech recognition accuracy for such radiologist with every edit. Powered by the Philips SpeechMagic™ speech engine, SpeechQ for Radiology is designed specifically for radiology, and integrates with most radiology specific information systems providing a workflow that maximizes radiologists’ efficiency and significantly improves report turnaround time.

DocQment Ovation

Our newest offering in the digital dictation system market is DocQment Ovation, a web-based, enterprise digital voice capture and transport solution. DocQment Ovation creates opportunities to improve productivity by providing an enterprise view that allows medical transcription supervisors to easily manage MTs and voice files from a single dashboard instead of using multiple systems. Specifically engineered to be compatible with our previous generation dictation stations, physicians should have a seamless transition, with little to no training required. An integral component of our growing technology

12

portfolio, DocQment Ovation supports our end-to-end solution from dictation to billing. DocQment Ovation’s enterprise configuration options allow administrators to easily track work and share resources to get the right voice file to the right MTs at the right time.

Technological Capabilities

Research and Development

We invest in our capabilities to ensure we meet current and future customer requirements. Our proprietary software and hardware technologies support our medical transcription and coding outsourced services. Our software capabilities enable us to operate a national service delivery model that includes nationwide multi-modal voice capture. Our expertise in the use of speech recognition enables us and our customers to achieve productivity gains and cost savings. We continue to work to enhance our speech recognition and editing technologies to achieve productivity gains in the medical documentation process. Our DEP and technological expertise in the areas of work routing and work management support a nationwide, scalable model of medical transcription delivery. Our ability to focus on a single dictation and transcription management system, our DEP, based on an application service provider model enables us to efficiently and effectively utilize our research and development resources.

We employ over 100 developers to conduct our research and development in four locations: Joplin, Missouri, Morgantown, West Virginia, Norcross, Georgia, and Malvern, UK. Although we license a portion of our technology from third party vendors, a majority of our technological expertise resides in our development organization. Our development personnel have expertise across the breadth of our solutions, including voice capture management, speech recognition and editing, medical transcription, electronic signature and distribution and coding. All of our development teams follow the same rigorous development methodology which ensures repeatable, high quality and timely delivery of solutions.

Speech Recognition

Our speech recognition technology is provided by Philips Speech Processing GmbH, an affiliate of Philips which is now known as Philips Speech Recognition Systems GmbH (PSRS). For additional information regarding this relationship, see Item 13—Certain Relationships and Related Transactions. We have integrated this technology into our DEP which has provided us with productivity gains, streamlined workflow and, through continuous learning from the corrections made by editors, improved quality. Since the beginning of 2003, we have significantly increased our use of automated speech recognition.

Sales and Marketing

We focus a significant portion of our sales and marketing resources on retaining and expanding the business within our existing customer base. In addition, we target healthcare facilities currently performing medical transcription in-house and those facilities that have already outsourced their medical transcription function, but are using a competitor.

Historically, we grew our customer base primarily through acquisitions of regional medical transcription outsource companies. Since 2002, we have been developing a dedicated sales force. Today, we use a direct sales force model of over 100 sales and account management associates, including specialists for national accounts, front-end speech technology, coding and digital dictation. In addition, we have an inside sales department that specializes in telesales and lead generation primarily for ancillary products to our existing customers and our DEP to other medical transcription outsource companies.

13

To support our sales initiatives, we utilize various marketing programs to maintain and expand our brand. We promote our offerings regularly through:

·attending and sponsoring industry trade shows of national organizations such as the American Health Information Management Association, Healthcare Information and Management Systems Society, American Association of Medical Transcriptionists and Healthcare Financial Management Association;

·advertising in industry focused print and electronic trade journals;

·demonstrating our thought leadership on industry topics and trends via webinars and participation in numerous state and regional trade show events; and

·hosting user group events for existing customers to exchange product and market information.

Service Delivery and Customer Support

Understanding the need for person-to-person responsiveness within our industry, we reorganized and centralized our service and support organization in 2005. We continue to offer a wide range of customer support services through an expansive staff of over 300 customer-facing service personnel. The customer-facing relationship teams work with, and are supported by, our centrally managed customer service organization.

Centralized service delivery and customer support eliminates the need for local independently managed service centers. This structure enhances workflow management, resulting in improved levels of service and quality for our customers. This has been implemented through the following:

·The MedQuist Qtinuum of Care™ initiative. This initiative embraces our entire company by uniting and streamlining process, technology, services and support with one goal in mind—our customer. The Qtinuum of Care focuses on driving increased levels of customer satisfaction through a combination of centralized and integrated customer service and support and field-based customer relationship management with a focused personal touch. As part of the Qtinuum of Care, we have an internal training program we call “The MedQuist Way.” This program promotes quality service and customer focus through comprehensive, customized employee education, which has created an environment where all of our service employees are empowered to take ownership of customer issues until they are completely resolved.

·Centralized medical transcription service delivery. This centralization coordinates the services of thousands of MTs on a nationwide level, facilitating superior capacity planning even when volume fluctuates. By applying streamlined processes and the highest standards nationwide, we are able to provide quick turnaround time and consistent quality documentation.

Our service and support organization is comprised of several smaller organizations, or teams, focused on delivering specific aspects of services. In addition to technical and product support, we offer implementation professional services, which provide our customers with complete implementation planning and services beginning with the initial scoping of system requirements through the customer acceptance phase of an implementation

Medical Transcriptionists

As the leading provider of medical transcription technology and services, we employ approximately 6,300 skilled U.S.-based MTs, making us the largest employer of MTs in the U.S. In addition, we contract with approximately 340 MTs in Canada and have access to offshore MTs through our relationship with several subcontractors. The size of our MT pool allows us to quickly and efficiently provide our customers with the labor resources necessary to implement comprehensive, scalable solutions.

14

Historically, we conducted our operations through, and a small percentage of our MTs worked out of, local service centers utilizing a number of disparate technology platforms to convert dictation to transcribed reports. In connection with the reorganization and centralization of our service and support organization, we phased out these local service centers and completed the migration of our disparate non-customer hosted medical transcription platforms onto our DEP. As a result, all of our MTs now work from home, largely using computer hardware and telecommunications equipment that we provide, to access dictation files and transcribe reports utilizing the internet.

Recruitment

Working with a team of professional recruiters, we utilize multiple avenues to ensure that qualified MTs apply for employment opportunities with us. Regular advertisements and articles appear in trade journals and industry publications, and banner ads are placed on industry and trade websites. In addition, we participate in prominent local and national trade shows and partner with premier medical transcription schools to offer top graduates an opportunity for employment with us.

Training

Substantially all of our new MTs participate in an on-line training program that includes both a company orientation, as well as training on our DEP. In addition, those MTs that service specialized areas of the medical transcription market involving the direct transcription into customer-hosted medical transcription platforms receive platform-specific training. Prior to performing medical transcription services for our customers, each MT must demonstrate proficiency in the use of our DEP or the applicable customer-hosted platform.

With the emergence of speech recognition technology to produce draft transcribed reports, our MTs have an opportunity to become medical editors (MEs). Before they are eligible to edit the draft transcribed reports, MEs must be formally certified on DocQspeech™, our DEP’s speech recognition module.

Quality Assurance

Our automated technology routes reports with flagged quality issues to our quality assurance personnel for review prior to delivery to the customer. In addition, formal quality reviews are performed on a regular basis at both the individual MT and customer levels. We provide continuous feedback to the MT staff to increase learning and improve up-front quality through QASAR™, our quality assurance scoring and reporting tool. Our MTs participate in an on-going, comprehensive training program in order to maintain a high level of quality assurance.

Intellectual Property

We rely on a combination of copyright, trademark, trade secret, and other intellectual property laws, nondisclosure agreements, license agreements, contractual provisions and other measures to protect our proprietary rights. We have a number of registered trademarks, including MedQuist®, and have current registrations of several domain names, including “www.medquist.com.”

Regulatory Matters

The provision of healthcare services, including the practice of medicine, is heavily regulated by federal and state statutes and regulations, by rules and regulations of state medical boards and state and local boards of health, and by codes established by various medical associations. Although many such laws, regulations and requirements do not directly apply to our operations, future laws and regulations related to the provision of medical transcription services may require us to restructure our operations in order to comply with such requirements.

15

Although many healthcare laws and regulations do not directly apply to our operations, our hospital and other healthcare provider customers must comply with a variety of requirements related to the handling of patient information, including HIPAA, which protects the privacy, confidentiality and security of protected health information (PHI). As part of the operation of our business, our customers provide us with certain PHI. The provisions of HIPAA require our customers to have agreements in place with us under which we are required to appropriately safeguard the PHI we create or receive on their behalf.

We have structured our operations to comply with these contractual requirements. We have designated a Chief Compliance Officer, as well as a HIPAA compliance officer, and have implemented appropriate safeguards related to the access, use and/or disclosure of PHI to help ensure the privacy and security of PHI consistent with our contractual requirements. We also are required to train personnel regarding HIPAA requirements. If we, or any of our MTs, are unable to maintain the privacy, confidentiality and security of the PHI that is entrusted to us, our customers could be subject to civil and criminal fines and sanctions and we could be found to have breached our contracts with our customers. Additionally, because all HIPAA standards are subject to interpretation and change, we cannot predict the future impact of HIPAA on our business and operations. Although it is not possible to anticipate the total effect of these regulations, we have made and continue to make investments in systems to support customer operations that are regulated by HIPAA.

Further, our customers are required to comply with HIPAA security regulations that require them to implement certain administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of electronic protected health information (EPHI). We are required by contract to protect the security of EPHI that we create, receive, maintain or transmit for our customers consistent with these regulations, including implementing administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity and availability of such EPHI. To comply with our contractual obligations, we may have to reorganize processes and invest in new technologies.

To the extent that the laws of the states in which we or our customers operate are more restrictive than HIPAA, we may have to incur additional costs to maintain compliance with any such applicable requirements.

Employees

As of May 31, 2007, we employed 8,196 people. Of these, 6,304 were MTs. Of our total work force, 4,520 were full-time employees and 3,676 were part-time employees.

Available Information

All periodic and current reports, registration statements, and other filings that we are required to file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act), are available free of charge from the SEC’s website (www.sec.gov) or public reference room at 100 F Street N.E., Washington, DC 20549 (1-800-SEC-0330) or through our website at www.medquist.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. Copies of these reports (excluding exhibits) may also be obtained free of charge, upon written request to: Investor Relations, MedQuist Inc., 1000 Bishops Gate Boulevard, Suite 300, Mount Laurel, New Jersey 08054-4632. Please note, however, that with the exception of this report, we have not filed periodic reports with the SEC for periods after September 30, 2003, and we have previously cautioned that certain financial information contained in previously filed reports should not be relied upon. The website addresses included in this report are for identification purposes. The information contained therein or connected thereto are not intended to be incorporated into this report.

16

Availability of Board of Director Committee Charters

Our board of directors has adopted a charter for its Audit Committee. A copy of this charter is available free of charge through our website at www.medquist.com or to any shareholder who requests it in writing by contacting our Chief Compliance Officer at 1000 Bishops Gate Boulevard, Suite 300, Mount Laurel, New Jersey 08054-4632.

Item 1A.Risk Factors

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Exchange Act. Our forward-looking statements are subject to risks and uncertainties. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:

·each of the factors discussed in Item 1A, Risk Factors;

·each of the matters discussed in Item 3, Legal Proceedings;

·difficulties relating to our significant management turnover;

·our ability to recruit and retain qualified MTs and other employees;

·the impact of our new services and products on the demand for our existing services and products;

·our current dependence on medical transcription for substantially all of our business;

·our ability to become current in our periodic reporting obligations under the Exchange Act;

·our ability to expand our customer base;

·changes in law, including, without limitation, the impact HIPAA will have on our business;

·infringement on the proprietary rights of others;

·our ability to diversify into other businesses;

·our ability to effectively integrate newly-acquired operations;

·competitive pricing pressures in the medical transcription industry and our response to those pressures; and

·general conditions in the economy and capital markets.

Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of

17

these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

Set forth below are certain important risks and uncertainties that could adversely affect our results of operations or financial condition and cause our actual results to differ materially from those expressed in forward-looking statements made by us. Although we believe that we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our performance or financial condition. More detailed information regarding risk factors described below is contained in other sections of this report.

We are subject to ongoing investigations, which could require us to pay substantial fines or other penalties or subject us to sanctions and we cannot predict the timing of developments in these matters.

Prior to our July 2004 Press Release, we notified the staff of the SEC that our board of directors had commenced the Review. Following that notification, the SEC began an enforcement proceeding, including an investigation into the facts and circumstances giving rise to the Review. We have been and intend to continue cooperating fully with the SEC.

The Review overseen by our board of directors led to a delay in the filings of this and other required reports with the SEC. Because of this delay, we were not in compliance with the listing standards of NASDAQ and NASDAQ delisted our common stock on June 16, 2004.

On December 17, 2004, we received an administrative HIPAA subpoena for documents from the DOJ. The subpoena seeks information primarily about our provision of medical transcription services to governmental and non-governmental customers. The information was requested in connection with a government investigation into whether we and others violated federal laws in connection with the provision of medical transcription services. We have been and intend to continue cooperating fully with the DOJ.

We cannot predict when the investigations will be completed or the timing of any other developments, nor can we predict what the result of these matters may be. See Item 3, Legal Proceedings, for a further discussion of these matters.

Expenses incurred in connection with these matters (which include substantial fees of lawyers and other professional advisors) could adversely affect our financial position, results of operations and liquidity. We may be required to pay material judgments, fines, penalties or settlements or suffer other penalties, each of which could have a material adverse effect on our business and our historical and future results of operations, financial condition and liquidity. The investigations may adversely affect our ability to obtain, and/or increase the cost of obtaining directors’ and officers’ liability insurance and/or other types of insurance, which could have a material adverse affect on our ability to retain our current or obtain new senior management and directors. In addition, the findings and outcomes of the investigations described above may adversely affect the course of the civil litigation pending against us.

Several lawsuits have been filed against us involving our billing practices and other related matters and the outcome of these lawsuits may have a material adverse effect on our business, financial condition, results of operations and cash flows.

A number of lawsuits have been filed against us, as well as certain of our past and current officers and/or directors and current majority shareholder, relating to, among other things, allegations of violations of RICO, the federal securities laws and various common laws based on allegedly unlawful billing and payroll practices. Substantial damages or other monetary remedies assessed against us could have a material adverse effect on our business, financial condition, results of operations and cash flows. See Item 3, Legal Proceedings, for a further discussion of these matters.

18

The continuing time, effort, and expense relating to the allegations raised regarding our past billing practices, our efforts to become current in our SEC filings and the development and implementation of improved internal controls and procedures may have an adverse effect on our business.

Our management team has spent considerable time and effort addressing the challenges of the various government investigations and extensive litigation we face, as well as strengthening our accounting and internal controls and updating and developing accounting policies and procedures, disclosure controls and procedures, and corporate governance policies and procedures. To the extent these matters require continued management attention, our operations may be adversely affected.

Our ability to expand our business and properly service our customers depends on our ability to effectively manage our domestic production capacity, including our ability to recruit, train and retain qualified MTs and maintain high standards of quality service in our operations, which we may not be able to do.

Our success depends, in part, upon our ability to effectively manage our domestic production capacity including our ability to attract and retain qualified MTs who can provide accurate medical transcription. There is currently a shortage of qualified MTs in the U.S. and increased workflow has created industry-wide demand for quality MTs. As a result, competition for skilled MTs is intense. We have active programs in place to attract domestic MTs and to partner with global medical transcription service providers. However, this strategy may not alleviate any issues caused by the shortage. Because medical transcription is a skilled position in which experience is valuable, we require that our MTs have substantial experience or receive substantial training before being hired. Competition may force us to increase the compensation and benefits paid to our MTs, which could reduce our operating margins and profitability. In addition, failure to recruit and retain qualified MTs may have an adverse effect on our ability to service our customers, manage our production capacity and maintain our high standards of quality service. An inability to hire and retain a sufficient number of MTs could have a negative impact on our ability to grow.

We have experienced significant management turnover.

In the past few years, we have experienced a significant turnover in our senior management. This lack of management continuity, and the resulting lack of long-term history with us, could result in operational and administrative inefficiencies and added costs, could adversely impact our stock price and our customer relationships and may make recruiting for future management positions more difficult. In addition, we must successfully integrate any new management personnel that we hire within our organization in order to achieve our operating objectives, and changes in other key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business. Accordingly, our future financial performance will depend to a significant extent on our ability to motivate and retain key management personnel.

We are not current in our periodic reporting obligations under the Exchange Act.

We are not current in our periodic reporting obligations under the Exchange Act. We have not filed our Form 10-K for the year ended December 31, 2006, as well as our Forms 10-Q for the first three quarters of 2006 and the first quarter of 2007. In addition, we have not filed all periodic reports required during 2004 and 2005. Some of the consequences of our failure to meet our reporting obligations under the Exchange Act include:

·our ineligibility to use certain short-form registration statements under the Securities Act, such as Forms S-3 and S-8, until we have filed all reports required under the Exchange Act for a continuous period of 12 months; and

19

·the unavailability of Rule 144 for holders of outstanding restricted or control securities until we have filed all reports required under the Exchange Act for a continuous period of 12 months.

In addition, our failure to meet our reporting obligations under the Exchange Act is a violation of Section 13(a) of the Exchange Act and could subject us to SEC investigations and enforcement actions, which could result in injunctions and monetary penalties. There is no assurance whether or when we will become current in our reporting obligations under the Exchange Act.

We have had material weaknesses in our internal control over financial reporting and cannot assure that additional material weaknesses will not be identified in the future. Our failure to effectively maintain our internal control over financial reporting could result in material misstatements in our financial statements which could require us to restate financial statements, cause investors to lose confidence in our reported financial information or have a negative affect on our stock price.

We have determined that we had deficiencies in our internal control over financial reporting as of December 31, 2003, December 31, 2004 and December 31, 2005 that constituted “material weaknesses” as defined by the Public Company Accounting Oversight Board’s Audit Standard No. 2. These material weaknesses are identified in Item 9A, Controls and Procedures.

We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our financial statements. These misstatements could result in a restatement of financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

We have not complied with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) for our fiscal year ended December 31, 2004.

As directed by Section 404 of SOX (Section 404), the SEC adopted rules requiring certain public companies, including us, to include management’s assessment of the effectiveness of a public company’s internal control over financial reporting in its annual report on Form 10-K. In addition, the independent registered public accounting firms auditing certain public companies’ financial statements, including ours, must attest to and report on managements’ assessment of, and the effective operation of, such companies internal control over financial reporting. Although these requirements were first applicable to our annual report on Form 10-K for our fiscal year ending December 31, 2004, we were unable to comply with these requirements for such fiscal year. The time and resources expended in connection with the Review and Management’s Billing Assessment, including the resulting changes in senior management, prevented us from completing our internal documentation, assessment and evaluation of our internal control over financial reporting, all of which are required to be undertaken to comply with Section 404. This correspondingly prevented our independent registered public accounting firm from commencing the required audit of our internal control over financial reporting as of December 31, 2004.

Since we determined that it would not be possible to complete either management’s assessment or an audit of our internal control over financial reporting as of December 31, 2004, our independent registered public accounting firm accordingly did not issue an opinion with respect to our internal control over financial reporting as of December 31, 2004. This failure to obtain an opinion does not comply with the SEC’s rules and regulations under Section 404, and this noncompliance, as well as our failure to provide the required Section 404 management assessment, has resulted in us being in violation of Section 13(a) under the Exchange Act. Section 13(a) establishes the general requirement that public companies must file with the SEC, in accordance with such rules and regulations as the SEC may prescribe,

20

such information, documents and reports as the SEC may from time to time require for the protection of investors, including Forms 10-K and 10-Q.

In general, the SEC has broad authority under the Exchange Act to institute investigations, to seek injunctions, to seek monetary penalties, and to otherwise pursue enforcement actions for violations of Section 13(a), including a failure to file a Form 10-K or for the omission of necessary statements in a Form 10-K. Therefore, our failure to comply with the Section 404 requirements in our Form 10-K could potentially subject us to these same investigations, injunctions, penalties and enforcement actions. Section 404 is a relatively new legal requirement, and there is very little precedent establishing the consequences or appropriate response to a public company’s failure to comply with Section 404. Accordingly, although we have discussed our Section 404 noncompliance with the SEC, we cannot predict what action, if any, the SEC may take against us as a result of a failure to be compliant with our obligations under Section 404 or Section 13(a) of the Exchange Act.

Current and prospective investors, customers and employees may react adversely to the allegations concerning our billing practices and our inability to file in a timely manner all of our SEC filings.

Our future success depends in large part on the support of our current and future investors, customers and employees. Our inability to file on a timely basis all of our SEC filings has caused negative publicity about us and has resulted in the delisting of our common stock from NASDAQ. In addition, the allegations concerning our past billing practices and our inability to file all of our SEC filings in a timely manner could cause current and future customers to lose confidence in us, which may affect their willingness to seek services from us. Finally, employees and prospective employees may factor in these considerations relating to our stability and the value of any equity incentives in their decision-making regarding employment opportunities.

We compete with many others in the market for medical transcription services which may result in lower prices for our services, reduced operating margins and an inability to maintain or increase our market share and expand our service offerings.

We compete with other outsourced medical transcription service companies in a very fragmented market that includes national, regional and local service providers, as well as service providers with global operations. These companies offer services that are similar to ours and compete with us for both customers and qualified MTs. We also compete with the in-house medical transcription staffs of our customers. While we attempt to compete on the basis of fast, predictable turnaround times and consistently high accuracy and document quality, all offered at a reasonable price, there can be no assurance that we will be able to compete effectively against our competitors or timely implement new products and services. Many of our competitors attempt to differentiate themselves by offering lower priced alternatives to our outsourced medical transcription services. Increased competition and cost pressures affecting the healthcare markets in general may result in lower prices for our services, reduced operating margins and the inability to maintain or increase our market share.

As technology evolves, including the continued refinement of speech recognition technology, health information technology providers may provide services that replace, or reduce the need for medical transcription. Furthermore, companies that provide services complementary to medical transcription, such as electronic medical records, coding and billing, may expand the services they provide to include medical transcription. Current and potential competitors may have financial, technical and marketing resources that are greater than ours. As a result, competitors may be able to respond more quickly to evolving technological developments or changing customer needs or devote greater resources to the development, promotion or sale of their technology or services than we can. In addition, competition may increase due to consolidation of medical transcription companies. As a result of such consolidation, there may be a greater number of providers of medical transcription services with sufficient scale, service mix and financial

21

resources to compete with us to provide services to larger, more complex organizations. Current and potential competitors may establish cooperative relationships with third parties to increase their ability to attract our current and potential customers.

We may pursue future acquisitions which could require us to incur debt and assume contingent liabilities and expenses, and we may not be able to effectively integrate newly acquired operations.

A significant portion of our historical growth has occurred through acquisitions, and we may pursue acquisitions in the future. Acquisitions involve risks that the businesses acquired will not perform in accordance with expectations and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect. We cannot guarantee that if we decide to pursue future acquisitions we will be able to identify attractive acquisition opportunities or successfully integrate any business or asset we acquire into our existing business. Future acquisitions may involve high costs and may result in the incurrence of debt, contingent liabilities, interest expense, amortization expense or periodic impairment charges related to goodwill and other intangible assets as well as significant charges relating to integration costs.

We cannot guarantee that we will be able to successfully integrate any business we acquire into our existing business or that any acquired businesses will be profitable. The successful integration of new businesses depends on our ability to manage these new businesses effectively. The successful integration of future acquisitions may also require substantial attention from our senior management and the management of the acquired business, which could decrease the time that they have to service and attract customers. In addition, because we may actively pursue a number of opportunities simultaneously, we may encounter unforeseen expenses, complications and delays, including difficulties in employing sufficient staff and maintaining operational and management oversight. Our inability to complete the integration of any new businesses we pursue in a timely and orderly manner could reduce our revenues and negatively impact our results of operations.

Our success will depend on our ability to adopt and integrate new technology into our DEP, to improve our production capabilities and expand the breadth of our service offerings, as well as our ability to address any unanticipated problems with our information technology systems, which we may not be able to do quickly, or at all.

Our ability to remain competitive in the medical transcription industry is based, in part, on our ability to develop and utilize technology in the services that we provide to our customers to improve our production capabilities and expand the breadth of our service offerings. Because our services are an integral part of our customers operations, we also must quickly address any unanticipated problems with our information technology systems that could cause an interruption in service or a decrease in our responsiveness to customers. Furthermore, as our customers advance technologically, we must be able to effectively integrate our DEP with their systems and provide advanced data collection technology. We plan to develop and integrate new technologies into our current service structure to give our customers high-quality and cost-effective services. We also may need to develop technologies to provide service systems comparable to those of our competitors as they develop new technology. If we are unable to effectively develop and integrate new technologies, we may not be able to expand our technology and service offerings or compete effectively with our competitors. In addition, if the cost of developing and integrating new technologies is high, we may not realize our expected return on investment.

22

Due to the critical nature of medical transcription to our customers’ operations, potential customers may be reluctant to outsource or change service providers as a result of the cost and potential for disruption in services, which may inhibit our ability to attract new customers.

The up-front cost involved in changing medical transcription service providers or converting from an in-house medical transcription department to an outsourced provider may be significant. Many customers may prefer to remain with their current service provider or keep their medical transcription in-house rather than incur these costs or experience a potential disruption in services as a result of changing service providers. Also, as the maintenance of accurate medical records is a critical element of a healthcare provider’s ability to deliver quality care to its patients and to receive proper and timely reimbursement for the services it renders, potential customers may be reluctant to outsource such an important function.

If our intellectual property is not adequately protected, we may lose our market share to our competitors and be unable to operate our business profitably.

Our success depends, in part, upon our proprietary technology and our ability to license and renew third-party intellectual property. We regard some of the software underlying our services, including our DEP and interfaces, as proprietary, and we rely primarily on a combination of trade secrets, copyright and trademark laws, confidentiality agreements, contractual provisions and technical measures to protect our proprietary rights. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our intellectual property or obtain and use information that we regard as proprietary. There can be no assurance that our proprietary information will not be independently developed by competitors. There can be no assurance that the intellectual property we own or license will provide competitive advantages or will not be challenged or circumvented by our competitors.

We are dependent on third party speech recognition software incorporated in certain of our technologies, and impaired relations with such third party or the inability to enhance such third party software over time could harm our business.

We license speech recognition software from PSRS that we incorporate into our DEP and SpeechQ for Radiology. This license may not continue to be available on commercially reasonable terms or at all. Some of this technology would be difficult to replace. The loss of this license could significantly impact our business until we identify, license and integrate, or develop equivalent software. If we are required to enter into license agreements with third parties for replacement technology, we could face higher royalty payments and our products may lose certain attributes or features.

In addition, our products may be impacted if errors occur in the licensed software that we utilize. It may be more difficult for us to correct any defects in third-party software because the software is not within our control. Accordingly, our business could be adversely affected in the event of any errors in this software. There can be no assurance that these third-parties will continue to invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software.

If we fail to comply with extensive contractual obligations and applicable laws and government regulations governing the handling of patient identifiable medical information, including those imposed on our customers in connection with HIPAA, we could suffer material losses or be negatively impacted as a result of our customers being subject to material penalties and liabilities.

As part of the operation of our business, our customers provide us with certain patient identifiable medical information. Although many regulatory and governmental requirements do not directly apply to our operations, our hospital and other healthcare provider customers must comply with a variety of requirements related to the handling of patient information, including laws and regulations protecting the privacy, confidentiality and security of PHI. Most of our customers are covered entities and, in many of our relationships, we function as a business associate. In particular, the provisions of HIPAA require our

23

customers to have business associate agreements in place with a medical transcription company such as ours under which we are required to appropriately safeguard the PHI we create or receive on their behalf. Further, our customers are required to comply with HIPAA security regulations that require them to implement certain administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of EPHI. We are required by contract to protect the security of EPHI that we create, receive, maintain or transmit for our customers consistent with these regulations. To comply with our contractual obligations, we may have to reorganize processes and invest in new technologies. We also are required to train personnel regarding HIPAA requirements. If we, or any of our MTs or subcontractors, are unable to maintain the privacy, confidentiality and security of the PHI that is entrusted to us, our customers could be subject to civil and criminal fines and sanctions and we could be found to have breached our contracts with our customers. Additionally, because all HIPAA standards are subject to interpretation and change, we cannot predict the future impact of HIPAA on our business and operations. In the event that the standards and compliance requirements under HIPAA change or are interpreted in a way that requires any material change to the way in which we do business, our business, financial condition and results of operations could be adversely affected. To the extent that the laws of the states in which we or our customers operate are more restrictive than HIPAA, we may have to incur additional costs to maintain compliance with any such applicable requirements.

Proposed legislation and possible negative publicity may impede our ability to utilize global service capabilities.

Bills introduced in recent sessions of the U.S. Congress have sought to restrict the transmission of personally identifiable information regarding a U.S. resident to any foreign affiliate, subcontractor or unaffiliated third party without adequate privacy protections or without providing notice of the transmission and an opportunity to opt out. Some of the proposals would require patient consent. If enacted, these proposed laws would impose liability on healthcare businesses arising from the improper sharing or other misuse of personally identifiable information. Some proposals would create a private civil cause of action that would allow an injured party to recover damages sustained as a result of a violation of the new law. A number of states have also considered, or are in the process of considering, prohibitions or limitations on the disclosure of medical or other information to individuals or entities located outside of the U.S. Further, as a result of this negative publicity and concerns regarding the possible misuse of personally identifiable information, some of our customers have contractually limited our ability to use MTs located outside of the U.S.

Philips owns approximately 69.6% of our outstanding common stock, and its interests may conflict with the interests of our other shareholders.

Philips beneficially owns approximately 69.6% of our outstanding common stock. Philips has the ability to cause the election of all of the members of our board of directors, the appointment of new management and the approval of any action requiring the approval of our shareholders, including amendments to our certificate of incorporation and mergers or sales of substantially all of our assets. The directors elected by Philips will be able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and declare dividends. Our interests and the interests of our affiliates, including Philips, could conflict with the interest of our other shareholders. For a further description of these relationships, see Item 13, Certain Relationships and Related Transactions.

24

Our stock trades on the over-the-counter “Pink Sheets” market, which may decrease the liquidity of our common stock.

On June 16, 2004, NASDAQ delisted our common stock because we were not able to file our periodic reports with the SEC in a timely manner. Since that time, our common stock has been traded on the over-the-counter “Pink Sheets” market (Pink Sheets) under the symbol “MEDQ.PK.” Broker-dealers often decline to trade in Pink Sheet stocks given that the market for such securities is often limited, the stocks are more volatile, and the risks to investors are greater. Consequently, selling our common stock can be difficult because smaller quantities of shares can be bought and sold, transactions can be delayed and security analyst and news media coverage of us may be reduced. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our common stock as well as lower trading volume. Although we intend to apply for the listing of our common stock on a national securities exchange once we are current in our periodic reporting obligations with the SEC, we cannot assure you that we will be successful in those efforts. We do not expect to become current in our periodic reporting obligations until the second half of 2007, and we will not be able to apply for listing on a stock exchange until this time. Investors should realize that they may be unable to sell shares of our common stock that they purchase. Accordingly, investors must be able to bear the financial risk of losing their entire investment in our common stock.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

We currently do not own any real property. We currently lease approximately 39,000 square feet of office space in Mount Laurel, New Jersey, which houses our corporate headquarters. This lease expires in 2014; however, we have the option to terminate the lease in 2011, subject to certain conditions, including the payment of a termination fee. We also lease approximately 38,000 square feet of office space in Norcross, Georgia for our sales, administrative and research and development functions. This lease expires in 2008. We lease approximately 20,000 square feet for our call center in Marietta, Georgia and this lease expires on December 31, 2007. We expect to attempt to renew this lease at commercially reasonable terms. The call center provides technical support and expertise to our customers and MTs. Other than our corporate headquarters, the Norcross facility, and our call center, none of our other properties are material to our business. We believe that our corporate headquarters and other properties are suitable for their respective uses and are, in general, adequate for our present needs.

Item 3.Legal Proceedings

Investigations Commenced by the SEC and the Department of Justice

The SEC is currently conducting a formal investigation of us relating to our billing practices. We have been fully cooperating with the SEC since it opened its investigation in 2004. We have complied and are continuing to comply with information and document requests by the SEC.

We also received an administrative HIPAA subpoena for documents from the DOJ on December 17, 2004. The subpoena sought information primarily about our provision of medical transcription services to governmental and non-governmental customers. The information was requested in connection with a government investigation into whether we and others violated federal laws in connection with the provision of medical transcription services. We have complied and are continuing to comply with information and document requests by the DOJ.

25

Developments relating to the SEC and/or DOJ investigations will continue to create various risks and uncertainties that could materially and adversely affect our business and our historical and future financial condition, results of operations, and cash flows.

Shareholder Securities Litigation

A shareholder putative class action lawsuit was filed against us in the United States District Court District of New Jersey on November 8, 2004. The action, entitled William Steiner v. MedQuist, Inc., et al., Case No. 1:04-cv-05487-FLW (Shareholder Putative Action), was filed against us and certain of our former officers, purportedly on behalf of an alleged class of all persons who purchased our common stock during the period from April 23, 2002 through November 2, 2004, inclusive (Securities Class Period). The complaint specifically alleged that defendants violated federal securities laws by purportedly issuing a series of false and misleading statements to the market throughout the Securities Class Period, which statements allegedly had the effect of artificially inflating the market price of our securities. The complaint asserts claims under Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5, thereunder. Named as defendants, in addition to us, were our former President and Chief Executive Officer and our former Executive Vice President and Chief Financial Officer.

On August 16, 2005, a First Amended Complaint in the Shareholder Putative Class Action was filed against us in the United States District Court District of New Jersey. The First Amended Complaint named additional defendants, including certain current and former directors, certain of our former officers, our former and current external auditors and Philips. Like the original complaint, the First Amended Complaint asserted claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder. The Securities Class Period of the original complaint was expanded 20 months and now includes the period from March 29, 2000 through June 14, 2004. Pursuant to an October 17, 2005 consent order approved by the Court, lead plaintiff Greater Pennsylvania Pension Fund filed a Second Amended Complaint on November 15, 2005. The Second Amended Complaint dropped Philips as a defendant, but alleges the same claims and the same purported class period as the First Amended Complaint. Plaintiffs seek unspecified damages. Pursuant to the provisions of the Private Securities Litigation Reform Act, discovery in the action was stayed pending the filing and resolution of the defendants’ motions to dismiss, which were filed on January 17, 2006, and which were fully briefed as of June 16, 2006. On September 29, 2006, the Court denied our motions to dismiss and the motion to dismiss of the individual defendants. In the same order, the Court granted the motion to dismiss filed by our former and current external auditors. On November 3, 2006, we filed our Answer denying the material allegations contained in the Second Amended Complaint. On March 23, 2007, we entered into a memorandum of understanding with the lead plaintiff in which we agreed to pay $7.75 million to settle all claims, throughout the class period, against all defendants in the action. On May 16, 2007, the Court issued an Order Preliminarily Approving Settlement and Providing for Notice. The Court scheduled a final approval hearing for August 15, 2007. The settlement is subject to final documentation by the parties and conditioned on final approval by the Court after notice to the putative class. Neither we nor any of the individuals named in the action has admitted or will admit to liability or any wrongdoing in connection with the proposed settlement.

Customer Litigation

A putative class action was filed in the United States District Court for the Central District of California. The action, entitled South Broward Hospital District, d/b/a Memorial Regional Hospital, et al. v. MedQuist, Inc. et al., Case No. CV-04-7520-TJH-VBKx, was filed on September 9, 2004 against us and certain of our present and former officials, purportedly on behalf of an alleged class of non-Federal governmental hospitals and medical centers that the complaint claims were wrongfully and fraudulently overcharged for transcription services by defendants based primarily on our use of the AAMT line billing unit of measure. The complaint charges fraud, violation of the California Business and Professions Code,

26

unjust enrichment, conversion, negligent supervision and violation of RICO. Plaintiffs seek damages in an unspecified amount, plus costs and interest, an injunction against alleged continuing illegal activities, an accounting, punitive damages and attorneys’ fees. Named as defendants, in addition to us, were one of our senior vice presidents, our former executive vice president of marketing and new business development, our former executive vice president and chief legal officer, and our former executive vice president and chief financial officer.

On December 20, 2004, we and the individual defendants filed motions to dismiss for lack of personal jurisdiction and improper venue, or in the alternative, to transfer the putative action to the United States District Court for the District of New Jersey. On February 2, 2005, plaintiffs filed a Second Amended Complaint both adding and deleting named plaintiffs in an attempt to keep the putative action in the United States District Court for the Central District of California. On March 30, 2005, the United States District Court for the Central District of California issued an order transferring the putative action to the United States District Court District of New Jersey.

On August 1, 2005, we and the individual defendants filed their respective Answers denying the material allegations contained in the Second Amended Complaint. On August 31, 2005, we and the individual defendants filed motions to dismiss the Second Amended Complaint for failure to state a claim and a motion to dismiss in favor of arbitration, or in the alternative, to stay pending arbitration. On December 12, 2005, the plaintiffs filed an Amendment to the Second Amended Complaint. On December 13, 2005, the Court issued an order requiring plaintiffs to file a Third Amended Complaint.

Plaintiffs filed the Third Amended Complaint on January 4, 2006. The Third Amended Complaint expands the claims made beyond issues arising from contracts based on AAMT line billing and beyond customers billed based on an AAMT line, alleging that we engaged in a scheme to inflate customers’ invoices without regard to the terms of individual contracts and even in the absence of any written contract. The Third Amended Complaint also limits plaintiffs’ claim for fraud in the inducement of the agreement to arbitrate to the three named plaintiffs whose contracts contain an arbitration provision and a subclass of similarly situated customers. On January 20, 2006 we and the individual defendants filed motions to dismiss the Third Amended Complaint for failure to state a claim and a motion to compel arbitration of all claims by the arbitration subclass and to stay the case in its entirety pending arbitration. On March 8, 2006 the Court held a hearing on these motions, and took the matter under submission. On March 30, 2007, the Court issued an order holding that plaintiffs could not make out a claim that we had violated the federal RICO statute, thus eliminating any claim against us for treble damages. The Court also found that plaintiffs could not make out a claim that we had engaged in any unfair or deceptive acts or practices in violation of state law, or that we had made any negligent misrepresentations to plaintiffs. In its ruling, the Court, without reaching a decision of whether any wrongdoing had occurred, allowed plaintiffs to proceed with their claims against us for fraud, unjust enrichment and an accounting. In its order, the Court denied our motion to compel arbitration regarding those customers whose contracts contained an agreement to arbitrate. We have appealed that decision to the Third Circuit Court of Appeals, and we moved the Court to stay the matter pending that appeal. The Court heard oral argument on our motion to stay on May 30, 2007 and took the motion under submission. On June 8, 2007, plaintiffs filed a Motion for Summary Action with the Third Circuit Court of Appeals, asking the Court to dismiss plaintiffs who did not enter into arbitration agreements with MedQuist from the appeal. MedQuist filed its opposition to this motion on June 25, 2007. We believe that the claims asserted have no merit and intend to defend the case vigorously.

27

Medical Transcriptionist Litigation

Hoffmann Putative Class Action

A putative class action lawsuit was filed against us in the United States District Court for the Northern District of Georgia. The action, entitled Brigitte Hoffmann, et al. v. MedQuist, Inc., et al., Case No. 1:04-CV-3452, was filed with the Court on November 29, 2004 against us and certain current and former officials, purportedly on behalf of an alleged class of current and former employees and statutory workers, who are or were compensated on a “per line” basis for medical transcription services (Class Members) from January 1, 1998 to the time of the filing of the complaint (Class Period). The complaint specifically alleged that defendants systematically and wrongfully underpaid the Class Members during the Class Period. The complaint asserted the following causes of action: fraud, breach of contract, demand for accounting, quantum meruit, unjust enrichment, conversion, negligence, negligent supervision, and RICO violations. Plaintiffs sought unspecified compensatory damages, punitive damages, disgorgement and restitution. On December 1, 2005, the Hoffmann matter was transferred to the United States District Court for the District of New Jersey. On January 12, 2006, the Court ordered this case consolidated with the Myers Putative Class Action discussed below. As set forth below, we believe that the claims asserted in the consolidated Myers Putative Class Action have no merit and intend to vigorously defend that action.

Force Putative Class Action

A putative class action entitled Force v. MedQuist Inc. and MedQuist Transcriptions, Ltd., Case No. 05-cv-2608-WSD, was filed against us on October 11, 2005, in the United States District Court for the Northern District of Georgia. The action was brought on behalf of a putative class of current and former employees who claim they are or were compensated on a “per line” basis for medical transcription services but were allegedly underpaid due to the actions of defendants. The named plaintiff asserted claims for breach of contract, quantum meruit, unjust enrichment, and for an accounting. Upon stipulation and consent of the parties, on February 17, 2006, the Force matter was ordered transferred to the United States District Court for the District of New Jersey. Subsequently, on April 4, 2006, the parties entered into a stipulation and consent order whereby the Force matter was consolidated with the Myers Putative Class Action discussed below, and the consolidated amended complaint filed in the Myers action on January 31, 2006 was deemed to supersede the original complaint filed in the Force matter. As set forth below, we believe that the claims asserted in the consolidated Myers Putative Class Action have no merit and intend to vigorously defend that action.

Myers Putative Class Action

A putative class action entitled, Myers, et al. v. MedQuist Inc. and MedQuist Transcriptions, Ltd., Case No. 05-cv-4608 (JBS), was filed against us on September 22, 2005 in the United States District Court for the District of New Jersey. The action was brought on behalf of a putative class of our employee and independent contractor transcriptionists who claim that they contracted with us to be paid on a 65 character line, but were allegedly underpaid due to intentional miscounting of the number of characters and lines transcribed. The named plaintiffs asserted claims for breach of contract, unjust enrichment, and request an accounting.

The allegations contained in the Myers case are substantially similar to those contained in the Hoffmann and Force putative class actions and, as detailed above, the three actions have now been consolidated. A consolidated amended complaint was filed on January 31, 2006. In the consolidated amended complaint, the named plaintiffs assert claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and demand an accounting. On March 7, 2006 we filed a motion to dismiss all claims in the consolidated amended complaint. The motion was fully briefed and

28

argued on August 7, 2006. The Court denied the motion on December 21, 2006, and the case has proceeded to the discovery stage. We believe that the claims asserted in the consolidated actions have no merit and intend to vigorously defend the suit.

Shareholder Derivative Litigation

On October 4, 2005, we announced the dismissal with prejudice of a shareholder derivative action filed in United States District Court for the District of New Jersey. The suit, Rhoda Kanter (Plaintiff) v. Hans M. Barella et al. (Defendants), was filed on November 12, 2004 against Philips and ten current and former members of our board of directors. We were named as a nominal defendant.

In a ruling dated September 21, 2005, the Court found plaintiff’s allegations that our Board members breached their fiduciary duties to us to be insufficient. The plaintiff had alleged that for a period from 2001 through 2004, the Defendants violated their fiduciary duties by permitting artificial inflation of billing figures; failing to adequately ensure accurate and lawful billing practices; and failing to accurately report our true financial condition in its published financial statements. To the contrary, the Court concluded: “Far from alleging facts supporting a substantial likelihood of liability, the plaintiff here has painted a picture of a board of directors that acted responsively given the circumstances . . . .” On October 3, 2005, plaintiffs filed a motion for reconsideration of the Court’s order dismissing the action with prejudice. On November 16, 2005, the Court denied plaintiffs’ motion for reconsideration. On December 13, 2005, plaintiffs filed a Notice of Appeal with the United States Court of Appeals for the Third Circuit. Plaintiff’s appeal has been fully briefed since May 2006, and the Court of Appeals heard oral argument on the appeal on March 1, 2007. Plaintiff’s appeal was denied by the Court of Appeals on May 25, 2007.

Item 4.Submission Of Matters To A Vote Of Security Holders

None.

29

PART II

Item 5.Market For Registrant’s Common Equity, Related Shareholder Matters And Issuer Purchases Of Equity Securities

Our common stock was previously listed on the NASDAQ National Market under the symbol “MEDQ”. On June 16, 2004, our common stock was delisted from the NASDAQ National Market. Since June 16, 2004, our common stock has been traded on the Pink Sheets under the symbol “MEDQ.PK.” Set forth below are the high and low intraday sale prices for our common stock for each quarter in 2002, 2003 and 2004 (through June 15, 2004, which was the date our common stock was delisted from the NASDAQ National Market) and the high and low closing bid quotations (as reported by the Pink Sheets LLC) for each quarter of 2004 (June 16, 2004 through the end of the fourth quarter), 2005, 2006 and the first and second quarter of 2007. The below bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily reflect actual transactions.

	Market	High		Low
2002
First Quarter	NASDAQ	$	31.55	$	27.24
Second Quarter	NASDAQ	$	30.00	$	25.00
Third Quarter	NASDAQ	$	28.70	$	22.21
Fourth Quarter	NASDAQ	$	23.65	$	14.14
2003
First Quarter	NASDAQ	$	20.89	$	14.69
Second Quarter	NASDAQ	$	20.62	$	16.92
Third Quarter	NASDAQ	$	20.55	$	18.80
Fourth Quarter	NASDAQ	$	20.07	$	14.50
2004
First Quarter	NASDAQ	$	18.30	$	14.71
4/1/04 – 6/15/04	NASDAQ	$	16.70	$	9.70
6/16/04 – 6/30/04	Pink Sheets	$	11.92	$	11.40
Third Quarter	Pink Sheets	$	13.75	$	10.25
Fourth Quarter	Pink Sheets	$	15.00	$	11.60
2005
First Quarter	Pink Sheets	$	14.40	$	12.05
Second Quarter	Pink Sheets	$	13.30	$	12.90
Third Quarter	Pink Sheets	$	13.25	$	12.25
Fourth Quarter	Pink Sheets	$	12.35	$	10.16
2006
First Quarter	Pink Sheets	$	13.94	$	12.14
Second Quarter	Pink Sheets	$	14.90	$	11.89
Third Quarter	Pink Sheets	$	12.45	$	9.05
Fourth Quarter	Pink Sheets	$	13.65	$	11.45
2007
First Quarter	Pink Sheets	$	13.55	$	9.90
Second Quarter	Pink Sheets	$	9.95	$	7.80

Holders

As of May 31, 2007, the closing price of our common stock was $8.40 and we had 206 shareholders of record.

30

Dividends

We have never declared or paid any cash dividends on our common stock. We expect to retain any future earnings to fund operations and the continued development of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

Item 6.Selected Financial Data

The selected financial data presented below was derived from our audited consolidated financial statements and related notes thereto included elsewhere in this report except for the summarized consolidated balance sheet data as of December 31, 2002 and 2001 and the summarized consolidated results of operations data for the years ended December 31, 2002 and 2001, which are unaudited. This unaudited financial information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, contains all adjustments necessary to fairly present the information set forth below.

	For the years ended December 31,
	2005			2004			2003			2002(1)				2001(1)
	($ in thousands, except per share data)
										Restated Unaudited				Restated Unaudited
Statement of Operations Data:
Net Revenues	$	353,005	(2)(3)	$	451,894	(3)	$	484,762	(3)		$	483,948	(3)		$	403,259	(3)
Net Income (loss)	$	(111,632	)(4)(5)	$	3,742	(4)(6)	$	35,567			$	42,244			$	42,413
Net Income (loss) per share—Basic	$	(2.98	)	$	0.10		$	0.96			$	1.14			$	1.15
Net Income (loss) per share—Diluted	$	(2.98	)	$	0.10		$	0.94			$	1.12			$	1.12
Balance Sheet Data:
Total assets	$	493,191		$	540,934		$	526,468			$	477,242			$	403,878
Total non-current liabilities	$	18,534		$	4,196		$	3,339			$	1,481			$	2,275

(1)Amounts in 2002 and 2001 have been restated to reflect the impact of the Quantification adjustment, which is described under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business. In addition, amounts in 2002 have been restated to reflect a change in the estimated useful lives of intangible assets related to an acquisition which occurred in July 2002.

(2)Reflects a reduction in net revenues related to the Accommodation Analysis of $57,678 in 2005 which is described under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business.

(3)Reflects a reduction in net revenues related to the Quantification of $133, $931, $2,142, $2,219 and $2,048 in 2005, 2004, 2003, 2002 and 2001, respectively, which is described under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business.

(4)In 2005 and 2004, we recorded a charge of $34,127 and $10,253, respectively, for costs associated with the Review and Management’s Billing Assessment, which is described under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business, as well as legal fees and other costs associated with the matters described in Item 3, Legal Proceedings.

(5)In the fourth quarter of 2005, a valuation allowance of $56,808 was established against various domestic deferred tax assets. After consideration of all evidence, both positive and negative, management concluded that it was more likely than not that a majority of the domestic deferred tax assets would not be realized.

(6)In 2004, we recorded a goodwill impairment charge of $14,603 related to our former Solutions reporting unit. Due to reduced sales and margins, expected operating profits and cash flows were forecast lower than previously anticipated.

31

Item 7.Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes as well as our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions set forth in the “Cautionary Statement Regarding Forward-Looking Statements,” which can be found in Item 1A, Risk Factors. Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” section and elsewhere in this report.

Executive Overview

We are the leading provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S., and we employ approximately 6,300 skilled MTs, making us the largest employer of MTs in the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development to leverage Philips’ technologies and professional expertise to deliver industry-leading solutions for our customers.

We were incorporated in New Jersey in 1984 and reorganized in 1987 as a group of outpatient healthcare businesses affiliated with a non-profit healthcare provider. In May 1994, we acquired our first medical transcription business. Through the date of this report, we have acquired over 50 companies. By the end of 1995, we had divested all of our non-medical transcription businesses.

In July 2000, Philips completed a tender offer in which it acquired approximately 60% of our outstanding common stock. Subsequent to the completion of the tender offer, Philips increased its ownership position and currently owns approximately 69.6% of our common stock.

In 2001, we acquired Speech Machines, a company based in the United Kingdom, whose technology has since developed into our DEP. In 2002, we began the process of migrating our customers to our DEP from our many disparate transcription platforms. Following the July 2004 Press Release, we accelerated this process and completed it in the first quarter of 2007. As a result of this process, we encountered customer attrition.

In July 2002, we acquired Lanier Healthcare, LLC (Lanier), which derived revenue largely from the sale and implementation of voice-capture and document management solutions and maintenance service of these products. In conjunction with the Lanier acquisition, we began operating in two segments: a Services segment, through which we provided our customers with medical transcription and coding reimbursement services, and a Solutions segment, which was comprised of the operations of Lanier. Effective January 1, 2005, we changed the way we review our financial performance and thus began operating in one segment for financial reporting purposes.

This report is our first periodic report covering periods after September 30, 2003. The period of time since our last periodic report has been marked by dramatic changes for both us and our industry. During this period, a significant portion of our time and attention has been devoted to matters outside the ordinary course of business such as replacing key members of our executive management team, cooperating with federal investigators, responding to ongoing legal proceedings, and completing the Review and Management’s Billing Assessment. A summary of significant events that have occurred during

32

this period is more fully described elsewhere in this report under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business and Item 3, Legal Proceedings.

Since the filing of our last periodic report, we have also devoted significant resources to improving our fundamental business systems, including our corporate governance functions, financial controls, and operational infrastructure. As our organization was focusing on all of these issues, we also pursued major operational initiatives to consolidate technology platforms, communicate actively with our customers, and restructure our business.

During this same period there have been several significant developments in the medical transcription industry, including:

·A shortage of qualified domestic MTs has increased the demand for outsourced medical transcription services by U.S.-based healthcare providers. This demand for qualified MTs, as well as budgetary pressures experienced by healthcare providers, has also caused many more U.S.-based healthcare providers to evaluate and consider the use of offshore medical transcription labor.

·Several low cost providers have emerged and aggressively moved into our market offering medical transcription services (performed both domestically and offshore) at prices significantly below our traditional price point. While we believe the market for outsourced medical transcription continues to expand, the growing acceptance by customers of the use of offshore labor has further increased the competitive environment in the medical transcription industry.

·There have been technological advances by us and our competitors which have reduced the length of time required to transcribe medical reports, in turn reducing the overall cost of medical transcription services.

Although we remain the leading provider of medical transcription services in the U.S., we experience competition from many local, regional and national businesses. The medical transcription industry is highly fragmented, and we believe there are hundreds of companies in the U.S. performing medical transcription services. There are currently two large service providers, one of which is us and the other of which is Spheris Inc., several mid-sized service providers with annual revenues of between $15 million and $100 million and hundreds of smaller, independent businesses with annual revenues of less than $15 million.

We believe the outsourced portion of the medical transcription services market will increase due in part to healthcare providers seeking the following:

·reduction in overhead and other administrative costs;

·improvement in the quality and speed of delivery of transcribed medical reports;

·access to leading technologies, such as speech recognition technology, without any development and investment risk;

·expertise in implementing and managing a medical transcription system tailored to the providers’ specific requirements;

·access to skilled MTs; and

·support for compliance with governmental and industry mandated privacy and security requirements and EHR initiatives.

Although we believe the outsourced portion of the medical transcription services market continues to grow, in order to benefit from this trend we must overcome the following challenges: reverse recent market share decline, increase profit margins and continue to benefit from technological advances.

33

We evaluate our performance based upon the following factors:

·revenues;

·operating income;

·net income per share;

·net cash provided by operating activities; and

·days sales outstanding.

Our goal is to execute our strategy to yield growth in net revenues, operating income and net income per share.

Critical Accounting Policies, Judgments and Estimates

MD&A is based in part upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. (GAAP). We believe there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates.

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, expenses and related disclosure of contingent liabilities. On an ongoing basis, we evaluate these estimates and judgments. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable at such time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may ultimately differ from these estimates. Management has discussed with the Audit Committee of our board of directors the development, selection and disclosure of our critical accounting estimates and the application of these estimates. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters, and (2) there would be a material effect on the financial statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate. While there are a number of accounting policies, methods and estimates affecting our financial statements as addressed in Note 3 to our consolidated financial statements, areas that are particularly significant and critical include:

Valuation of Long-Lived and Other Intangible Assets and Goodwill.   In connection with acquisitions, we allocate portions of the purchase price to tangible and intangible assets, consisting of acquired technologies, customer relationships, tradenames and non-compete agreements based on independent appraisals received after each acquisition, with the remainder allocated to goodwill. We assess the realizability of goodwill and intangible assets with indefinite useful lives at least annually, or sooner if events or changes in circumstances indicate that the carrying amount may not be recoverable. After our annual impairment test was completed in the second quarter of 2005, we changed our annual goodwill impairment test date to the fourth quarter of each fiscal year. This change in the testing date for impairment was designed to align the testing with our normal business process for updating our strategic plan and forecasts which are finalized in the fourth quarter of each fiscal year. We have determined that the reporting unit level is our sole operating segment. The test for goodwill is a two-step process:

·First, we compare the carrying amount of our reporting unit, which is the book value of our entire company, to the fair value of our reporting unit. If the carrying amount of our reporting unit exceeds its fair value, we have to perform the second step of the process. If not, no further testing is needed.

34

·If the second part of the analysis is required, we allocate the fair value of our reporting unit to all assets and liabilities as if the reporting unit had been acquired in a business combination at the date of the impairment test. We then compare the implied fair value of our reporting unit’s goodwill to its carrying amount. If the carrying amount of our goodwill exceeds its fair value, we recognize an impairment loss in an amount equal to that excess.

We review our long-lived assets, including amortizable intangibles, for impairment when events indicate that their carrying amount may not be recoverable. When we determine that one or more impairment indicators are present for an asset, we compare the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate. If the carrying amount of the asset is greater than the net future undiscounted cash flows that the asset is expected to generate, we compare the fair value to the book value of the asset. If the fair value is less than the book value, we recognize an impairment loss. The impairment loss is the excess of the carrying amount of the asset over its fair value.

Some of the events that we consider as impairment indicators for our long-lived assets, including goodwill, are:

·our net book value compared to our market capitalization;

·significant adverse economic and industry trends;

·significant decrease in the market value of the asset;

·the extent that we use an asset or changes in the manner that we use it; and

·significant changes to the asset since we acquired it.

During 2004, we recorded an impairment loss of $14.6 million on goodwill and we recorded an impairment loss of $0.5 million related to a tradename that was no longer going to be utilized. A decrease in the value of our business could trigger additional impairment charges related to goodwill and/or amortizable intangible assets.

Deferred income taxes.   As of December 31, 2005 we had net deferred income tax assets of $47.7 million prior to consideration of a valuation allowance. These deferred tax assets result primarily from expenses that have been recorded for book purposes but not yet recorded on tax returns, and from net operating loss carry forwards. Deferred income taxes represent future tax benefits that we expect to be able to apply against future taxable income or that will result in future net operating losses that can be carried back to generate refunds of taxes paid in earlier years. Our ability to utilize the deferred income tax assets is dependent upon our ability to generate future taxable income. To the extent that we believe it is more likely than not that a deferred tax asset will not be utilized we record a valuation allowance against that asset. In making that determination we consider all positive and negative evidence and give stronger consideration to evidence that is objective in nature. Based on this analysis we determined that a valuation allowance would be provided against a majority of the domestic deferred tax assets in the fourth quarter of 2005. No valuation allowance was established against deferred tax assets to the extent the asset could be benefited through the use of a net operating loss carry back or to the extent we have deferred tax liabilities as of the balance sheet date that will generate taxable income within the same period in which a deferred tax asset will reverse.

In the fourth quarter of 2004 a valuation allowance was established against a portion of our deferred tax assets related to foreign operations based on projected future earnings of that enterprise.

We will continue to evaluate the realizability of our deferred tax assets in future periods and adjust the valuation allowance accordingly.

Commitments and contingencies.   Other than $7.75 million for the matter referenced under the caption “Shareholder Securities Litigation” contained in Item 3, Legal Proceedings, as of December 31,

35

2005 we have not accrued for potential future settlements or adverse outcomes since no matters were probable and no amount within the range of possible losses represented a better amount within the range. We have insurance coverage which may reimburse us for defense and other costs incurred by us. We consider whether the insurance payments to us are probable. As of December 31, 2005 we have not recorded any receivable relating to potential insurance recovery of costs.

Revenue recognition.   For the year ended December 31, 2005, approximately 80% of our net revenues are derived from our medical transcription technology and services. Medical transcription and medical records coding services revenues are recognized when there is persuasive evidence that an arrangement exists, the price is fixed or determinable, services are rendered and collectibility is reasonably assured. These services are based on contracted rates. Medical transcription and medical records coding services revenues are net of estimates for customer credits. Historically, our estimates have been adequate. If actual results are higher or lower than our estimates, we would have to adjust our estimates and financial statements in future periods.

The remainder of our revenues is derived from the sale and implementation of voice-capture and document management products including software and implementation, training and maintenance services of these products. The application of the accounting guidelines requires judgment regarding the timing of the recognition of these revenues including: (i) whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence of fair value exists for those elements; (ii) whether customizations or modifications of the software are significant; and (iii) whether collection of the software fee is probable. Additionally, for certain contracts we recognize revenues using the percentage-of-completion method. Percentage-of-completion accounting involves estimates of the total costs to be incurred over the duration of the project.

Accounts receivable and allowance for doubtful accounts.   Accounts receivable are recorded at the invoiced amount and do not bear interest. The carrying value of accounts receivable approximates fair value. The allowance for doubtful accounts is our best estimate of estimated losses resulting from the inability of our customers to make required payments and for service level credits offered to our customers. This allowance is used to state trade receivables at estimated net realizable value.

We estimate uncollectible amounts based upon our historical write-off experience, current customer receivable balances, aging of customer receivable balances, the customer’s financial condition and current economic conditions. Historically, these estimates have been adequate to cover our accounts receivable exposure.

We enter into medical transcription service arrangements which contain provisions for performance penalties in the event certain service levels, primarily related to turnaround time on transcribed reports, are not achieved. We reduce revenues for any performance penalties incurred and have included an estimate of such credits in our allowance for uncollectible accounts.

Product revenues for sales to end-user customers and resellers is recognized upon passage of title if all other revenue recognition criteria have been met. End-user customers generally do not have a right of return. We provide certain of our resellers and distributors with limited rights of return of our products. We reduce revenues for rights to return our product based upon our historical experience and have included an estimate of such credits in our allowance for uncollectible accounts.

Accounting for consideration given to a customer.   As a result of the Review, which is described under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business, we offered significant financial accommodations to certain of our customers. Cash consideration given by a vendor to a customer is presumed to be a reduction of the selling price of the vendor’s services. Therefore, $57.7 million of the authorized accommodation amount for our customers was characterized as a reduction of revenues in 2005.

36

Restatement of Previously Issued Consolidated Financial Information

As a result of the Quantification discussed in Item 1, Business, under the caption “Significant Events Since Our Last Regular Periodic Report,” we have restated our previously issued consolidated financial statements included in our Forms 10-Q filed during 2003 and the financial information previously issued in our consolidated financial statements included in our Form 10-K for the fiscal year ended December 31, 2002. The restatement adjustments resulted in a cumulative net reduction to shareholders’ equity of $4.6 million, $5.1 million, and $5.5 million for the first three quarters of 2003, respectively, and a reduction in net income of $0.5 million for each of the first three quarters of 2003. We have also restated the January 1, 2003 opening retained earnings balance to recognize corrected items that relate to prior periods. The reduction to our December 31, 2002 previously reported shareholders’ equity amounted to $4.3 million due primarily to the effect of Quantification adjustments in periods prior to 2003 and the change in useful lives of certain intangibles.

Basis of Presentation

Sources of Revenues

We derive revenues primarily from the provision of medical transcription services to health systems, hospitals and large group medical practices. Our customers are generally charged a rate times the volume of work that we transcribe. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, maintenance services, digital dictation, speech recognition, electronic signature and medical coding technology and services. Our medical transcription revenues have been declining over the past several years, as prices have declined and some customers have switched to alternative vendors. Our technology products and services revenues also declined over the past several years, as many products reached end of life and new products have not replaced the lost revenue. We have not filed periodic reports with the SEC disclosing financial information for periods after December 31, 2005, and our historical financial information is not a predictor of financial performance subsequent to 2005 or future financial performance.

As a result of the Quantification described under the caption “Significant Events Since Our Last Regular Periodic Report” contained in Item 1, Business, net revenues were reduced by $9.8 million as follows (in thousands):

	Years ended December 31,
	2005		2004		2003		2002			2001			2000			1999
							(unaudited)			(unaudited)			(unaudited)			(unaudited)
First Quarter	$	105	$	345	$	615		$	511		$	472		$	432		$	30
Second Quarter	28		245		575			549			534			443			65
Third Quarter	—		201		515			574			565			441			167
Fourth Quarter	—		140		437			585			477			446			338
	$	133	$	931	$	2,142		$	2,219		$	2,048		$	1,762		$	600

In addition, as a result of the Accommodation Analysis described under the caption “Significant Events Since Our Last Regular Periodic Report” contained in Item 1, Business, net revenues for the year ended December 31, 2005 were reduced by the following amounts (in thousands):

First Quarter	$	—
Second Quarter	1,549
Third Quarter	4,190
Fourth Quarter	51,939
	$	57,678

37

Net revenues for customers in the U.S. were $348.4 million, $447.0 million and $480.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. Net revenues for customers outside the U.S. were $4.6 million, $4.9 million and $4.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

Cost of Revenues

Cost of revenues includes compensation of MTs, other payroll costs (primarily related to operational and production management, quality assurance, quality control and customer and field service personnel), telecommunication and facility costs. Cost of revenues also includes the direct cost of technology products sold to customers. MT payroll cost is directly related to medical transcription revenues and is based on lines transcribed or edited multiplied by a specific rate. Therefore, MT costs trend directly in line with revenues. Fixed costs have been reduced though not at the same pace as net revenues.

Selling, General and Administrative (SG&A)

Our SG&A expenses include marketing and sales costs, accounting costs, information technology costs, professional fees, corporate facility costs, corporate payroll and benefits expenses.

Research and Development (R&D)

Our R&D expenses consist primarily of personnel and related costs, including salaries and employee benefits for software engineers and consulting fees paid to independent consultants who provide software engineering services to us. To date, our R&D efforts have been devoted to new products and services offerings and increases in features and functionality of our existing products and services.

Depreciation and amortization

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets which range from three to seven years for furniture, equipment and software, and the lesser of the lease term or estimated useful life for leasehold improvements. Intangible assets are being amortized using the straight-line method over their estimated useful lives which range from three to 20 years.

Cost of investigation and legal proceedings

Cost of investigation and legal proceedings include legal fees incurred in connection with the governmental investigations and proceedings and the defense of civil litigation matters described in Item 3, Legal Proceedings, litigation support consulting, and consulting services provided by Nightingale and Associates, LLC (Nightingale) in connection with the Review and Management’s Billing Assessment described under the caption “Significant Events Since Our Last Regular Periodic Report” in Item 1, Business.

Shareholder Securities Litigation Settlement

Shareholder Securities Litigation Settlement represents the $7.75 million payment to be made pursuant to the memorandum of understanding described under the caption “Shareholder Securities Litigation” in Item 3, Legal Proceedings.

38

Consolidated Results of Operations

The following tables set forth our consolidated results of operations for the periods indicated below:

Comparison of Years Ended December 31, 2005 and 2004

	Years ended December 31,
	2005						2004
	Amount			% of Net Revenues			Amount		% of Net Revenues			$ Change			% Change
	($ in thousands)
Net revenues	$	353,005			100.0	%	$	451,894		100.0	%	$	(98,589	)		(21.9	)%
Operating costs and expenses:
Cost of revenues	315,399				89.3	%	336,232			74.4	%	(20,833		)		(6.2	)%
Selling, general and administrative	54,558				15.5	%	46,436			10.3	%	8,122				17.5	%
Research and development	9,784				2.8	%	10,539			2.3	%	(755		)		(7.2	)%
Depreciation	17,099				4.8	%	18,521			4.1	%	(1,422		)		(7.7	)%
Amortization of intangible assets	8,193				2.3	%	8,888			2.0	%	(695		)		(7.8	)%
Cost of investigation and legal proceedings	34,127				9.7	%	10,253			2.3	%	23,874				232.8	%
Shareholder securities litigation settlement	7,750				2.2	%	—			—		7,750				—
Impairment charges	148				0.0	%	15,078			3.3	%	(14,930		)		(99.0	)%
Restructuring charges	3,257				0.9	%	—			—		3,257				—
Total operating costs and expenses	450,315				127.6	%	445,947			98.7	%	4,368				1.0	%
Operating (loss) income	(97,310		)		(27.6	)%	5,947			1.3	%	(103,257		)		—
Equity in income of affiliated company	500				0.1	%	188			0.0	%	312				166.0	%
Interest income, net	5,940				1.7	%	1,840			0.4	%	4,100				222.8	%
(Loss) income before income taxes	(90,870		)		(25.7	)%	7,975			1.8	%	(98,845		)		—
Income tax provision	20,762				5.9	%	4,233			0.9	%	16,529				—
Net (loss) income	$	(111,632	)		(31.6	)%	$	3,742		0.8	%	$	(115,374	)		—

Net revenues

Net revenues decreased $98.9 million, or 21.9%, to $353.0 million for the year ended December 31, 2005 compared with $451.9 million for the year ended December 31, 2004. This decrease was attributable primarily to:

·reduced service revenues of $95.2 million resulting primarily from a charge of $57.7 million in 2005 related to the customer accommodation program, as well as $37.5 million due to lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our requirement that our medical transcription customers migrate from disparate and older technology platforms to our DEP; and

·reduced sales and implementations of our technology products of $3.7 million resulting primarily from the impact of certain technology products reaching the end of their life cycle.

39

Pricing pressures have continued as our existing and potential customers continue to seek out opportunities to reduce costs, particularly through the utilization of offshore labor.

Cost of revenues

Cost of revenues decreased $20.8 million, or 6.2%, to $315.4 million for the year ended December 31, 2005 compared with $336.2 million for the year ended December 31, 2004. This decrease was attributable primarily to:

·reduced medical transcription payroll costs of $9.8 million related directly to the decrease in our medical transcription revenues;

·reduced other costs of $6.5 million resulting primarily from decreased non-MT headcount and facility closures;

·decreased telecommunications costs of $5.2 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·reduced technology product costs of $3.3 million related directly to the reduction in our technology product revenues; and

·offset by a write-off in 2005 of $3.9 million resulting from an inventory of fixed assets performed during 2005.

As a percentage of net revenues, cost of revenues increased to 89.3% in 2005 from 74.4% in 2004 as a result primarily of customer accommodation charges, lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $8.1 million, or 17.5%, to $54.6 million for the year ended December 31, 2005 compared with $46.4 million for the year ended December 31, 2004. This increase was attributable primarily to increases in: compensation expense of $2.1 million for enhancements to our corporate staff, bad debt expense of $1.1 million, sales and marketing expense of $1.1 million, audit and consulting fees of $1.0 million related to the audit of our financial statements and the audit of our internal control over financial reporting, human resources consultants of $0.9 million, legal costs of $0.8 million and all other SG&A costs of $2.2 million. These increases were offset by a decrease in costs of $1.1 million associated with the separation and replacement of certain members of our management team. SG&A expenses as a percentage of net revenues for 2005 were 15.5% compared with 10.3% for 2004.

Research & development

R&D expenses decreased $0.8 million, or 7.2%, to $9.8 million for the year ended December 31, 2005 compared with $10.5 million for the year ended December 31, 2004. This decrease was due primarily to lower professional fees for outside consultants of $0.7 million as well as certain costs capitalized into intangible assets for software development of $0.6 million. These reductions were partially offset by an increase in compensation expense of $0.5 million. R&D expenses, as a percentage of net revenues were 2.8% for the year ended December 31, 2005 compared with 2.3% for the year ended December 31, 2004.

Depreciation

Depreciation expense decreased $1.4 million, or 7.7%, to $17.1 million for the year ended December 31, 2005 compared with $18.5 million for the year ended December 31, 2004. This decrease was due primarily to assets reaching the end of their depreciation period in 2005 combined with a $5.2 million decrease in asset additions in 2005 compared with 2004. Depreciation expense as a percentage of net

40

revenues were 4.8% for the year ended December 31, 2005 compared with 4.1% for the year ended December 31, 2004.

Amortization

Amortization of intangible assets decreased $0.7 million, or 7.8%, to $8.2 million for the year ended December 31, 2005 compared with $8.9 million for the year ended December 31, 2004. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of intangible assets as a percentage of net revenues was 2.3% for the year ended December 31, 2005 compared with 2.0% for the same period in 2004.

Cost of investigation and legal proceedings

Costs and expenses associated with the Review and Management’s Billing Assessment are being reported as cost of investigation and legal proceedings. These costs and expenses increased $23.9 million, or 232.8%, to $34.1 million for the year ended December 31, 2005 compared with $10.3 million for the year ended December 31, 2004. These increased costs and expenses include legal fees incurred in connection with the governmental investigations and proceedings, the defense of civil litigation matters and litigation support consulting of $21.8 million, $1.8 million for consulting services provided by Nightingale related to Management’s Billing Assessment and $0.3 million for other miscellaneous costs.

Shareholder securities litigation settlement

Shareholder securities litigation settlement represents the $7.75 million payment to be made pursuant to the memorandum of understanding described under the caption “Shareholder Securities Litigation” in Item 3, Legal Proceedings.

Impairment charges

An impairment charge of $15.1 million was recorded for the year ended December 31, 2004 due to:

·a goodwill impairment charge of $14.6 million recorded in December 2004 related to the Solutions reporting unit resulting from reduced sales and margins and lower than forecasted operating profits and cashflows; and

·an intangible impairment charge of $0.5 million relating to a tradename that was no longer going to be utilized.

Restructuring charges

During the latter half of 2005, we implemented a restructuring plan based on a centralized national service delivery model to streamline our organizational and operational structure to better service our customers. The 2005 restructuring plan involved the consolidation of operating facilities and a related reduction in workforce. During 2005, we recorded a restructuring charge of $3.3 million comprised of $2.3 million for non-cancelable leases related to the closure of offices, $0.2 million for the write-off of property and equipment and $0.7 million for severance obligations.

As of December 31, 2005, $2.1 million of restructuring charges remained to be paid in future periods. Approximately $3.4 million of additional charges were incurred in 2006. The payment stream for non-cancelable leases will extend into 2009.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $4.1 million, or 222.8 %, to $5.9 million for the year ended December 31, 2005 compared with $1.8 million for the year ended December 31, 2004. This increase was attributable primarily to higher weighted average interest rates earned in 2005 (3.1%) compared to the 2004 period (1%), as well as an $11.2 million higher average cash balance in 2005 compared with 2004.

41

Income tax (benefit) provision

The effective income tax benefit rate for the year ended December 31, 2005 was (22.8%) compared with an effective income tax expense rate of 53.1% for the year ended December 31, 2004. The difference in tax rates is primarily attributable to a larger increase in the valuation allowance in 2005 than the increase in 2004 combined with a pre-tax book loss in 2005 and pre-tax book earnings in 2004. The large increase in the valuation allowance in 2005 related to management’s decision to establish a $56.8 million valuation allowance against a majority of our domestic deferred tax assets. After consideration of all evidence, both positive and negative, management concluded that it was more likely than not that a majority of the domestic deferred tax assets would not be realized. In 2004, we recorded a valuation allowance against foreign net operating loss carry forward which increased the effective income tax expense rate.

Comparison of Three Months Ended March 31, 2005 and 2004

	Three months ended March 31,
	2005						2004
	Amount			% of Net Revenues			Amount			% of Net Revenues			$ Change				% Change
	($ in thousands)
Net revenues	$	108,449			100.0	%	$	116,789			100.0	%		$	(8,340	)		(7.1	)%
Operating costs and expenses:
Cost of revenues	82,803				76.4	%	83,829				71.8	%		(1,026		)		(1.2	)%
Selling, general and administrative	13,554				12.5	%	11,322				9.7	%		2,232				19.7	%
Research and development	2,464				2.3	%	2,406				2.1	%		58				2.4	%
Depreciation	4,364				4.0	%	4,532				3.9	%		(168		)		(3.7	)%
Amortization of intangible assets	2,102				1.9	%	2,438				2.1	%		(336		)		(13.8	)%
Cost of investigation and legal proceedings	6,226				5.7	%	743				0.6	%		5,483				738.0	%
Total operating costs and expenses	111,513				102.8	%	105,270				90.1	%		6,243				5.9	%
Operating (loss) income	(3,064		)		(2.8	)%	11,519				9.9	%		(14,583		)		—
Equity in income (loss) of affiliated company	182				0.2	%	(55		)		(0.0	)%		237				—
Interest income, net	1,035				1.0	%	253				0.2	%		782				309.1	%
(Loss) income before income taxes	(1,847		)		(1.7	)%	11,717				10.0	%		(13,564		)		—
Income tax (benefit) provision	(687		)		(0.6	)%	4,478				3.8	%		(5,165		)		—
Net (loss) income	$	(1,160	)		(1.1	)%	$	7,239			6.2	%		$	(8,399	)		—

42

Net revenues

Net revenues decreased $8.3 million, or 7.1%, to $108.4 million for the three months ended March 31, 2005 compared with $116.8 million for the three months ended March 31, 2004. This decrease was attributable primarily to:

·reduced service revenues of $8.0 million resulting primarily from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our requirement that our medical transcription customers migrate from disparate and older technology platforms to our DEP; and

·reduced sales and implementations of our technology products of $0.3 million resulting primarily from the impact of certain technology products reaching the end of their life cycle.

Cost of revenues

Cost of revenues decreased $1.0 million, or 1.2%, to $82.8 million for the three months ended March 31, 2005 compared with $83.8 million for the three months ended March 31, 2004. This decrease was attributable primarily to:

·reduced medical transcription payroll costs of $1.9 million related directly to the decrease in our medical transcription revenues;

·decreased telecommunications costs of $0.9 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet; and

·offset by increased other costs of $1.8 million, relating primarily to increased non-MT compensation and benefits arising as a result of the change in our salary increase policy whereby all employees receive annual raises during this period instead of at varying dates throughout the year.

As a percentage of net revenues, cost of revenues increased to 76.4% for the three months ended March 31, 2005 from 71.8% for the same period in 2004, as a result largely of lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $2.2 million, or 19.7%, to $13.6 million for the three months ended March 31, 2005 compared with $11.3 million for the three months ended March 31, 2004. This increase was attributable primarily to increases in costs of $1.0 million associated with separation and replacement of certain members of our management team and other SG&A expenses of $1.5 million offset by a decrease of audit and consulting fees of $0.3 million related to the audit of our financial statements and the audit of our internal control over financial reporting. SG&A expenses as a percentage of net revenues were 12.5% for the three months ended March 31, 2005 compared with 9.7% for the same period in 2004.

Depreciation

Depreciation expense decreased $0.2 million, or 3.7%, to $4.4 million for the three months ended March 31, 2005 compared with $4.5 million for the three months ended March 31, 2004. This decrease was attributable primarily to assets reaching the end of their depreciable period. Depreciation expense as a percentage of net revenues were 4.0% for the three months ended March 31, 2005 compared with 3.9% for the same period in 2004.

Amortization

Amortization of intangible assets decreased $0.3 million, or 13.8%, to $2.1 million for the three months ended March 31, 2005 compared with $2.4 million for the three months ended March 31, 2004. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of intangible assets as a percentage of net revenues was 1.9% for the three months ended March 31, 2005 compared with 2.1% for the same period in 2004.

43

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings increased $5.5 million, or 738%, to $6.2 million for the three months ended March 31, 2005 compared with $0.7 million for the three months ended March 31, 2004, which was the beginning of the investigation into our billing practices. These costs include increases in legal fees incurred in connection with governmental investigations and proceedings, defense of civil litigation matters and litigation support consulting of $4.5 million, $0.9 million for consulting services provided by Nightingale in connection with Management’s Billing Assessment and $0.1 million for other miscellaneous costs.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $0.8 million, or 309%, to $1.0 million for the three months ended March 31, 2005 compared with $0.3 million for the three months ended March 31, 2004. This increase was attributable to higher weighted average interest rates earned in the 2005 period (2.1%) compared to the 2004 period (0.6%), as well as an $26.2 million higher average cash balance for the three months ended March 31, 2005 compared with the same period in 2004.

Income tax (benefit) provision

The effective income tax benefit rate for the three months ended March 31, 2005 was 37.2% compared with an effective income tax expense rate of 38.2% for the three months ended March 31, 2004.

Comparison of Three Months Ended June 30, 2005 and 2004

	Three months ended June 30,
	2005						2004
	Amount			% of Net Revenues			Amount			% of Net Revenues			$ Change			% Change
	($ in thousands)
Net revenues	$	103,364			100.0	%	$	112,845			100.0	%	$	(9,481	)		(8.4	)%
Operating costs and expenses:
Cost of revenues	80,473				77.9	%	83,752				74.2	%	(3,279		)		(3.9	)%
Selling, general and administrative	12,230				11.8	%	9,555				8.5	%	2,675				28.0	%
Research and development	2,482				2.4	%	2,122				1.9	%	360				17.0	%
Depreciation	4,354				4.2	%	4,601				4.1	%	(247		)		(5.4	)%
Amortization of intangible assets	2,049				2.0	%	2,225				2.0	%	(176		)		(7.9	)%
Cost of investigation and legal proceedings	8,455				8.2	%	3,595				3.2	%	4,860				135.2	%
Total operating costs and expenses	110,043				106.5	%	105,850				93.8	%	4,193				4.0	%
Operating (loss) income	(6,679		)		(6.5	)%	6,995				6.2	%	(13,674		)		—
Equity in income (loss) of affiliated company	85				0.1	%	(59		)		(0.1	)%	144				—
Interest income, net	1,369				1.3	%	284				0.3	%	1,085				382.0	%
(Loss) income before income taxes	(5,225		)		(5.1	)%	7,220				6.4	%	(12,445		)		—
Income tax (benefit) provision	(1,977		)		(1.9	)%	2,759				2.4	%	(4,736		)		—
Net (loss) income	$	(3,248	)		(3.1	)%	$	4,461			4.0	%	$	(7,709	)		—

Net revenues

Net revenues decreased $9.5 million, or 8.4%, to $103.4 million for the three months ended June 30, 2005 compared with $112.8 million for the three months ended June 30, 2004. This decrease was attributable primarily to reduced service revenues of $7.9 million resulting primarily from lower pricing for

44

both new and existing customers and lower medical transcription volume. In addition, we recorded a customer accommodation charge of $1.5 million during this period in 2005.

Cost of revenues

Cost of revenues decreased $3.3 million, or 3.9%, to $80.5 million for the three months ended June 30, 2005 compared with $83.8 million for the three months ended June 30, 2004. This decrease was attributable primarily to:

·decreased telecommunications costs of $1.3 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·reduced medical transcription payroll costs of $1.1 million related directly to the decrease in  our medical transcription revenues; and

·decreased other costs of $0.9 million relating primarily to decreased non-MT compensation and benefits.

As a percentage of net revenues, cost of revenues increased to 77.9% for the three months ended June 30, 2005 from 74.2% for the same period in 2004, as a result primarily of customer accommodation charges, lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $2.7 million, or 28%, to $12.2 million for the three months ended June 30, 2005 compared with $9.6 million for the three months ended June 30, 2004. This increase was due primarily to a $1.1 million bad debt credit recorded for the three months ended June 30, 2004, which did not repeat in 2005, as well as increased compensation costs of $0.5 million associated with the separation and replacement of certain members of our management team including members at the executive level and other SG&A expenses of $1.3 million. These increases were offset by a decrease in costs associated with audit and consulting fees of $0.2 million related to the audit of our financial statements and the audit of our internal control over financial reporting. SG&A expenses as a percentage of net revenues were 11.8% for the three months ended June 30, 2005 compared with 8.5% for the same period in 2004.

Research and development

R&D expenses increased $0.4 million, or 17%, to $2.5 million for the three months ended June 30, 2005 compared with $2.1 million for the three months ended June 30, 2004. This increase was attributable primarily to compensation expense resulting from increased headcount and bonus. R&D expenses as a percentage of net revenues were 2.4% for the three months ended June 30, 2005 compared with 1.9% for the same period in 2004.

Depreciation

Depreciation expense decreased $0.2 million, or 5.4%, to $4.4 million for the three months ended June 30, 2005 compared with $4.6 million for the three months ended June 30, 2004. This decrease was attributable primarily to assets reaching the end of their depreciable period in the 2005 period combined with $1.8 million decrease in asset additions in the 2005 period compared with the 2004 period. Depreciation expense as a percentage of net revenues were 4.2% for the three months ended June 30, 2005 compared to 4.1% for the same period in 2004.

Amortization

Amortization of intangible assets decreased $0.2 million, or 7.9%, to $2.0 million for the three months ended June 30, 2005 compared with $2.2 million for the three months ended June 30, 2004. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of

45

intangible assets as a percentage of net revenues was 2.0% for the three months ended June 30, 2005 compared with 2.0% for the same period in 2004.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings increased $4.9 million, or 135.2%, to $8.5 million for the three months ended June 30, 2005 compared with $3.6 million for the three months ended June 30, 2004. These increased costs include legal fees incurred in connection with the governmental investigations and proceedings, defense of civil litigation matters and litigation support consulting of $3.9 million, $0.8 million for consulting services provided by Nightingale in connection with the Review and Management’s Billing Assessment and $0.1 million for other miscellaneous costs.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $1.1 million, or 382%, to $1.4 million for the three months ended June 30, 2005 compared with $0.3 million for the three months ended June 30, 2004. This increase was attributable to higher interest rates earned in the 2005 period (2.8%) compared to the 2004 period (0.6%), as well as a $16.6 million higher average cash balance for the three months ended June 30, 2005 compared with the same period in 2004.

Income tax (benefit) provision

The effective income tax benefit rate for the three months ended June 30, 2005 was 37.8% compared with an effective income tax expense rate of 38.2% for the three months ended June 30, 2004. This yielded an effective income tax benefit rate for the six months ended June 30, 2005 of 37.7%, compared with an income tax expense rate of 38.2% for the six months ended June 30, 2004.

Comparison of Three Months Ended September 30, 2005 and 2004

	Three months ended September 30,
	2005						2004
	Amount			% of Net Revenues			Amount		% of Net Revenues			$ Change			% Change
	($ in thousands)
Net revenues	$	97,084			100.0	%	$	112,605		100.0	%	$	(15,521	)		(13.8	)%
Operating costs and expenses:
Cost of revenues	75,353				77.6	%	83,650			74.3	%	(8,297		)		(9.9	)%
Selling, general and administrative	13,116				13.5	%	11,834			10.5	%	1,282				10.8	%
Research and development	2,641				2.7	%	3,223			2.9	%	(582		)		(18.1	)%
Depreciation	4,341				4.5	%	4,780			4.2	%	(439		)		(9.2	)%
Amortization of intangible assets	2,031				2.1	%	2,133			1.9	%	(102		)		(4.8	)%
Cost of investigation and legal proceedings	9,293				9.6	%	2,255			2.0	%	7,038				312.1	%
Restructuring charges	630				0.6	%	—			—		630				—
Total operating costs and expenses	107,405				110.6	%	107,875			95.8	%	(470		)		(0.4	)%
Operating (loss) income	(10,321		)		(10.6	)%	4,730			4.2	%	(15,051		)		—
Equity in income of affiliated company	137				0.1	%	81			0.1	%	56				—
Interest income, net	1,623				1.7	%	502			0.4	%	1,121				223.3	%
(Loss) income before income taxes	(8,561		)		(8.8	)%	5,313			4.7	%	(13,874		)		—
Income tax (benefit) provision	(3,839		)		(4.0	)%	1,863			1.7	%	(5,702		)		—
Net (loss) income	$	(4,722	)		(4.9	)%	$	3,450		3.1	%	$	(8,172	)		—

46

Net revenues

Net revenues decreased $15.5 million, or 13.8%, to $97.1 million for the three months ended September 30, 2005 compared with $112.6 million for the three months ended September 30, 2004. This decrease was attributable primarily to:

·reduced service revenues of $13.9 million resulting primarily from $9.7 million of lower pricing to both new and existing customers and lower medical transcription volume, as well as, a charge of $4.2 million related to the customer accommodation program. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our requirement that our medical transcription customers migrate from disparate and older technology platforms to our DEP; and

·reduced sales and implementations of our technology products of $1.7 million resulting primarily from the impact of certain technology products reaching the end of their life cycle.

Cost of revenues

Cost of revenues decreased $8.3 million, or 9.9%, to $75.4 million for the three months ended September 30, 2005 from $83.7 million for the three months ended September 30, 2004. This decrease was attributable primarily to:

·reduced other costs of $4.4 million resulting primarily from decreased non-MT headcount and facility closures;

·reduced medical transcription payroll costs of $2.0 million related directly to the decrease in our medical transcription revenues;

·decreased telecommunications costs of $1.3 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet; and

·reduced technology product costs of $0.6 million related directly to the reduction in technology product revenues.

As a percentage of net revenues, cost of revenues increased to 77.6% for the three months ended September 30, 2005 from 74.3% for the same period in 2004 as a result primarily of customer accommodation charges, lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $1.3 million, or 10.8%, to $13.1 million for the three months ended September 30, 2005 compared with $11.8 million for the three months ended September 30, 2004. This increase was due primarily to increases in bonus expense of $1.3 million, audit and consulting fees of $0.1 million related to the audit of our financial statements and the audit of our internal control over financial reporting and all other miscellaneous SG&A expenses of $0.7 million. These increases were offset by a reduction in compensation costs of $0.8 million associated with the separation and replacement of certain of members of our management team, including members at the executive level. SG&A expenses as a percentage of net revenues were 13.5% compared with 10.5% for the same period in 2004.

47

Research and development

R&D expenses decreased $0.6 million, or 18.1%, to $2.6 million for the three months ended September 30, 2005 compared with $3.2 million for the three months ended September 30, 2004. This decrease was attributable to a reduction of licensing expense of $0.7 million offset by an increase in bonus of $0.1 million. R&D expenses as a percentage of net revenues were 2.7% for the three months ended September 30, 2005 compared with 2.9% for the same period in 2004.

Depreciation

Depreciation expense decreased $0.4 million, or 9.2%, to $4.3 million for the three months ended September 30, 2005 compared with $4.8 million for the three months ended September 30, 2004. This decrease was attributable primarily to assets reaching the end of their depreciable period in the 2005 period combined with a $3.5 million decrease in asset additions in the 2005 period compared with the 2004 period. Depreciation expense as a percentage of net revenues were 4.5 % for the three months ended September 30, 2005 compared with 4.2% for the three months ended September 30, 2004.

Amortization

Amortization of intangible assets decreased $0.1 million, or 4.8%, to $2.0 million for the three months ended September 30, 2005 compared with $2.1 million for the three months ended September 30, 2004. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of intangible assets as a percentage of net revenues was 2.1% for the three months ended September 30, 2005 compared with 1.9% for the same period in 2004.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings increased $7.0 million, or 312%, to $9.3 million for the three months ended September 30, 2005 compared with $2.3 million for the three months ended September 30, 2004. These increased costs include legal fees incurred in connection with governmental investigations and proceedings, the defense of civil litigation matters and litigation support consulting of $6.8 million and $0.2 million for consulting services provided by Nightingale in connection with Management’s Billing Assessment.

Restructuring charges

Restructuring charges of $0.6 million were recorded for the three months ended September 30, 2005. We established a restructuring reserve in the 2005 period of $0.5 million for non-cancelable leases related to the closure of offices and $0.1 million for severance obligations. No restructuring charges were incurred for the three months ended September 30, 2004.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $1.1 million, or 223.3%, to $1.6 million for the three months ended September 30, 2005 compared with $0.5 million for the three months ended September 30, 2004. This increase was attributable primarily to higher weighted average interest rates earned in the 2005 period (3.3%) compared to the 2004 period (1.1% ), as well as $10.8 million higher average cash balance for the three months ended September 30, 2005 compared with the same period in 2004.

48

Income tax (benefit) provision

The effective income tax benefit rate for the three months ended September 30, 2005 was 44.8% compared with an effective income tax expense rate of 35.1% for the three months ended September 30, 2004. In the three months ended September 30, 2005, we released tax reserves which increased the income tax benefit rate. These reserves were released due to the statute of limitation that expired on certain tax returns. This yielded an effective income tax benefit rate for the nine months ended September 30, 2005 of 41.6% compared with an effective income tax expense rate of 37.5% for the nine months ended September 30, 2004.

Comparison of Three Months Ended December 31, 2005 and 2004

	Three months ended December 31,
	2005						2004
	Amount			% of Net Revenues			Amount			% of Net Revenues			$ Change			% Change
	($ in thousands)
Net revenues	$	44,108			100.0	%	$	109,655			100.0	%	$	(65,547	)		(59.8	)%
Operating costs and expenses:
Cost of revenues	76,770				174.1	%	85,001				77.5	%	(8,231		)		(9.7	)%
Selling, general and administrative	15,658				35.5	%	13,725				12.5	%	1,933				14.1	%
Research and development	2,197				5.0	%	2,788				2.5	%	(591		)		(21.2	)%
Depreciation	4,040				9.2	%	4,608				4.2	%	(568		)		(12.3	)%
Amortization of intangible assets	2,011				4.6	%	2,092				1.9	%	(81		)		(3.9	)%
Cost of investigation and legal proceedings	10,153				23.0	%	3,660				3.3	%	6,493				177.4	%
Shareholder securities litigation settlement	7,750				17.6	%	—				—		7,750				—
Impairment charges	148				0.3	%	15,078				13.8	%	(14,930		)		(99.0	)%
Restructuring charges	2,627				6.0	%	—				—		2,627				—
Total operating costs and expenses	121,354				275.1	%	126,952				115.8	%	(5,598		)		(4.4	)%
Operating loss	(77,246		)		(175.1	)%	(17,297		)		(15.8	)%	(59,949		)		—
Equity in income of affiliated company	96				0.2	%	221				0.2	%	(125		)		(56.6	)%
Interest income, net	1,913				4.3	%	801				0.7	%	1,112				138.8	%
Loss before income taxes	(75,237		)		(170.6	)%	(16,275		)		(14.8	)%	(58,962		)		—
Income tax provision (benefit)	27,265				61.8	%	(4,867		)		(4.4	)%	32,132				—
Net loss	$	(102,502	)		(234.4	)%	$	(11,408	)		(10.4	)%	$	(91,094	)		—

Net revenues

Net revenues decreased $65.5 million, or 59.8%, to $44.1 million for the three months ended December 31, 2005 compared with $109.7 million for the three months ended December 31, 2004. This decrease was attributable primarily to:

·reduced service revenues of $63.6 million resulting primarily from a charge of $51.9 million in the 2005 period related to the customer accommodation program, as well as $11.7 million due to lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical

49

transcription providers due to, among other things, price competition and our requirement that our medical transcription customers migrate from disparate and older technology platforms to our DEP; and

·reduced sales and implementations of our technology products of $1.9 million resulting primarily from the impact of certain technology products reaching the end of their life cycle.

Cost of revenues

Cost of revenues decreased $8.2 million, or 9.7%, to $76.8 million for the three months ended December 31, 2005 compared with $85.0 million for the three months ended December 31, 2004. This decrease was attributable primarily to:

·reduced medical transcription payroll costs of $4.7 million related directly to the decrease in our medical transcription revenues;

·reduced technology product cost of $2.0 million related directly to the reduction in technology product revenues;

·reduced fixed costs of $3.0 million including facilities and compensation cost reductions realized;

·decreased telecommunications costs of $1.6 million associated with both the decease in medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·a decrease of $0.7 million in costs related to the write-off of prepaid services which was recorded in the fourth quarter of 2004; and

·offset by a write off of $3.9 million for the three months ended December 31, 2005 resulting from an inventory of fixed assets performed during such period.

As a percentage of net revenues, cost of revenues increased to 174.1% for the three months ended December 31, 2005 from 77.5% for the same period in 2004 as a result primarily of customer accommodation charges, lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $1.9 million, or 14.1%, to $15.7 million for the three months ended December 31, 2005 compared with $13.7 million for the three months ended December 31, 2004. This increase was due primarily to increases in audit and consulting fees of $1.4 million related to the audit of our financial statements and the audit of our internal control over financial reporting, human resource consultant services of $0.9 million, sales commissions of $0.7 million due to a fourth quarter sales incentive program and all other SG&A expenses of $0.9 million. These increases were offset by a reduction in compensation costs of $2.0 million associated with the separation and replacement of certain members of our management team. SG&A expenses as a percentage of net revenues for the three months ended December 31, 2005 were 35.5% compared with 12.5% for the same period in 2004.

Research and development

R&D expenses decreased $0.6 million, or 21.2%, to 2.2 million for the three months ended December 31, 2005 compared with $2.8 million for the three months ended December 31, 2004. This decrease was due primarily to certain costs capitalized into intangible assets for software development of $0.6 million. In addition there was a decrease in professional fees for outside consultants of $0.2 million

50

offset by $0.2 million increase in compensation. R&D expenses as a percentage of net revenues was 5.0% for the three months ended December 31, 2005 as compared with 2.5% for the same period in 2004.

Depreciation

Depreciation expense decreased $0.6 million, or 12.3%, to $4 million for the three months ended December 31, 2005 compared with $4.6 million for the three months ended December 31, 2004. This decrease was attributable primarily to assets reaching the end of their depreciation period in 2005 combined with a $5.2 million decrease in asset additions in 2005 compared with 2004. Depreciation expense as a percentage of net revenues were 9.2% for the three months ended December 31, 2005 compared with 4.2% for the three months ended December 31, 2004.

Amortization

Amortization of intangible assets decreased $0.1 million, or 3.9%, to $2.0 million for the three months ended December 31, 2005 compared with $2.1 million for the three months ended December 31, 2004. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of intangible assets as a percentage of net revenues was 4.6% for the three months ended December 31, 2005 compared with 1.9% for the same period in 2004.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings  increased $6.5 million, or 177.4%, to $10.2 million for the three months ended December 31, 2005 compared with $3.7 million for the three months ended December 31, 2004. These increased costs include legal fees incurred in connection with the governmental investigations and proceedings, the defense of civil litigation matters and litigation support consulting of $6.6 million, offset by a decrease of $0.1 million for consulting services provided by Nightingale in connection with the Review and Management’s Billing Assessment.

Shareholder securities litigation settlement

Shareholder securities litigation settlement represents the $7.75 million payment to be made pursuant to the memorandum of understanding described under the caption “Shareholder Securities Litigation” in Item 3, Legal Proceedings.

Impairment charges

An impairment charge of $15.1 million was recorded for the three months ended December 31, 2004 due to:

·a goodwill impairment charge of $14.6 million recorded in December 2004 related to the Solutions reporting unit resulting from reduced sales and margins and lower than forecasted operating profits and cashflows; and

·an intangible impairment charge of $0.5 million relating to a tradename that was no longer going to be utilized.

Restructuring charges

During the latter half of 2005, we implemented a restructuring plan associated with a centralized national service delivery model to streamline our organizational and operational structure to better service our customers. The 2005 restructuring plan involved the consolidation of operating facilities and the related reduction in workforce. During the three months ended December 31, 2005, we recorded a

51

restructuring charge of $2.6 million comprised of $1.8 million for non-cancelable leases related to the closure of offices, $0.2 million for the write-off of equipment and $0.6 million for severance obligations.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $1.1 million, or 138.8%, to $1.9 million for the three months ended December 31, 2005 compared with $0.8 million for the three months ended December 31, 2004. This increase was attributable primarily to the higher weighted average interest rate earned in the 2005 period (4.1%) compared to the 2004 period (1.7%).

Income tax (benefit) provision

The effective income tax benefit rate for the three months ended December 31, 2005 was (36.2%) compared with an income tax benefit rate of 29.9% for the three months ended December 31, 2004. The effective income tax benefit rate for the twelve months ended December 31, 2005 was (22.9%) compared with an effective income tax expense rate of 53.1% for the twelve months ended December 31, 2004. The difference in tax rates is primarily attributable to a larger increase in the valuation allowance in 2005 than the increase in 2004 combined with a pre-tax book loss in 2005 and pre-tax book earnings in 2004. The large increase in the valuation allowance in 2005 related to management’s decision to establish a $56.8 million valuation allowance against a majority of the domestic deferred tax assets. After consideration of all evidence, both positive and negative, management concluded that it was more likely than not that a majority of the domestic deferred tax assets would not be realized. In the three months ended December 31, 2004, we recorded a valuation allowance against deferred tax assets generated in foreign jurisdictions which reduced the effective tax benefit rate.

Comparison of Years Ended December 31, 2004 and 2003

	Years ended December 31,
	2004					2003
	Amount		% of Net Revenues			Amount			% of Net Revenues			$ Change			% Change
	($ in thousands)
Net revenues	$	451,894		100.0	%	$	484,762			100.0	%	$	(32,868	)		(6.8	)%
Operating costs and expenses:
Cost of revenues	336,232			74.4	%	348,428				71.9	%	(12,196		)		(3.5	)%
Selling, general and administrative	46,436			10.3	%	43,738				9.0	%	2,698				6.2	%
Research and development	10,539			2.3	%	10,228				2.1	%	311				3.0	%
Depreciation	18,521			4.1	%	18,658				3.8	%	(137		)		(0.7	)%
Amortization of intangible assets	8,888			2.0	%	9,754				2.0	%	(866		)		(8.9	)%
Cost of investigation and legal proceedings	10,253			2.3	%	—				—		10,253				—
Impairment charges	15,078			3.3	%	—				—		15,078				—
Restructuring credits	—			—		(277		)		(0.1	)%	277				(100.0	)%
Total operating costs and expenses	445,947			98.7	%	430,529				88.8	%	15,418				3.6	%
Operating income	5,947			1.3	%	54,233				11.2	%	(48,286		)		(89.0	)%
Equity in income (loss) of affiliated company	188			0.0	%	(513		)		(0.1	)%	701				—
Interest income, net	1,840			0.4	%	1,073				0.2	%	767				71.5	%
Income before income taxes	7,975			1.8	%	54,793				11.3	%	(46,818		)		(85.4	)%
Income tax provision	4,233			0.9	%	19,226				4.0	%	(14,993		)		(78.0	)%
Net income	$	3,742		0.8	%	$	35,567			7.3	%	$	(31,825	)		(89.5	)%

52

Net revenues

Net revenues decreased $32.9 million, or 6.8%, to $451.9 million for the year ended December 31, 2004 compared with $484.8 million for the year ended December 31, 2003. This decrease was attributable primarily to:

·reduced service revenues of $24.5 million resulting primarily from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our efforts to migrate our medical transcription customers from disparate and older technology platforms to our DEP;

·reduced sales and implementations of our technology products of $6.5 million resulting primarily from the impact of certain technology products reaching the end of their lifecycle; and

·reduced revenues from our coding services of $1.9 million.

Cost of revenues

Cost of revenues decreased $12.2 million, or 3.5%, to $336.2 million for the year ended December 31, 2004 compared with $348.4 million for the year ended December 31, 2003. The decrease was attributable primarily to:

·reduced medical transcription payroll costs of $6.4 million related directly to the decrease in our medical transcription revenues;

·reduced telecommunications costs of $6.4 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·reduced technology product cost of $2.7 million related directly to the reduction in technology product revenues;

·offset by increased other costs of $1.1 million consisting primarily of increases in non-MT compensation and benefits; and

·a net increase of $2.1 million in costs related to business insurance, service contracts and the write-off of prepaid services which was recorded in the fourth quarter of 2004.

As a percentage of net revenues, cost of revenues increased to 74.4% for the year ended December 31, 2004 from 71.9% for the year ended December 31, 2003 as a result primarily of lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $2.7 million, or 6.2%, to $46.4 million for the year ended December 31, 2004 compared with $43.7 million for the year ended December 31, 2003. The increase was attributable primarily to increases in compensation costs of $3.4 million associated with the separation and replacement of certain members of our management team and audit and consulting fees of $1.2 million related to the audit of our financial statements and the audit of our internal control over financial reporting. These increases were offset by a decrease in all other SG&A expenses of $1.9 million primarily due to decreases in compensation expense and facility charges. SG&A expenses as a percentage of net revenues for the year ended December 31, 2004 were 10.3% compared with 9.0% for the same period in 2003.

53

Research & development

R&D expenses increased $0.3 million, or 3.0%, to $10.5 million for the year ended December 31, 2004 compared with $10.2 million for the year ended December 31, 2003. This increase was due primarily to compensation and benefit expense of $0.9 million due to additions in the workforce offset by a decrease in professional fees for outside consultants and other miscellaneous charges of $0.6 million. R&D expenses as a percentage of net revenues for the year ended December 31, 2004 were 2.3% compared with 2.1% for the same period in 2003.

Amortization

Amortization of intangible assets decreased $0.9 million, or 8.9%, to $8.9 million for the year ended December 31, 2004 compared with $9.8 million for the year ended December 31, 2003. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of intangible assets as a percentage of net revenues was 2.0% for the year ended December 31, 2004 compared with 2.0% for the same period in 2003.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings was $10.3 million for the year ended December 31, 2004. These costs were attributable to legal and other professional fees of $8.9 million and consulting services provided by Nightingale of $1.4 million related to Management’s Billing Assessment. There was no cost of investigation and legal proceedings reported for the year ended December 31, 2003.

Impairment charges

An impairment charge of $15.1 million was recorded for the year ended December 31, 2004 due to:

·a goodwill impairment charge of $14.6 million recorded in December 2004 related to the Solutions reporting unit resulting from reduced sales and margins and lower than forecasted operating profits and cashflows; and

·an intangible impairment charge of $0.5 million relating to a tradename that was no longer going to be utilized.

Restructuring credit

The restructuring credit of $0.3 million for the year ended December 31, 2003 reflects revised downward estimates for reserves related to non-cancelable leases and severance payments for restructuring plans approved in 1998 and 2001. There were no restructuring charges or credits incurred for the three months ended December 31, 2004.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $0.8 million, or 71.5%, to $1.8 million for the year ended December 31, 2004 compared with $1.1 million for the year ended December 31, 2003. This increase was attributable to the higher weighted average interest rate earned in the 2004 period (1%) compared to the 2003 period (0.7%) and a $49.4 million higher average cash balance in the 2004 period compared with the 2003 period.

54

Income tax (benefit) provision

The effective income tax expense rate for year ended December 31, 2004 was 53.1% compared with an effective income tax expense rate of 35.1% for the year ended December 31, 2003. The difference in the effective tax rate is primarily attributable to the establishment of a valuation allowance against deferred tax assets generated in foreign jurisdictions in the 2004 fourth quarter combined with a smaller amount of pre-tax book income in 2004.

Comparison of Three Months Ended March 31, 2004 and 2003

	Three months ended March 31,
	2004						As Restated 2003
	Amount			% of Net Revenues			Amount			% of Net Revenues			$ Change				% Change
	($ in thousands)
Net revenues	$	116,789			100.0	%	$	123,910			100.0	%		$	(7,121	)		(5.7	)%
Operating costs and expenses:
Cost of revenues	83,829				71.8	%	88,362				71.3	%		(4,533		)		(5.1	)%
Selling, general and administrative	11,322				9.7	%	10,451				8.4	%		871				8.3	%
Research and development	2,406				2.1	%	2,238				1.8	%		168				7.5	%
Depreciation	4,532				3.9	%	4,636				3.7	%		(104		)		(2.2	)%
Amortization of intangible assets	2,438				2.1	%	1,993				1.6	%		445				22.3	%
Cost of investigation and legal proceedings	743				0.6	%	—				—			743				—
Total operating costs and expenses	105,270				90.1	%	107,680				86.9	%		(2,410		)		(2.2	)%
Operating income	11,519				9.9	%	16,230				13.1	%		(4,711		)		(29.0	)%
Equity in loss of affiliated company	(55		)		(0.0	)%	(184		)		(0.1	)%		129				(70.1	)%
Interest income, net	253				0.2	%	220				0.2	%		33				15.0	%
Income before income taxes	11,717				10.0	%	16,266				13.1	%		(4,549		)		(28.0	)%
Income tax provision	4,478				3.8	%	6,263				5.1	%		(1,785		)		(28.5	)%
Net income	$	7,239			6.2	%	$	10,003			8.1	%		$	(2,764	)		(27.6	)%

Net revenues

Net revenues decreased $7.1 million, or 5.7%, to $116.8 million for the three months ended March 31, 2004 compared with $123.9 million for the three months ended March 31, 2003. This decrease was attributable primarily to:

·reduced service revenues of $5.4 million resulting primarily from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our efforts to migrate our medical transcription customers from disparate and older technology platforms to our DEP; and

55

·reduced sales and implementations of our technology products of $1.7 million resulting primarily from the impact of certain technology products reaching the end of their life.

Cost of revenues

Cost of revenues decreased $4.5 million, or 5.1%, to $83.8 million for the three months ended March 31, 2004, compared with $88.4 million for the three months ended March 31, 2003. This decrease was primarily attributable to:

·reduced telecommunications costs of $2.2 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·reduced medical transcription payroll costs of $0.7 million related directly to the decrease in our medical transcription revenues; and

·reduction in other costs of $1.7 million.

As a percentage of net revenues, cost of revenues increased to 71.8% for the three months ended March 31, 2004 from 71.3% for the three months ended December 31, 2003 as a result largely of lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $0.9 million, or 8.3%, to $11.3 million for the three months ended March 31, 2004 compared with $10.5 million for the three months ended March 31, 2003. This increase was attributable primarily to increases in costs of $0.3 million associated with recruitment of certain members of our management team, audit and consulting fees of $0.2 million related to the audit of our financial statements and the audit of our internal control over financial reporting and increases in all other SG&A expenses of $0.4 million. SG&A expenses as a percentage of net revenues for the three months ended March 31, 2004 was 9.7% compared to 8.4 % for the three months ended March 31, 2003.

Research and development

R&D expenses increased $0.2 million, or 7.5%, to $2.4 million for the three months ended March 31, 2004 compared with $2.2 million for the three months ended March 31, 2003. This increase was due primarily to compensation and benefit expense of $0.4 million offset by reductions of other miscellaneous expenses of $0.2 million. R&D expenses as a percentage of net revenues for the three months ended March 31, 2004 was 2.1% compared to 1.8% for the three months ended March 31, 2003.

Amortization

Amortization of intangible assets increased $0.4 million, or 22.3%, to $2.4 million for the three months ended March 31, 2004 compared with $2.0 million for the three months ended March 31, 2003. This increase was attributed to additions to intangible assets for an acquisition that was completed at the end of the first quarter of 2003. Amortization of intangible assets as a percentage of net revenues was 2.1% for the three months ended March 31, 2004 compared with 1.6% for the three months ended March 31, 2003.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings was $0.7 million for the three months ended March 31, 2004. These costs were attributable primarily to legal fees incurred in connection with the Review. There

56

were no costs reported as cost of investigation and legal proceedings for the three months ended March 31, 2003.

Income tax (benefit) provision

The effective income tax expense rate for the three months ended March 31, 2004 was 38.2% compared with an effective income tax expense rate of 38.5% for the three months ended March 31, 2003.

Comparison of Three Months Ended June 30, 2004 and 2003

	Three months ended June 30,
	2004						As Restated 2003
	Amount			% of Net Revenues			Amount			% of Net Revenues			$ Change				% Change
	($ in thousands)
Net revenues	$	112,845			100.0	%	$	122,757			100.0	%		$	(9,912	)		(8.1	)%
Operating costs and expenses:
Cost of revenues	83,752				74.2	%	86,107				70.1	%		(2,355		)		(2.7	)%
Selling, general and administrative	9,555				8.5	%	10,922				8.9	%		(1,367		)		(12.5	)%
Research and development	2,122				1.9	%	2,116				1.7	%		6				0.3	%
Depreciation	4,601				4.1	%	4,745				3.9	%		(144		)		(3.0	)%
Amortization of intangible assets	2,225				2.0	%	2,219				1.8	%		6				0.3	%
Cost of investigation and legal proceedings	3,595				3.2	%	—				—			3,595				—
Total operating costs and expenses	105,850				93.8	%	106,109				86.4	%		(259		)		(0.2	)%
Operating income	6,995				6.2	%	16,648				13.6	%		(9,653		)		(58.0	)%
Equity in loss of affiliated company	(59		)		(0.1	)%	(132		)		(0.1	)%		73				(55.3	)%
Interest income, net	284				0.3	%	254				0.2	%		30				11.8	%
Income before income taxes	7,220				6.4	%	16,770				13.7	%		(9,550		)		(56.9	)%
Income tax provision	2,759				2.4	%	6,456				5.3	%		(3,697		)		(57.3	)%
Net income	$	4,461			4.0	%	$	10,314			8.4	%		$	(5,853	)		(56.7	)%

Net revenues

Net revenues decreased $9.9 million, or 8.1%, to $112.8 million for the three months ended June 30, 2004 compared with $122.8 million for the three months ended June 30, 2003. This decrease was the result primarily of:

·reduced service revenues of $7.7 million resulting primarily from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our efforts to migrate our medical transcription customers from disparate and older technology platforms to our DEP; and

57

·reduced sales and implementations of our technology products of $2.3 million resulting primarily from the impact of certain technology products reaching the end of their life cycle.

Cost of revenues

Cost of revenues decreased $2.4 million, or 2.7%, to $83.8 million for the three months ended June 30, 2004 compared with $86.1 million for the three months ended June 30, 2003. This decrease was the result primarily of:

·reduced medical transcription payroll costs of $1.9 million related directly to the decrease in our medical transcription revenues;

·decreased telecommunications costs of $1.6 million associated with both the decease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet; and

·offset by increases in other costs of $1.2 million due primarily to non-MT compensation and benefits expense.

As a percentage of net revenues, cost of revenues increased to 74.2% for the three months ended June 30, 2004 from 70.1% for the three months ended June 30, 2003, as a result primarily of lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses decreased $1.4 million, or 12.5%, to $9.6 million for the three months ended June 30, 2004 compared with $10.9 million for the three months ended June 30, 2003. This decrease was attributable primarily to a $1.1 million bad debt expense recorded in the three months ended June 30, 2004, as well as decreases in all other SG&A expenses of $0.7 million, offset by increases in audit and consulting fees of $0.2 million related to the audit of our financial statements and the audit of our internal control over financial reporting and costs of $0.2 million associated with the recruitment of certain members of our management team. SG&A expenses as a percentage of net revenues were 8.5% for the three months ended June 30, 2004 compared with 8.9% for three months ended June 30, 2003.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings was $3.6 million for the three months ended June 30, 2004. These costs were attributable primarily to legal fees incurred in connection with the Review. There were no costs reported as cost of investigation and legal proceedings for the three months ended June 30, 2003.

Income tax (benefit) provision

The effective income tax expense rate for the three months ended June 30, 2004 was 38.2% compared with an effective income tax expense rate of 38.5% for the three months ended June 30, 2003. This yielded an effective income tax expense rate for the six months ended June 30, 2004 of 38.2% compared with an effective income tax expense rate of 38.5% for the six months ended June 30, 2003.

58

Comparison of Three Months Ended September 30, 2004 and 2003

	Three months ended September 30,
	2004					As Restated 2003
	Amount		% of Net Revenues			Amount			% of Net Revenues			$ Change				% Change
	($ in thousands)
Net revenues	$	112,605		100.0	%	$	120,501			100.0	%		$	(7,896	)		(6.6	)%
Operating costs and expenses:
Cost of revenues	83,650			74.3	%	87,160				72.3	%		(3,510		)		(4.0	)%
Selling, general and administrative	11,834			10.5	%	11,369				9.4	%		465				4.1	%
Research and development	3,223			2.9	%	2,379				2.0	%		844				35.5	%
Depreciation	4,780			4.2	%	4,828				4.0	%		(48		)		(1.0	)%
Amortization of intangible assets	2,133			1.9	%	2,219				1.8	%		(86		)		(3.9	)%
Cost of investigation and legal proceedings	2,255			2.0	%	—				—			2,255				—
Restructuring credits	—			—		(223		)		(0.2	)%		223				(100.0	)%
Total operating costs and expenses	107,875			95.8	%	107,732				89.4	%		143				0.1	%
Operating income	4,730			4.2	%	12,769				10.6	%		(8,039		)		(63.0	)%
Equity in income (loss) of affiliated company	81			0.1	%	(113		)		(0.1	)%		194				—
Interest income, net	502			0.4	%	222				0.2	%		280				126.1	%
Income before income taxes	5,313			4.7	%	12,878				10.7	%		(7,565		)		(58.7	)%
Income tax provision	1,863			1.7	%	4,339				3.6	%		(2,476		)		(57.1	)%
Net income	$	3,450		3.1	%	$	8,539			7.1	%		$	(5,089	)		(59.6	)%

Net revenues

Net revenues decreased $7.9 million, or 6.6%, to $112.6 million for the three months ended September 30, 2004 compared with $120.5 million for the three months ended September 30, 2003. This decrease was attributable primarily to:

·reduced service revenues of $6.0 million resulting primarily from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our efforts to migrate our medical transcription customers from disparate and older technology platforms to our DEP;

·reduced sales and implementations of technology products of $1.1 million resulting primarily from the impact of certain technology products reaching the end of their life cycle; and

·reduced sales of our other product offerings of $0.8 million resulting primarily from our coding products.

59

Cost of revenues

Cost of revenues decreased $3.5 million, or 4.0%, to $83.7 million for the three months ended September 30, 2004 compared with $87.2 million for the three months ended September 30, 2003. This decrease was attributable primarily to:

·reduced medical transcription payroll costs of $2.1 million related directly to the decrease in our medical transcription revenues;

·decreased telecommunications costs of $1.4 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·reduced technology product costs of $1.0 million related directly to the reduction in technology revenues; and

·offset by an increase in other costs of $0.9 million due primarily to non-MT compensation and benefits expense.

As a percentage of net revenues, cost of revenues increased to 74.3% for the three months ended September 30, 2004 from 72.3% for the three months ended September 30, 2003 as a result largely of lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $0.5 million, or 4.1%, to $11.8 million for the three months ended September 30, 2004 compared with $11.4 million for the three months ended September 30, 2003. This increase was attributable primarily to increases in compensation costs of $1.1 million associated with the separation and replacement of certain members of our management team and audit and consulting fees of $0.2 million related to the audit of our financial statements and the audit of our internal control over financial reporting. These increases were offset by a decrease in all other SG&A expenses of $0.8 million. SG&A expenses as a percentage of net revenues for the three months ended September 30, 2004 were 10.5% compared with 9.4% for the same period in 2003.

Research and development

R&D expenses increased $0.8 million, or 35.5%, to $3.2 million for the three months ended September 30, 2004 compared with $2.4 million for the three months ended September 30, 2003. This increase was due primarily to development expenses paid to Philips and increased compensation expense. R&D expenses as a percentage of net revenues were 2.9% for the three months ended September 30, 2004 compared with 2% for the three months ended September 30, 2003.

Amortization

Amortization of intangible assets decreased $0.1 million, or 3.9%, to $2.1 million for the three months ended September 30, 2004 compared with $2.2 million for the three months ended September 30, 2003. This decrease was the result primarily of several assets reaching the end of their amortization period. Amortization of intangible assets as a percentage of net revenues was 1.9% for the three months ended September 30, 2004 compared with 1.8% for the three months ended September 30, 2003.

60

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings was $2.3 million for the three months ended September 30, 2004. These costs were attributable to legal fees of $1.7 million related to the Review and $0.5 million for consulting services provided by Nightingale in connection with Management’s Billing Assessment. There were no costs reported as cost of investigation and legal proceedings for the three months ended September 30, 2003.

Restructuring credits

Restructuring credits were $0.2 million for the three months ended September 30, 2003. These credits relate to revision of estimates of required reserves for non-cancelable leases and severance payments for restructuring plans approved in 1998 and 2001. No similar charges or credits were incurred for the three months ended September 30, 2004.

Interest income, net

Interest income, net reflects interest earned on cash and cash equivalent balances. Interest income, net increased $0.3 million, or 126.1%, to $0.5 million for the three months ended September 30, 2004 compared with $0.2 million for the three months ended September 30, 2003. This increase was attributable to the higher interest rates earned in the 2004 period (1.1%) compared to the 2003 period (0.6%) on a higher average cash balance of $49.4 million in the 2004 period compared with the 2003 period.

Income tax provision

The effective income tax rate for the three months ended September 30, 2004 was 35.1% compared with an effective income tax expense rate of 33.7% for the three months ended September 30, 2003. This resulted primarily from the release of tax reserves in the 2003 third quarter due to the expiration of the statute of limitations. This yielded an effective income tax expense rate for the nine months ended September 30, 2004 of 37.5% compared with an effective income tax expense rate of 37.2% for the nine months ended September 30, 2003.

61

Comparison of Three Months Ended December 31, 2004 and 2003

	Three months ended December 31,
	2004						2003
	Amount			% of Net Revenues			Amount			% of Net Revenues			$ Change			% Change
	($ in thousands)
Net revenues	$	109,655			100.0	%	$	117,594			100.0	%	$	(7,939	)		(6.8	)%
Operating costs and expenses:
Cost of revenues	85,001				77.5	%	86,799				73.8	%	(1,798		)		(2.1	)%
Selling, general and administrative	13,725				12.5	%	10,996				9.4	%	2,729				24.8	%
Research and development	2,788				2.5	%	3,495				3.0	%	(707		)		(20.2	)%
Depreciation	4,608				4.2	%	4,449				3.8	%	159				3.6	%
Amortization of intangible assets	2,092				1.9	%	3,323				2.8	%	(1,231		)		(37.0	)%
Cost of investigation and legal proceedings	3,660				3.3	%	—				—		3,660				—
Impairment charges	15,078				13.8	%	—				—		15,078				—
Restructuring credits	—				—		(54		)		(0.0	)%	54				(100.0	)%
Total operating costs and expenses	126,952				115.8	%	109,008				92.7	%	17,944				16.5	%
Operating (loss) income	(17,297		)		(15.8	)%	8,586				7.3	%	(25,883		)		—
Equity in income (loss) of affiliated company	221				0.2	%	(84		)		(0.1	)%	305				—
Interest income, net	801				0.7	%	377				0.3	%	424				112.5	%
(Loss) income before income taxes	(16,275		)		(14.8	)%	8,879				7.6	%	(25,154		)		—
Income tax (benefit) provision	(4,867		)		(4.4	)%	2,168				1.8	%	(7,035		)		—
Net (loss) income	$	(11,408	)		(10.4	)%	$	6,711			5.7	%	$	(18,119	)		—

Net revenues

Net revenues decreased $7.9 million, or 6.8%, to $109.7 million for the three months ended 2004 compared with $117.6 million for the three months ended December 31, 2003. This decrease was attributable primarily to:

·reduced service revenues of $5.8 million resulting primarily from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers due to, among other things, price competition and our efforts to migrate our medical transcription customers from disparate and older technology platforms to our DEP;

·reduced sales and implementations of our technology products of $1.5 million resulting primarily from the impact of certain technology products reaching the end of their lifecycle; and

·reduced revenues from our other offered products of $0.6 million resulting primarily from our coding related offerings.

62

Cost of revenues

Cost of revenues decreased $1.8 million, or 2.1%, to $85 million for the three months ended December 31, 2004 compared with $86.8 million for the three months ended December 31, 2003. The decrease was attributable primarily to:

·reduced medical transcription payroll costs of $1.7 million related directly to the decrease in our medical transcription revenues;

·reduced telecommunications costs of $1.2 million associated with both the decrease in our medical transcription revenues and the transition of customers from our non-DEP medical transcription platforms, which required MTs to access dictation using traditional phone lines, to our DEP, which allows MTs to access dictation through the internet;

·decreased other costs of $1.0 million primarily related to product costs and rents; and

·offset by a net increase of $2.1 million in costs related to business insurance, service contracts, and the write-off of prepaid services which was recorded in the fourth quarter of 2004.

As a percentage of net revenues, cost of revenues increased to 77.5% for the three months ended December 31, 2004 from 73.8% for the three months ended December 31, 2003 as a result largely of lower medical transcription service rates and the impact of fixed costs not declining at the same pace as net revenues.

Selling, general and administrative

SG&A expenses increased $2.7 million, or 24.8%, to $13.7 million for the three months ended December 31, 2004 compared with $11.0 million for the three months ended December 31, 2003. This increase was attributable primarily to increases in compensation costs of $1.9 million associated with the separation and replacement of certain members of our management team, increase in audit and consulting fees of $0.7 million related to the audit of our financial statements and the audit of our internal control over financial reporting and an increase of $0.1 million in certain other SG&A expenses. These increases were offset by a decrease in. SG&A expenses as a percentage of net revenues for the three months ended 2004 were 12.5% compared with 9.4% for the three months ended December 31, 2003.

Research & development

R&D expenses decreased $0.7 million, or 20.2%, to $2.8 million for the three months ended December 31, 2004 compared with $3.5 million for the three months ended December 31, 2003. This decrease was due primarily to decreased utilization of outside contractors. R&D expenses as a percentage of net revenues for the three months ended 2004 were 2.5% compared with 3% for the three months ended December 31, 2003.

Depreciation

Depreciation expense increased $0.2 million, or 3.6%, to $4.6 million for the three months ended December 31, 2004 compared with $4.4 million for the three months ended December 31, 2003. Depreciation expense as a percentage of net revenues were 4.2% for the three months ended December 31, 2004 compared with 3.8% for the three months ended December 31, 2003.

Amortization

Amortization of intangible assets decreased $1.2 million, or 37.0%, to $2.1 million for the three months ended December 31, 2004, compared with $3.3 million for the three months ended December 31, 2003. This decrease was the result primarily of several assets reaching the end of their

63

amortization period. Amortization of intangible assets as a percentage of net revenues was 1.9% for the three months ended December 31, 2004 and 2.8% for the three months ended December 31, 2003.

Cost of investigation and legal proceedings

The cost of investigation and legal proceedings was $3.7 million for the three months ended December 31, 2004. These costs were attributable to legal and other professional fees of $2.8 million and consulting services provided by Nightingale of $0.8 million in connection with Management’s Billing Assessment. There was no cost of investigation and legal proceedings reported for 2003.

Impairment charges

An impairment charge of $15.1 million was recorded for the year ended December 31, 2004 due to:

·a goodwill impairment charge of $14.6 million recorded in December 2004 related to the Solutions reporting unit resulting from reduced sales and margins and lower than forecasted operating profits and cashflows; and

·an intangible impairment charge of $0.5 million relating to a tradename that was no longer going to be utilized.

Restructuring credit

The restructuring credit of $0.1 million for the three months ended December 31, 2003 reflects revised downward estimates for reserves related to non-cancelable leases and severance payments for restructuring plans approved in 1998 and 2001. There were no restructuring charges or credits incurred for the three months ended December 31, 2004.

Interest income, net

Interest income, net increased $0.4 million, or 112.5%, to $0.8 million for the three months ended December 31, 2004 compared with $0.4 million for the three months ended December 31, 2003. This increase was attributable to the higher weighted average interest rate earned in the 2004 period (1.7%) compared to the 2003 period (0.8%) and a $40.9 million higher average cash balance in the 2004 period compared with the 2003 period.

Income tax (benefit) provision

The effective income tax benefit rate for the three months ended December 31, 2004 was 29.9% compared with an effective income tax expense rate of 24.4% for the three months ended December 31, 2003. This is primarily attributable to the establishment of a valuation allowance against deferred tax assets generated in foreign jurisdictions in the 2004 fourth quarter combined with an adjustment to our tax reserves in the 2003 fourth quarter. This yielded an effective income tax expense rate for the twelve months ended December 31, 2004 of 53.1% compared with an effective income tax expense rate of 35.1% for the twelve months ended December 31, 2003.

64

Comparison of Years Ended December 31, 2003 and 2002

Net revenues

Net revenues increased $0.8 million, or 0.2%, to $484.8 million for the year ended December 31, 2003 from $483.9 million for the year ended December 31, 2002. Product related revenues from the Lanier acquisition increased $36.8 million from $37.9 million in 2002 to $74.7 million in 2003. During 2003, we earned a full year of revenues related to Lanier whereas in 2002 we earned a half year of revenues as a result of our July 2002 acquisition of Lanier. This increase was offset by a decline in all other revenues of $36 million, primarily medical transcription revenues resulting from lower pricing to both new and existing customers and lower medical transcription volume. We believe the reduction in volume was the result primarily of customer losses to other outsourced medical transcription providers.

Net income

Net income declined $6.6 million, or 15.6%, to $35.6 million for the year ended December 31, 2003 from $42.2 million for the year ended December 31, 2002. This decline was due primarily to the $36 million decline in revenues described above, partially offset by related cost reductions, reduced taxes and a lower effective tax rate.

Liquidity and Capital Resources

As of December 31, 2005

As of December 31, 2005, we had net working capital of $150.7 million compared with $219.9 million as of December 31, 2004. Our principal sources of liquidity are cash flows provided by operating activities and available cash on hand. Cash and cash equivalents declined $17.9 million to $178.3 million as of December 31, 2005 from $196.2 million as of December 31, 2004. This decline was driven primarily by cash used in operating activities of $7.8 million and purchases of property and equipment of $9.5 million. The decrease in cash from operations was due primarily to a net loss of $111.6 million which was partially offset by an accrual for customer accommodation and quantification ($37.2 million).

We believe our existing cash and cash equivalents and cash to be generated from operations, if any, will be sufficient to finance our operations for the foreseeable future. However, if we fail to generate adequate cash flows from operations in the future, due to an unexpected decline in our net revenues, or due to increased cash expenditures in excess of the net revenues generated, then our cash balances may not be sufficient to fund our continuing operations without obtaining additional debt or equity. There are no assurances that sufficient funding from external sources will be available to us on acceptable terms, if at all. For instance, we may have increased cash expenditures relating to:

·the SEC and DOJ investigations and proceedings; and

·the defense and resolution of the civil litigation matters.

As of September 30, 2005

As of September 30, 2005, we had net working capital of $223.8 million compared with $219.9 million as of December 31, 2004. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $2.6 million for the nine months ended September 30, 2005 to $198.8 million as of September 30, 2005 from $196.2 million as of December 31, 2004. This increase was driven primarily by cash provided by operating activities of $9.9 million offset by purchases of property and equipment of $7.2 million.

65

As of June 30, 2005

As of June 30, 2005, we had net working capital of $224.0 million compared with $219.9 million as of December 31, 2004. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $2.0 million for the six months ended June 30, 2005 to $198.2 million as of June 30, 2005 from $196.2 million as of December 31, 2004. This increase was driven primarily by cash provided by operating activities of $6.7 million offset by purchases of property and equipment of $4.7 million.

As of March 31, 2005

As of March 31, 2005, we had net working capital of $222.5 million compared with $219.9 million as of December 31, 2004. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $2.5 million for the three months ended March 31, 2005 to $198.7 million as of March 31, 2005 from $196.2 million as of December 31, 2004. This increase was driven primarily by cash provided by operating activities of $5.3 million offset by purchases of property and equipment of $2.8 million.

As of December 31, 2004

As of December 31, 2004, we had net working capital of $219.9 million compared with $187.9 million as of December 31, 2003. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $33.8 million for the twelve months ended December 31, 2004 to $196.2 million as of December 31, 2004 from $162.4 million as of December 31, 2003. This increase was driven primarily by cash provided by operating activities of $47.5 million as well as proceeds from the issuance of stock and exercise of stock options ($1.0 million) offset by purchases of property and equipment of $14.8 million.

As of September 30, 2004

As of September 30, 2004, we had net working capital of $216.1 million compared with $187.9 million as of December 31, 2003. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $29.4 million for the nine months ended September 30, 2004 to $191.8 million as of September 30, 2004 from $162.4 million as of December 31, 2003. This increase was driven primarily by cash provided by operating activities of $39.2 million as well as proceeds from the issuance of stock and exercise of stock options ($1.0 million) offset by purchases of property and equipment of $10.7 million.

As of June 30, 2004

As of June 30, 2004, we had net working capital of $209.2 million compared with $187.9 million as of December 31, 2003. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $21.1 million to $183.5 million for the six months ended June 30, 2004 as of June 30, 2004 from $162.4 million as of December 31, 2003. This increase was driven primarily by cash provided by operating activities of $26.5 million as well as proceeds from the issuance of stock and exercise of stock options ($1.0 million) offset by purchases of property and equipment of $6.4 million.

As of March 31, 2004

As of March 31, 2004, we had net working capital of $200.8 million compared with $187.9 million as of December 31, 2003. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $17.7 million for the three months ended

66

March 31, 2004 to $180.1 million as of March 31, 2004 from $162.4 million as of December 31, 2003. This increase was driven primarily by cash provided by operating activities of $19.9 million as well as proceeds from the issuance of stock and exercise of stock options ($0.9 million) offset by purchases of property and equipment of $3.1 million.

As of December 31, 2003

As of December 31, 2003, we had net working capital of $187.9 million compared with $135.3 million as of December 31, 2002. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $59.0 million for the twelve months ended December 31, 2003 to $162.4 million as of December 31, 2003 from $103.4 million as of December 31, 2002. This increase was driven primarily by cash provided by operating activities of $77.8 million as well as proceeds from the issuance of stock and exercise of stock options ($1.0 million) offset by purchases of property and equipment of $16.9 million and acquisitions of $3.6 million.

As of September 30, 2003

As of September 30, 2003, we had net working capital of $170.8 million compared with $135.3 million as of December 31, 2002. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $40.5 million for the nine months ended September 30, 2003 to $143.9 million as of September 30, 2003 from $103.4 million as of December 31, 2002. This increase was driven primarily by cash provided by operating activities of $56.2 million as well as proceeds from the issuance of stock and exercise of stock options ($1.4 million) offset by purchases of property and equipment of $14 million and acquisitions of $3.6 million.

As of June 30, 2003

As of June 30, 2003, we had net working capital of $160.1 million compared with $135.3 million as of December 31, 2002. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $29.3 million for the six months ended June 30, 2003 to $132.7 million as of June 30, 2003 from $103.4 million as of December 31, 2002. This increase was driven primarily by cash provided by operating activities of $39.3 million as well as proceeds from the issuance of stock and exercise of stock options ($0.7 million) offset by purchases of property and equipment of $8.7 million and acquisitions of $2.8 million.

As of March 31, 2003

As of March 31, 2003, we had net working capital of $145.7 million compared with $135.3 million as of December 31, 2002. Our principal sources of liquidity were cash flows provided by operating activities and available cash on hand. Cash and cash equivalents increased $21.4 million for the three months ended March 31, 2003 to $124.8 million as of March 31, 2003 from $103.4 million as of December 31, 2002. This increase was driven primarily by cash provided by operating activities of $26.9 million as well as proceeds from the issuance of stock and exercise of stock options ($0.3 million) offset by purchases of property and equipment of $4.4 million and acquisitions of $2.2 million.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future impact on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

67

Contractual Obligations

The following table summarizes our obligations to make future payments under current contracts as of December 31, 2005 (in thousands):

	Payment Due By Period
			Less than							After
	Total		1 Year		1-3 Years		3-5 Years			5 Years
Operating Lease Obligations	$	11,879	$	4,311	$	6,119		$	1,449		$	—
Purchase Obligations(1)	37,086		11,001		18,300			7,785			—
Severance and Other Guaranteed Payment Obligations(2)	1,091		991		100			—			—
Other Obligations(3)	1,500		1,500		—			—			—
Total Contractual Obligations	$	51,556	$	17,803	$	24,519		$	9,234		$	—

(1)Purchase obligations are for telecommunication contracts ($34,000), data center storage and disaster recovery ($2,300) and the balance for recurring purchase obligations.

(2)Severance and Other Guaranteed Payment Obligations include guaranteed severance payments to Messrs. Scarpone ($83), Cameron ($183) and Weiland ($175) and guaranteed compensation to certain of our 2005 Named Executive Officers (as defined below in this report), including a guaranteed signing bonus for Ms. Donovan ($150) and a guaranteed performance bonus ($250) and a guaranteed payment in lieu of a restricted stock award ($250) for Mr. Lavelle.

(3)Other obligations are for consulting services provided by Nightingale, including interim CEO services ($200) and executive recruitment services ($300), and a prepayment required pursuant to an amendment to the Licensing Agreement we entered into with PSRS on May 22, 2000 with PSRS (Licensing Agreement) ($1,000).

We have agreements with certain of our 2005 Named Executive Officers that provide for severance payments to the employee in the event the employee is terminated without cause. The maximum cash exposure under these agreements was approximately $2.2 million at December 31, 2005. We entered into a separation agreement and general release with Mr. Lavelle on June 28, 2007 pursuant to which we have agreed to provide severance in the amount of $875, up to $100 in outplacement services, and the continuation of medical coverage as described under the caption “Employment Agreements with our 2005 Named Executive Officers” contained in Item 11, Executive Compensation.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement 123(R), Share-Based Payment (Statement 123(R)), which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. Statement 123(R) is a revision to FASB Statement 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, and its related implementation guidance and requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. We adopted Statement 123(R) on January 1, 2006 under the modified prospective method of application. Under this method, we recognize compensation costs for new grants of share-based awards, awards modified after the effective date, and the remaining portion of the fair value of the unvested awards at the adoption date. The adoption of Statement 123(R) will result in us recording approximately $2.0 million of compensation expense in 2006.

68

In June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Government Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation). The consensus allows companies to choose between two acceptable alternatives based on their accounting policies for transactions in which the company collects taxes on behalf of a governmental authority, such as sales taxes. Under the gross method, taxes collected are accounted for as a component of sales revenue with an offsetting expense. Conversely, the net method allows a reduction to sales revenue. If such taxes are reported gross and are significant, companies should disclose the amount of those taxes. The guidance should be applied to financial reports through retrospective application for all periods presented, if amounts are significant, for interim and annual reporting beginning after December 31, 2006. We have historically presented taxes on a net basis and we do not intend to change our policy.

In July 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. We are currently in the process of assessing the impact of Fin 48 on our consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), which addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 will require registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is determined to be material, SAB 108 allows for a cumulative effect adjustment to beginning retained earnings. The requirements are effective for annual financial statements covering the first fiscal year ending after November 15, 2006. We do not expect the adoption of SAB 108 to have any impact on our consolidated financial statements.

In September 2006, the FASB issued Statement 157, Fair Value Measurements, (Statement 157) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. Statement 157 does not require any new fair value measurements. The provisions of this statement are effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of Statement 157 to have a material impact on our consolidated financial statements.

In February 2007, the FASB issued Statment 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement 115 (Statement 159) which permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The following balance sheet items are within the scope of Statment 159:

·recognized financial assets and financial liabilities unless a special exception applies;

·firm commitments that would otherwise not be recognized at inception and that involve only financial instruments;

·non-financial insurance contracts; and

·most financial instruments resulting from separation of an embedded non-financial derivative instrument from a non-financial hybrid instrument.

69

Statement 159 will be effective for fiscal years beginning after November 2007 with early adoption possible but subject to certain requirements. We do not expect the adoption of Statement 159 to have a material impact on our consolidated financial statements.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates. We do not hold or issue financial instruments for trading purposes.

Interest Rate Risk

We earn interest income from our balances of cash and cash equivalents. This interest income is subject to market risk related to changes in interest rates, which affects primarily our investment portfolio. We invest in instruments that meet high credit quality standards, as specified in our investment policy.

Due to the average maturity of our investment portfolio, a material change in interest rates would not have a material effect on the value of our investment portfolio. Management estimates that if the average yield of our investments decreased by 100 basis points, our interest income for the year ended December 31, 2005 would have decreased approximately $1.9 million. The impact on our future interest income will depend largely on the gross amount of our investments and future changes in investment yields.

Item 8.Financial Statements And Supplementary Data

Our consolidated financial statements and supplementary data required by this item are attached to this report beginning on page F-1.

Item 9.Changes in And Disagreements With Accountants On Accounting And Financial Disclosure

None.

Item 9A.Controls And Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the last day of the fiscal period covered by this report, December 31, 2005. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, because of the material weaknesses in our internal control over financial reporting described below and our inability to file certain reports required under the Exchange Act within their required time periods, our disclosure controls and procedures were not effective as of December 31, 2005. To compensate for the material weaknesses in our internal control over financial reporting described below, we performed additional manual procedures and analysis and other post-closing procedures in order to prepare the consolidated financial statements included in this report. As a result of these

70

expanded procedures, we believe that the consolidated financial statements contained in this report present fairly, in all material respects, our financial condition, results of operations and cash flows for the fiscal years covered thereby in conformity with US generally accepted accounting principles (GAAP).

Our management team, under the supervision of our principal executive officer and our principal financial officer, did not evaluate the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act as of December 31, 2003 and December 31, 2004. Notwithstanding, because of the existence of material weaknesses in our internal control over financial reporting that have been identified by management as of December 31, 2004, which are described below, our management believes that the material weaknesses in our internal control over financial reporting that existed as of December 31, 2004 also existed as of December 31, 2003. Therefore, based on such belief, as well as our inability to file certain reports required under the Exchange Act within their required time periods during 2003, 2004 and 2005, we believe our disclosure controls and procedures were not effective as of the end of each fiscal quarter during 2003, 2004 and 2005.

(b) Internal Control over Financial Reporting as of December 31, 2004

In accordance with the internal control reporting requirements of the SEC, management substantially completed an assessment of the adequacy of design and operational effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The COSO framework summarizes each of the components of a company’s internal control system, including:

·the control environment;

·risk assessment;

·control activities;

·information and communication; and

·monitoring.

In addition to utilizing internal resources, we also engaged an outside consulting firm to assist in various aspects of our evaluation and compliance efforts. However, due to the disproportionate amount of attention required of our management team to address the Review and Management’s Billing Assessment, as well as the replacement of a number of key members of management during 2004, management was not able to complete its assessment of the overall effectiveness of our internal control over financial reporting as of December 31, 2004. Specific processes for which management did not assess the operational effectiveness of controls included the evaluation of entity-level controls, key controls related to our income tax provision and the effectiveness of key internal controls related to the financial close and external reporting of financial results. Management believes that, due to the material weaknesses identified by management as of December 31, 2004 as described below, our internal control over financial reporting was not effective as of December 31, 2004.

Although management did not complete its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004, management did perform a substantial amount of testing and has concluded that our system of internal control over financial reporting had the following material weaknesses as of December 31, 2004:

Entity Level Controls

We identified the following material weaknesses related to entity level controls:

·We did not have adequate policies and procedures regarding communications throughout our organization with respect to matters affecting our financial reporting. Specifically, our process of

71

providing and disseminating our policies and procedures to our employees did not ensure their effective communication and adoption. This led to a lack of awareness, understanding and consistent application of our policies and procedures in the performance of assigned responsibilities. In addition, we also lacked a formal ethics program, including the provision of training and introduction of our Financial Code of Ethics. These factors contributed to a lack of employee awareness of our commitment to corporate governance and ethical conduct by management and all of our other employees.

·We did not maintain a sufficient complement of accounting and finance personnel that were adequately trained and that possessed the appropriate level of knowledge in GAAP to properly account for complex accounting transactions. Specifically, we did not have personnel possessing sufficient technical expertise related to accounting for revenue recognition activities.

·We did not have sufficient processes, controls and management oversight to ensure that our books and records were appropriately maintained and that complex accounting transactions were effectively researched and recorded in accordance with GAAP. There was a lack of appropriate processes and controls within the financial close process, inconsistent preparation and review of journal entries as well as inadequate training and expertise within the accounting and finance organization.

These material weaknesses resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. These material weaknesses also contributed to the other material weaknesses identified below.

Revenue Recognition

We identified the following material weaknesses related to revenue recognition controls:

·We did not have a formal process to ensure that all non-DocQment™ Enterprise Platform (DEP) contract terms were accurately entered and maintained in our non-DEP medical transcription platforms. This material weakness resulted in financial statement errors (Errors) in calculating the proper amount of revenue to be recognized in the Company’s 2004 consolidated financial statements. These Errors were corrected prior to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2004.

·We did not have adequate policies and procedures to ensure the proper recognition of post-contract customer support (PCS) and related hardware, software and implementation services in accordance with GAAP. In addition, individuals responsible for recording revenues in our consolidated financial statements did not fully comprehend the criteria for revenue recognition. This material weakness resulted in Errors in calculating the proper amount of revenues to defer in the Company’s 2004 consolidated financial statements. These Errors were corrected prior to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2004.

These material weaknesses resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected.

Property and Equipment

We identified the following material weakness related to property and equipment controls:

·We did not maintain adequate policies and procedures to ensure that we accurately accounted for property and equipment. Specifically, we did not have a formal process in place to ensure that the disposal or transfer of our property and equipment was properly recorded in our general ledger. In

72

addition, certain property and equipment were entered into our accounting records in bulk entry form and were not specifically identifiable, which increased the risk that individual fixed assets could be physically moved or otherwise misappropriated or disposed of without the approval of management and not be detected in a timely manner.

This material weakness resulted in Errors in calculating the proper amount of property and equipment to be capitalized in the Company’s 2004 consolidated financial statements. These Errors were corrected prior to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2004. This material weakness resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected.

Information Technology

We identified the following material weakness related to information technology controls:

·We did not maintain adequate policies and procedures related to our information technology change management and access controls process in connection with our SAP general ledger software package, our non-DEP medical transcription platforms, our DEP, and Links (an internal system used to generate billing data). Some SAP users had inappropriate and overlapping access to sensitive transactions and directories. In our DEP, Links and our non-DEP medical transcription platforms, we did not exercise adequate change management related to testing and authorization of changes. Access controls were inadequate regarding Links and our non-DEP medical transcription platforms in our regional offices.

This material weakness resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected.

KMPG LLP, our independent registered public accounting firm, was not engaged to audit either management’s assessment of, or the effective operation of, our internal control over financial reporting as of December 31, 2004.

Management believes that the material weaknesses that existed as of December 31, 2004 also existed as of December 31, 2003.

(c) Management’s Report on Internal Control over Financial Reporting as of December 31, 2005

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

·provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and

73

·provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

A “significant deficiency” is defined as a control deficiency, or combination of control deficiencies, that adversely affect a company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP such that there is more than a remote likelihood that a misstatement of the annual or interim financial statements that is more than inconsequential will not be prevented or detected. A “material weakness” is defined as a significant deficiency or combination of significant deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

In accordance with the internal control reporting requirements of the SEC, management completed an assessment of the adequacy of our internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of management’s assessment, management concluded that our internal control over financial reporting had the following material weaknesses as of December 31, 2005:

Entity Level Controls

We identified the following material weaknesses related to entity level controls:

·We did not have adequate policies and procedures regarding communications throughout our organization with respect to matters affecting our financial reporting. Specifically, our process of providing and disseminating our policies and procedures to our employees did not ensure their effective communication and adoption. This led to a lack of awareness, understanding and consistent application of our policies and procedures in the performance of assigned responsibilities.

·We did not maintain a sufficient complement of accounting and finance personnel that were adequately trained and that possessed the appropriate level of knowledge in GAAP to properly account for complex accounting transactions. Specifically, we did not have personnel possessing sufficient technical expertise related to accounting for revenue recognition activities.

·We did not have sufficient processes, controls and management oversight to ensure that our books and records were appropriately maintained and that complex accounting transactions were effectively researched and recorded in accordance with GAAP. There was a lack of appropriate processes and controls within the financial close process, inconsistent preparation and review of journal entries as well as inadequate training and expertise within the accounting and finance organization.

These material weaknesses resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. These material weaknesses also contributed to the other material weaknesses identified below.

74

Revenue Recognition

We identified the following material weaknesses related to revenue recognition controls:

·We did not have a formal process to ensure that all non-DEP contract terms were accurately entered and maintained in the systems. This material weakness resulted in Errors in calculating the proper amount of revenue to be recognized in the Company’s 2005 consolidated financial statements. These Errors were corrected prior to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2005.

·We did not have adequate policies and procedures to ensure the proper recognition of PCS and related hardware, software and implementation services in accordance with GAAP. In addition, individuals responsible for recording revenues in our consolidated financial statements did not fully comprehend the criteria for revenue recognition. This material weakness resulted in Errors in calculating the proper amount of revenues to defer in the Company’s 2005 consolidated financial statements. These Errors were corrected prior to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2005.

These material weaknesses resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected.

Property and Equipment

We identified the following material weakness related to property and equipment controls:

·We did not maintain adequate policies and procedures to ensure that we accurately accounted for property and equipment. Specifically, we did not have a formal process in place to ensure that the disposal or transfer of our property and equipment was properly recorded in our general ledger.

This material weakness resulted in Errors in calculating the proper amount of property and equipment to be capitalized in the Company’s 2005 consolidated financial statements. These Errors were corrected prior to the issuance of the Company’s consolidated financial statements as of and for the year ended December 31, 2005. This material weakness resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected

Information Technology

We identified the following material weakness related to information technology controls:

·We did not maintain adequate policies and procedures related to our information technology change management and access controls process in connection with our non-DEP medical transcription platforms.

This material weakness resulted in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected.

Because of the material weaknesses described above, management concluded that, as of December 31, 2005, we did not maintain effective internal control over financial reporting based on the COSO criteria. Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KMPG LLP, our independent registered public accounting firm, as stated in its report, which is included elsewhere in this Form 10-K.

75

(d) Changes in Internal Control Over Financial Reporting

2005:

As a result of initiatives that management undertook in 2005, with oversight from the Audit Committee, to address known material weaknesses in our internal control over financial reporting as of December 31, 2004, we made progress in the remediation of certain of our material weaknesses described above. The following changes in our internal control over financial reporting were instituted during the year ended December 31, 2005:

·Introduced and implemented a Financial Code of Ethics (Code of Ethics) with substantially all financial and accounting personnel and a significant number of total employees attending ethics training which communicated the key elements of the Code of Ethics;

·Created and implemented an ethics hotline, including direct reporting to our board of directors;

·Created and utilized tools and templates to support our month end and quarter end financial closing process, including a standard month end closing checklist and a standard quarter end tax checklist;

·Created a contracts database to organize customer contracts by customer number and to maintain all executed contracts. In addition, we virtually eliminated the use of non-standard contract terms and conditions and now utilize one of a defined set of standard billing methods for all new contracts;

·Created a process to review all initial customer set-ups within our DEP to verify the accuracy and completeness of billing configurations in accordance with authorized customer contracts;

·Performed an inventory of fixed assets to confirm property and equipment were still in use;

·Changed the fixed asset process to ensure that details for individual assets were recorded instead of creating bulk entries;

·Performed comprehensive reviews of all segregation of duties conflicts within SAP and modified employee security profiles to eliminate any overlapping access to sensitive data and directories; and

·Developed and implemented enhanced monitoring controls to mitigate potential segregation of duties concerns within the respective business processes. These enhanced monitoring controls generally rely upon system generated listings of additions, deletions and changes to data (e.g., “exception reports” or “edit listings”).

Although our remediation efforts are underway, control weaknesses will not be considered remediated until new internal controls over financial reporting are fully implemented and operational for a period of time and are operating effectively.

2006:

As a result of initiatives that management undertook in 2006, with oversight from the Audit Committee, to address known material weaknesses in our internal control over financial reporting as of December 31, 2005, we made progress in the remediation of certain of our material weaknesses described above. The following changes in our internal control over financial reporting were instituted during the year ended December 31, 2006:

·Added several new members with technical accounting expertise to our accounting staff. These employees, which included a new Controller and Principal Accounting Officer, Manager of Accounting, Senior Financial Analyst, Director of Financial Planning and several staff members

76

have the knowledge, experience and training necessary to properly account for complex accounting transactions;

·All journal entries include detailed descriptions, are reviewed and approved by the next level manager and are logged and included in the month end package for filing. Monthly meetings are now held regularly within the accounting group and are attended by our Chief Financial Officer and Controller;

·Moved more than 97% of our medical transcription customers from our non-DEP medical transcription platforms to our DEP. Internal controls governing our DEP include a secondary review of all initial customer setups, formal notification of all contractual changes to both billing and operations management and a strict limitation of available units of measure for billing purposes to only those supported by the system;

·Established a formal month end process for identifying disposed assets and recording the appropriate entries into the fixed asset sub-ledger;

·Engaged a third party to perform an inventory of fixed assets in the field; and

·Obtained and implemented a leading third party IT software application to assess employee access, evaluate the appropriate segregation of duties within the system, and report on compliance with internal IT controls and procedures.

Although our remediation efforts are underway, control weaknesses will not be considered remediated until new internal controls over financial reporting are fully implemented and operational for a period of time and are operating effectively.

Item 9B.Other Information

None.

PART III

Item 10.Directors and Executive Officers of the Registrant

Since our annual report for the fiscal year ended December 31, 2002, which is our last filed annual report, we have had extensive turnover in the composition of our board of directors and executive officers.

77

Identification of Directors

Current Directors

The following table lists all of our current directors as of May 31, 2007. Each director will hold office until his successor is elected and qualified, or until his earlier resignation or removal. We have not held an annual meeting of shareholders since 2003. At our next annual meeting, which we expect to hold as soon as practicable after we meet the applicable requirements for soliciting proxies, our shareholders will elect directors to hold office until the next succeeding annual meeting of shareholders.

Name	Age on 5/31/07		Position	Date Became a Director
Clement Revetti, Jr.(1)		52	Director		10/2006
Stephen H. Rusckowski(1)(3)(4)		49	Director; Non-Executive Chairman of the Board of Directors; Member of the Nominating Committee (Chair)		02/2002
Gregory M. Sebasky(1)(4)		49	Director		04/2005
N. John Simmons, Jr.(2)		51	Director; Member of the Audit Committee (Chair), Compensation Committee and Supervisory Committee		07/2005
Richard H. Stowe(2)		63	Director; Member of the Audit Committee, Nominating Committee, Compensation Committee and Supervisory Committee (Chair)		12/1998
John H. Underwood(2)		48	Director; Member of the Audit Committee, Compensation Committee (Chair) and Supervisory Committee		07/1994
Scott M. Weisenhoff(1)		52	Director		02/2003

(1)Denotes a director designated by Philips (Philips Director) under the terms of the Governance Agreement (as described below).

(2)Denotes an Independent Director (as defined below) under the terms of the Governance Agreement.

(3)On October 26, 2006, our board of directors appointed Mr. Rusckowski as Non-Executive Chairman of our board of directors.

(4)As discussed under the caption “Management Personnel” under Item 13, Certain Relationships and Related Transactions, Mr. Rusckowski previously served as our interim President and Chief Executive Officer and Mr. Sebasky previously served as our acting President.

The composition of our board of directors is governed in part by the terms of a Governance Agreement dated May 22, 2000 that we entered into with Philips (Governance Agreement) in connection with the completion of Philips’ tender offer for a majority of our common stock. Under the terms of the Governance Agreement, we agreed to take any and all action necessary so that our board of directors consists of 11 persons, including:

·two directors representing management, consisting of our Chief Executive Officer and one additional officer designated by our Chief Executive Officer (Management Directors);

·six Philips Directors; and

·three directors nominated by the Nominating Committee of our board of directors to serve as “Independent Directors” (as defined below).

78

Notwithstanding the preceding, our board of directors has the discretionary authority under the Governance Agreement to increase or decrease the size of our board of directors, provided that:

·there are at least two Management Directors and three Independent Directors; and

·the relative percentage of Management Directors, Independent Directors and Philips Directors is maintained.

In addition, the number of directors that Philips is permitted to designate or nominate under the Governance Agreement, which is based upon Philips’ relative ownership of our equity securities having the right to vote generally in any election of our directors, is as follows:

	Philips’ Beneficial Ownership of Our Voting Stock	Number of Philips Directors
More than 50%			6
36% - 50%			4
27% - 35%			3
18% - 26%			2
5% - 17%			1
Less than 5%			0

If at any time Philips has the right to designate fewer than six directors under the terms of the Governance Agreement, the Nominating Committee of our board of directors will nominate a number of additional Independent Directors as is necessary to constitute our entire board of directors.

Philips has the right to designate a replacement Philips Director upon the termination of a Philips Director’s term or upon a Philips Director’s death, resignation, retirement, disqualification or removal from office. Our Chief Executive Officer has the right to designate a replacement Management Director upon the termination of a Management Director’s term or upon a Management Director’s death, resignation, retirement, disqualification or removal from office.

Notwithstanding the preceding, the composition of our current board of directors is as follows:

·three Independent Directors (Messrs. Simmons, Stowe and Underwood); and

·four Philips Directors (Messrs. Revetti, Rusckowski, Sebasky and Weisenhoff).

The Governance Agreement also requires us to establish and maintain the following committees of our board of directors:

·A Nominating Committee consisting solely of two Independent Directors, one Philips Director and one Management Director which is responsible, among other things, for the nomination of the Independent Directors. Notwithstanding the preceding, we currently maintain a Nominating Committee composed of one Independent Director (Mr. Stowe) and one Philips Director (Mr. Rusckowski);

·A Compensation Committee consisting of two Independent Directors and two Philips Directors which is responsible, among other things, for the adoption, amendment and administration of all of our employee benefit plans and arrangements and the compensation of all of our officers. Notwithstanding the preceding, we currently maintain a Compensation Committee composed of three Independent Directors (Messrs. Simmons, Stowe and Underwood); and

·A Supervisory Committee consisting of at least three Independent Directors which is responsible, among other things, for the general oversight, administration, amendment and enforcement of the Governance Agreement and all other material agreements or arrangements between Philips and us.

79

We currently maintain a Supervisory Committee composed of three Independent Directors (Messrs. Simmons, Stowe and Underwood).

As used in the Governance Agreement, the term “Independent Director” means a director who is:

·not currently, and has never been, an officer or director of ours or any affiliate or associate of ours, or an entity that derived more than 5% of its revenues or earnings in its most recent fiscal year from transactions involving us or any affiliate or associate of ours;

·not currently, and has never been, an officer, employee or director of Philips or an affiliate or associate of Philips, or an entity that derived more than 5% of its revenue or earnings in its most recent fiscal year from transactions involving Philips or any affiliate or associate of Philips; and

·nominated to serve as an Independent Director by the Nominating Committee of our board of directors.

The Governance Agreement will terminate on the first date that Philips is no longer the beneficial owner of at least 5% of our equity securities having the right to vote generally in any election of our board of directors. The provisions of the Governance Agreement relating to the establishment of committees of our board of directors will terminate on the first date that Philips is the beneficial owner of less than a majority of our equity securities having the right to vote generally in any election of our board of directors.

Other than the provisions of the Governance Agreement described above and under the caption “Governance Agreement” contained in Item 13, Certain Relationships and Related Transactions, we do not know of any arrangements or understandings between any of the individuals listed above and any other person pursuant to which a director was or is to be selected as a director or nominee, other than any arrangements or understandings with our directors acting solely in their capacities as such.

Former Directors

The following table lists all of those individuals who served on our board of directors at some point since January 1, 2003, but who no longer serve on our board of directors.

Name	Date Became a Director		Date Ceased Being a Director
Wim Punte(1)		07/2001		02/2003
David A. Cohen(2)		07/1994		07/2003
Belinda W. Chew(1)		04/2001		07/2003
Hans M. Barella(1)		07/2000		10/2003
Erik J. Westerink(1)		04/2001		10/2003
R. Timothy Stack(2)(4)		10/2003		12/2003
William E. Curran(1)		07/2000		12/2003
A. Fred Ruttenberg(3)		12/1991		12/2004
Jan H.M. Hommen(1)(5)		10/2003		07/2006
Jouko Karvinen(1)		02/2006		10/2006

(1)Denotes a Philips Director under the terms of the Governance Agreement.

(2)Denotes a Management Director under the terms of the Governance Agreement.

(3)Denotes an Independent Director under the terms of the Governance Agreement.

(4)Mr. Stack also served as a member of our board of directors from May 1997 to July 2000.

(5)Mr. Hommen also served as a member of our board of directors from July 2000 to July 2001.

80

Identification of Executive Officers

Current Executive Officers

The following table lists all of our current executive officers as of May 31, 2007. Each of our current executive officers will hold office until his or her successor is elected and qualified, or until his or her earlier resignation or removal.

Name	Age on 5/31/07		Position	Date Became an Executive Officer
Howard S. Hoffmann		53	Chief Executive Officer and President		07/2004
Kathleen E. Donovan		47	Senior Vice President and Chief Financial Officer		06/2005
Mark Ivie		48	Senior Vice President and Chief Technology Officer		06/2005
R. Scott Bennett		47	Senior Vice President of Sales and Marketing		11/2005
Michael F. Clark		44	Senior Vice President of Operations		02/2005
James Brennan		59	Principal Accounting Officer, Controller and Vice President		11/2006
Mark R. Sullivan		35	General Counsel, Chief Compliance Officer and Secretary		09/2006

Other than the provisions of our agreement with Nightingale which is described in Item 11, Executive Compensation, below, we do not know of any arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as an officer, other than any arrangements or understandings with our officers acting solely in their capacities as such.

Former Executive Officers

The following table lists all of those individuals who served as our executive officers at some point since January 1, 2003 but who no longer serve as executive officers.

Name(1)	Date Became an Executive Officer		Date Ceased Being an Executive Officer
Robin Stults		10/2002		04/2003
David A. Cohen(2)		05/1994		07/2003
Dennis M. Mahoney		07/2002		08/2003
R. Timothy Stack		10/2003		12/2003
Stephen H. Rusckowski		12/2003		07/2004
John M. Suender		09/1992		08/2004
Brian J. Kearns		10/2000		08/2004
Ronald F. Scarpone		01/1996		10/2004
Ethan H. Cohen		12/1998		10/2004
John W. Quaintance		10/2002		01/2005
Gregory M. Sebasky		02/2004		03/2005
James M. Weiland		11/2004		10/2005
Terry L. Cameron		11/2004		10/2005
Bruce Van Fossen(3)		10/2002		01/2006
Adele T. Barbato		02/2005		08/2006
Frank W. Lavelle		03/2005		05/2007
Linda Reino		10/2006		05/2007

(1)The following individuals held the following positions when they ceased being executive officers: Robin Stults—Executive Vice President, Coding and Information Services Division;

81

David A. Cohen—President and Chief Executive Officer; Dennis M. Mahoney—Executive Vice President and President of Solutions Division; R. Timothy Stack—President and Chief Executive Officer; Stephen H. Rusckowski—Interim Chief Executive Officer; John M. Suender—Executive Vice President and Chief Legal Officer; Brian J. Kearns—Executive Vice President and Chief Financial Officer; Ronald F. Scarpone, Executive Vice President, Marketing & Business Development; Ethan H. Cohen—Executive Vice President and Chief Technology Officer; John W. Quaintance—Chief Operating Officer; Gregory M. Sebasky—Acting President; James M. Weiland—Senior Vice President, Sales; Terry L. Cameron—Senior Vice President, Marketing & Business Development; Adele T. Barbato—Senior Vice President, Human Resources; Frank W. Lavelle—President; and Linda Reino—Chief Operating Officer.

(2)Mr. Cohen resigned as our Chairman, President and Chief Executive Officer effective July 6, 2003. He continued to serve us as an employee of ours and an advisor to us until April 1, 2004.

(3)Although he is no longer an executive officer, Mr. Van Fossen is still employed by us and currently serves as our Vice President of Financial Planning. Mr. Van Fossen served as our Vice President and Controller until January 2006.

Business Experience of Current Directors and Current Executive Officers

Set forth below is biographical information, including business experience for the last five years, for our current directors and current executive officers.

Current Directors

Clement Revetti, Jr.

Mr. Revetti has served as a member of our board of directors since October 2006. Mr. Revetti currently serves as the Senior Vice President and Chief Legal Officer of Philips Medical Systems, an affiliate of Philips, a position he has held since September 2004. From September 1999 to September 2004, Mr. Revetti served as the Vice President and General Counsel, Business Development for Atos Origin BV in Amsterdam, Netherlands, where he was responsible for mergers, acquisitions, divestments, strategic alliances and large multinational outsourcing transactions. Atos Origin BV is a global multiservice IT provider.

Stephen H. Rusckowski

Mr. Rusckowski has served as a member of our board of directors since February 2002 and currently serves as the Chairman of the Board and as a member of the Nominating Committee. From December 2003 until February 2004, Mr. Rusckowski served as our interim President and Chief Executive Officer. From February 2004 until July 2004, Mr. Rusckowski served as our interim Chief Executive Officer. He is currently the Chief Executive Officer of Philips Medical Systems and has served in that capacity since November 2006. Mr. Rusckowski joined Philips in August 2001, and has held a number of general management responsibilities for medical imaging, patient monitoring and healthcare information systems. Prior to joining Philips, Mr. Rusckowski held various positions with Hewlett-Packard/Agilent Technologies from 1984 to 2001, most recently serving as Senior Vice President and General Manager of its Healthcare Solutions Group from 1999 to 2001.

82

Gregory M. Sebasky

Mr. Sebasky has served as a member of our board of directors since April 2005. From February 2004 to March 2005, Mr. Sebasky served as our acting President. He is currently Senior Vice President and Chief Executive Officer of Global Customer Services for Philips Medical Systems, a position he has held since April 2005. Prior to serving as our acting President, Mr. Sebasky served as Senior Vice President of Operations of Cardiac and Monitoring Systems, Philips Electronics Corporation, an affiliate of Philips, from April 1997 to February 2004.

N. John Simmons, Jr.

Mr. Simmons has served as a member of our board of directors since July 2005 and currently serves as the Chairman of the Audit Committee and a member of the Compensation Committee and the Supervisory Committee. Since 1999, Mr. Simmons has served as the President of Quantum Capital Partners, a private equity firm. During his time at Quantum, he also served as President of New Homes Realty, Inc., a national real estate company of buyer’s agents and brokers, from November 2004 to April 2006. He was formerly Vice President and Controller of Eckerd Corporation and Chief Financial Officer of Checkers Drive-In Restaurants. Between 1976 and 1993, Mr. Simmons was with KPMG Peat Marwick and was a partner for seven years. He has served as a director of SRI/Surgical Express, Inc., a provider of surgical instruments, since February 2001.

Richard H. Stowe

Mr. Stowe has served as a member of our board of directors since December 1998 and currently serves as the Chairman of the Supervisory Committee and as a member of the Audit Committee, the Nominating Committee and the Compensation Committee. Mr. Stowe is currently a managing member of the general partner of Health Enterprise Partners, L.P., a private equity investment fund that he co-founded in 2005, and since 2000 he has served as a senior advisor to two related private equity investment funds. From 1999 to 2006, Mr. Stowe was a senior advisor to Capital Counsel, LLC, an investment management firm. From 1979 to 1998 he was a general partner of various private equity funds managed by Welsh, Carson, Anderson & Stowe, a private equity investment firm that was the largest shareholder of The MRC Group, Inc. (MRC), and, prior to our acquisition of MRC in 1998, he had served as a member of the board of directors of MRC and its predecessors since 1993. Since 1989 Mr. Stowe has been a member of the board of directors of HMS Holdings Corp. (HMS), a provider of a variety of cost-avoidance, coordination of benefits and program integrity services to government healthcare programs. Shares of HMS are publicly traded on the Nasdaq Global Select Market under the symbol “HMSY”.

John H. Underwood

Mr. Underwood has served as a member of our board of directors since July 1994 and currently serves as the Chairman of the Compensation Committee and a member of the Audit Committee and the Supervisory Committee. Mr. Underwood has served as a Managing Director of Pfingsten Partners, L.L.C., a private equity investment firm, since 1996. Between 1989 and 1996, Mr. Underwood was a Vice President with Heller Equity Capital Corporation and a Senior Vice President of Heller’s parent company, Heller Financial, Inc. From 1986 to 1989, Mr. Underwood served as Vice President of Citicorp North America, Inc.’s leveraged capital group.

Scott M. Weisenhoff

Mr. Weisenhoff has served as a member of our board of directors since February 2003. Mr. Weisenhoff has served as Executive Vice President and Chief Financial Officer of Philips Medical

83

Systems since February 2003. Mr. Weisenhoff served in the same capacity for Philips Components, an affiliate of Philips, from November 2001 to February 2003, and for Philips Domestic Appliances and Personal Care, an affiliate of Philips, from August 1999 to November 2001. From September 1995 to August 1999, Mr. Weisenhoff served as Senior Vice President and Chief Financial Officer of Philips Electronics Asia Pacific PTE, Ltd., an affiliate of Philips.

Current Executive Officers

Howard S. Hoffmann—Chief Executive Officer and President

Mr. Hoffmann has served as our Chief Executive Officer since July 2004 and as our President since June 2007. Mr. Hoffmann joined Nightingale, a management consulting company specializing in turnarounds and crisis management, in May 1990 and became a Member of Nightingale in February 1997. He has been the Managing Partner of Nightingale since January 2001. We have currently engaged Nightingale for Mr. Hoffmann’s services. See Item 11, Executive Compensation, for a description of our agreement with Nightingale for Mr. Hoffmann’s services. Prior to joining us, Mr. Hoffmann led numerous consulting engagements serving as an advisor to boards of directors, management or creditors as well as serving in various interim executive management positions. Immediately prior to being engaged by us, Mr. Hoffmann served as an advisor to management of a nationwide health club chain from June 2004 to July 2004. He served as interim Chief Executive Officer of Global Knowledge Network, a global provider of technology training solutions from May 2003 to October 2003 after having led a consulting engagement for the same company commencing in August 2002. Mr. Hoffmann has also served as Chief Restructuring Officer of Vision Twenty-One, Inc., a Florida-based integrated eye care company, and as interim Chief Financial Officer and Chief Operating Officer of Soft Sheen Products, Inc., a consumer products company. Mr. Hoffmann currently serves as a director of two privately-held companies—Block Vision, a managed vision care company, and Protocol Marketing Group, Inc., an integrated direct marketing company.

Kathleen E. Donovan—Senior Vice President and Chief Financial Officer

Ms. Donovan has served as our Senior Vice President and Chief Financial Officer since June 2005. Between August 1997 and June 2005, Ms. Donovan held a number of positions with Dendrite International, Inc., a technology company providing sales, marketing, clinical and compliance solutions to global pharmaceutical and other life sciences companies, most recently serving as that company’s Senior Vice President and Chief Financial Officer. Prior to her service in that capacity, Ms. Donovan also served as Dendrite’s Vice President and Treasurer between December 2001 and November 2002, its Chief Financial Officer—Americas Division between April 2001 and December 2001, its Vice President and Corporate Controller between January 1999 and March 2001, and its Director, Financial Operations between August 1997 and December 1998. Ms. Donovan serves on the board of directors of A-Life Medical, a technology company of which we own a minority interest.

Mark Ivie—Senior Vice President and Chief Technology Officer

Mr. Ivie has served as our Senior Vice President and Chief Technology Officer since June 2005. Prior to joining us, Mr. Ivie served as General Manager, Enterprise Systems and Technology, of GE Healthcare between June 2003 and May 2005 and General Manager, Global Engineering, of GE Medical Systems between December 1998 and June 2003, where he was responsible for the creation and adoption of standards and for creating the infrastructure for shared functional modules. From January 1992 until December 1998, Mr. Ivie served as a Department Head for the telecom support software business at Lucent Bell Laboratories.

84

R. Scott Bennett—Senior Vice President of Sales and Marketing

Mr. Bennett has served as our Senior Vice President of Sales and Marketing since November 2005. From August 2004 to October 2005, Mr. Bennett was Senior Vice President of Sales and Marketing of SCI Solutions, Inc., which is also known as Scheduling.com, where he was responsible for the restructuring of that company’s marketing, sales and sales support infrastructure and processes. Between July 2000 and March 2004, Mr. Bennett served as Vice President, Financial Marketing and Vice President, Corporate Sales, of Siemens Medical Solutions, USA.

Michael F. Clark—Senior Vice President of Operations

Mr. Clark has served as our Senior Vice President of Operations since February 2005. Mr. Clark joined us in 1998 through our acquisition of MRC. From November 2003 until February 2005, Mr. Clark served as our Senior Vice President of Operations for our Western Division. From May 2002 until November 2003, Mr. Clark served as our Vice President of Operations for our Southwest Division and from January 1998 until July 2000, he served as Region Vice President for the Southeast. From May 2001 until May 2002, Mr. Clark served as Chief Operating Officer for eScribe, a transcription service provider. While at MRC, Mr. Clark served as Vice President, Marketing and Corporate Services.

James Brennan—Principal Accounting Officer, Controller and Vice President

Mr. Brennan has served as our Principal Accounting Officer, Controller and Vice President since November 2006. From March 2006 until his appointment as our Principal Accounting Officer, Controller and Vice President, Mr. Brennan served as a consultant to us providing Sarbanes-Oxley compliance and financial accounting services. Mr. Brennan has been operating his own consulting firm, specializing in providing Sarbanes-Oxley compliance and financial accounting services, since July 2005. Between May 2000 and July 2005, Mr. Brennan served as the Vice President of Finance for two divisions of IKON Office Solutions. From 1995 to 1998, Mr. Brennan served as Vice President and Business Unit Financial Officer for the GS Electric Division of General Signal. From 1991 to 1995, Mr. Brennan served as Assistant Controller of General Signal Corporation.

Mark R. Sullivan—General Counsel, Chief Compliance Officer and Secretary

Mr. Sullivan serves as our General Counsel, Chief Compliance Officer and Secretary. Mr. Sullivan was appointed as General Counsel in September 2006, Chief Compliance Officer in July 2006 and Secretary in January 2005. From August 2004 until September 2006, Mr. Sullivan served as our Acting General Counsel. Between March 2003 and August 2004, Mr. Sullivan served as our Associate General Counsel and Assistant Secretary. Prior to joining us, Mr. Sullivan was in private practice with Pepper Hamilton LLP from January 2000 until March 2003, and Drinker Biddle & Reath LLP from August 1998 to January 2000.

Committees of the Board of Directors

Our board of directors maintains the following four standing committees: Audit Committee; Compensation Committee; Nominating Committee; and Supervisory Committee.

Audit Committee

The Audit Committee oversees our corporate accounting and financial reporting process. The responsibilities of the Audit Committee, which are set forth in a written charter adopted by our board of directors, include:

·review and assess the adequacy of the Audit Committee and its charter at least annually;

85

·evaluate, determine the selection of, and if necessary, the replacement/rotation of, our independent registered public accounting firm;

·ensure timely rotation of lead and concurring audit partner of our independent registered public accounting firm;

·review our audited consolidated financial statements;

·review whether interim accounting policies and significant events or changes in accounting estimates were considered by our independent registered public accounting firm to have affected quality of financial reporting;

·review our financial reports and other information submitted to any governmental body or the public;

·review with management and our independent registered public accounting firm their judgments about quality of disclosures in our financial statements;

·obtain from our independent registered public accounting firm its recommendation regarding our internal control over financial reporting and review management’s report on its assessment of the design and effectiveness of our internal control over financial reporting;

·review our major financial risk exposures;

·pre-approve all audit and permitted non-audit services and related fees;

·establish, review and update periodically our code of business conduct and ethics;

·establish and review policies for approving related party transactions between us and our directors, officers or employees;

·adopt procedures for receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters; and

·adopt regular and separate systems of reporting to the Audit Committee by management and our internal auditors regarding controls and operations of business units.

The Audit Committee is composed of N. John Simmons, Jr. (Chair), John H. Underwood and Richard H. Stowe, each of whom has been determined to be independent by our board of directors. Our board of directors has determined that N. John Simmons, Jr. qualifies as an “audit committee financial expert” as that term is defined in Item 407(d)(5) of Regulation S-K.

Compensation Committee

While our board of directors is responsible for determining and approving the compensation for our executive officers in its sole discretion, including all individuals whose compensation is set forth in the “Summary Compensation Table,” below, it frequently solicits the recommendations from the Compensation Committee regarding the following:

·the corporate goals and objectives relevant to the compensation and the benefits of our Chief Executive Officer and our other executive officers;

·the performance of these officers in light of those goals and objectives; and

·the compensation of these officers based on such evaluations.

The Compensation Committee is composed of John H. Underwood (Chair), N. John Simmons, Jr. and Richard H. Stowe, each of whom has been determined to be independent by our board of directors.

86

Nominating Committee

The responsibilities of the Nominating Committee include the selection of potential candidates for our board of directors, including the nomination of “Independent Directors” under the terms of the Governance Agreement. The Nominating Committee also makes recommendations to our board of directors concerning the membership of the other board committees. The Nominating Committee is responsible for developing policies and procedures with regard to the consideration of any director candidates recommended by our shareholders. The Nominating Committee is composed of Stephen H. Rusckowski (Chair) and Richard H. Stowe.

Supervisory Committee

Pursuant to the Governance Agreement, the terms of which are described above and in Item 13, Certain Relationships and Related Transactions, since 2000 our board of directors has maintained a Supervisory Committee, the responsibilities of which include the general oversight, administration, amendment and enforcement, of the Governance Agreement and all other material agreements or arrangements between Philips and us. The Supervisory Committee is composed of Richard H. Stowe (Chair), John H. Underwood and N. John Simmons, Jr., each of whom is an Independent Director under the terms of the Governance Agreement.

Code of Ethics

We have adopted a written code of business conduct and ethics, known as our Financial Code of Ethics, which applies to all of our employees who perform accounting and financial functions, including our principal executive officer, our principal financial officer and our principal accounting officer. Our Financial Code of Ethics is available on our website, www.medquist.com. Any amendments to our Financial Code of Ethics or waivers from the provisions of our Financial Code of Ethics for our principal executive officer, our principal financial officer or our principal accounting officer will be disclosed on our website within four business days following the date of such amendment or waiver.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that each of our executive officers, directors and persons who beneficially own more than 10% of our common stock file with the SEC reports of ownership and changes in their ownership of our common stock. Our executive officers and directors and beneficial owners of greater than 10% of our common stock are required by SEC regulations to provide us with copies of all Section 16(a) forms that they file. Based solely on our review of the copies of such forms furnished to us, we believe that for the period between January 1, 2003 and December 31, 2005, all of our executive officers, directors and persons owning greater than 10% of our common stock complied with all Section 16(a) filing requirements applicable to them, except as follows:

·each of Adele T. Barbato, Terry L. Cameron, Michael F. Clark, Howard S. Hoffmann and James M. Weiland failed to timely file a Form 3 at the time they were appointed executive officers. Each of Jan H.M. Hommen and N. John Simmons, Jr. failed to timely file a Form 3 at the time they were appointed directors. All of these individuals have since filed a Form 3;

·each of Ethan H. Cohen, Brian J. Kearns, John W. Quaintance, Ronald F. Scarpone and John M. Suender failed to file a Form 4 indicating that he had received a stock option award on February 4, 2003 entitling him to acquire 11,500 shares of our common stock. Each of these individuals filed a Form 5 disclosing his stock option award on February 17, 2004;

87

·Bruce Van Fossen failed to file a Form 4 indicating that he had received a stock option award on February 4, 2003 entitling him to acquire 6,000 shares of our common stock. Mr. Van Fossen filed a Form 5 disclosing this stock option award on February 17, 2004;

·Dennis M. Mahoney failed to file a Form 4 indicating that he had received a stock option award on February 4, 2003 entitling him to acquire 5,000 shares of our common stock. Mr. Mahoney filed a Form 5 disclosing this stock option award on February 17, 2004;

·Stephen H. Rusckowski failed to file a Form 3 amendment indicating he was one of our executive officers. Mr. Rusckowski is no longer one of our executive officers; and

·each of A. Fred Ruttenberg, Richard H. Stowe and John H. Underwood failed to file a Form 4 indicating that he had received a stock option award on June 1, 2003 entitling him to acquire 3,000 shares of our common stock. Each of these individuals filed a Form 5 indicating his stock option award on February 17, 2004.

88

Item 11.Executive Compensation

Executive Compensation—General

Summary Compensation Table

The following tables set forth, for the periods stated, compensation information concerning our current and former named executive officers, including each person who served as our Chief Executive Officer during those periods, each of our four most highly compensated executive officers other than Chief Executive Officers serving on December 31 of each period and up to two additional executive officers who would have otherwise qualified as one of our four most highly compensated executive officers but for the fact that he or she was not serving as an executive officer at December 31 of such period (Named Executive Officers).

Named Executive Officers on December 31, 2005 (2005 Named Executive Officers)

			Annual Compensation					Long-Term Compensation
								Awards				Payouts
Name and Principal Position	Year		Salary ($)		Bonus ($)	Other Annual Compensation ($)		Restricted Stock Awards ($)		Securities Under- Lying Options /SARs (#)		LTIP Payouts ($)		All Other Compensation ($)(1)
Howard S. Hoffmann(2) Chief Executive Officer and President		2005 2004		— —	— —		2,442,618 1,095,836		— —		— —		— —		— —
Frank W. Lavelle(3) Former President		2005		372,288	546,000		15,910		—		—		—		3,505
Kathleen E. Donovan(4) Senior Vice President and Chief Financial Officer		2005		177,644	92,188		—		—		—		—		1,837
Michael F. Clark(5) Senior Vice President of Operations		2005		209,099	86,505		2,738		—		—		—		139,725
Adele Barbato(6) Former Senior Vice President, Human Resources		2005		175,013	81,667		—		—		—		—		1,693
Terry L. Cameron(7) Former Senior Vice President, Marketing & Business Development		2005 2004		177,551 10,859	150,000 —		— —		— —		— —		— —		538,722 —
John W. Quaintance(8) Former Chief Operating Officer		2005 2004 2003		29,250 234,000 194,775	— 40,500 142,300		750 6,300 6,000		— — —		— — 11,500		— — —		617,441 7,961 81,479

(1)For the year ended December 31, 2005, All Other Compensation consists of: (a) payments made pursuant to separation agreements to the following individuals in the following amounts: Mr. Cameron—$319,000 (including $183,333 of severance paid in 2006) and Mr. Quaintance—$615,605 (including $33,155 of accrued but unpaid vacation); (b) matching contributions by us to our 401(k) plan on behalf of the following individuals in the following amounts: Mr. Clark—$1,361 and Mr. Quaintance—$1,500; (c) premiums for group life insurance paid by us for the following individuals in the following amounts: Mr. Lavelle—$1,155; Ms. Donovan—$809; Mr. Clark—$805; Ms. Barbato—$745; Mr. Cameron—$678 and Mr. Quaintance—$148; (d) premiums for long-term disability insurance paid by us for the following individuals in the following amounts: Mr. Lavelle—$2,350; Ms. Donovan—$1,028; Mr. Clark—$1,024; Ms. Barbato—$948; Mr. Cameron—$862; and Mr. Quaintance—$188 and (e) relocation assistance paid by us for the following individuals in the following amounts: Mr. Clark—$136,535 (including a tax gross-up payment of $57,145); and Mr. Cameron—$218,182 (including a tax gross-up payment of $75,041).

89

For the year ended December 31, 2004, All Other Compensation consists of: (a) matching contributions by us to our 401(k) plan on behalf of Mr. Quaintance in the amount of $4,179; (b) premiums for group life insurance paid by us for Mr. Quaintance in the amount of $736; (c) premiums for long-term disability insurance paid by us for Mr. Quaintance in the amount of $1,103 and (d) matching contributions by us to our Executive Deferred Compensation Plan on behalf of Mr. Quaintance in the amount of $1,943.

For the year ended December 31, 2003, All Other Compensation consists of: (a) matching contributions by us to our 401(k) plan on behalf of Mr. Quaintance in the amount of $3,040; (b) premiums for group life insurance paid by us on behalf of Mr. Quaintance in the amount of $459; (c) premiums for long-term disability insurance paid by us on behalf of Mr. Quaintance in the amount of $1,063; (d) relocation assistance paid by us to Mr. Quaintance in the amount of $75,000 and (e) matching contributions by us to our Executive Deferred Compensation Plan on behalf of Mr. Quaintance in the amount of $1,917.

(2)We named Mr. Hoffmann our Chief Executive Officer on July 30, 2004 and President on June 14, 2007. For the year ended December 31, 2005, the amounts shown as Other Annual Compensation paid to Mr. Hoffmann represent total payments of $2,400,000 to Nightingale, the primary purpose of which was to compensate Nightingale for Mr. Hoffman’s services as our Chief Executive Officer. During the year ended December 31, 2005, we made additional payments aggregating $42,618 to Nightingale, the primary purpose of which was to reimburse Nightingale for travel and living expenses incurred by Mr. Hoffmann in his capacity as our Chief Executive Officer. For the year ended December 31, 2004, the amounts shown as Other Annual Compensation paid to Mr. Hoffmann represent total payments of $1,078,806 to Nightingale (including a $300,000 operational turnaround performance fee and a $75,000 advance deposit), the primary purpose of which was to compensate Nightingale for Mr. Hoffman’s services as our Chief Executive Officer. During the year ended December 31, 2004, we also made additional payments aggregating $17,030 to Nightingale, the primary purpose of which was to reimburse Nightingale for travel and living expenses incurred by Mr. Hoffmann in his capacity as our Chief Executive Officer. Mr. Hoffmann is the Managing Partner of Nightingale.

(3)Mr. Lavelle left our employment on May 14, 2007 and is no longer employed by us. Of the $546,000 bonus that we paid to Mr. Lavelle for the year ended December 31, 2005, $46,000 was paid as a signing bonus, $250,000 was paid as an annual performance bonus and $250,000 was paid pursuant to the terms of his employment agreement in lieu of a restricted stock award or a grant of non-qualified stock options (see “Employment Agreements with our 2005 Named Executive Officers—Frank W. Lavelle”). For the year ended December 31, 2005, the amounts shown as Other Annual Compensation paid to Mr. Lavelle consist of a $14,250 automobile allowance and $1,660 in country club membership fees.

(4)We named Ms. Donovan our Senior Vice President and Chief Financial Officer on June 27, 2005. Of the $92,188 bonus that we paid to Ms. Donovan for the year ended December 31, 2005, $42,188 was paid as an annual performance bonus and $50,000 was paid as a signing bonus.

(5)We named Mr. Clark our Senior Vice President of Operations on February 1, 2005. Prior to being named as one of our executive officers, Mr. Clark served us in other capacities including as Senior Vice President of Operations for our Western Division and as our Vice President of Operations for our Southwest Division. Mr. Clark’s bonus for the year ended December 31, 2005 was paid as an annual performance bonus. For the year ended December 31, 2005, the amounts shown as Other Annual Compensation paid to Mr. Clark consist of a $1,750 automobile allowance and $988 in travel-related club membership fees.

(6)Ms. Barbato left our employment on August 3, 2006 and is no longer employed by us. Of the $81,667 bonus that we paid to Ms. Barbato for the year ended December 31, 2005, $45,000 was paid as a signing bonus and $36,667 was paid as an annual performance bonus.

(7)Mr. Cameron left our employment on October 6, 2005 and is no longer employed by us. For the year ended December 31, 2005, we paid Mr. Cameron a signing bonus in the amount of $150,000.

(8)Mr. Quaintance left our employment on January 31, 2005 and is no longer employed by us. For the year ended December 31, 2004, we paid Mr. Quaintance an annual performance bonus in the amount of $40,500. For the year ended December 31, 2003, we paid Mr. Quaintance an annual performance bonus in the amount of $142,300. For the year ended December 31, 2004, salary includes compensation deferred at his election pursuant to our Executive Deferred Compensation Plan in the amount of $26,855. For the year ended December 31, 2003, Mr. Quaintance’s salary includes compensation deferred at his election pursuant to our Executive Deferred Compensation Plan in the amount of $23,283. For the year ended December 31, 2005, the amounts shown as Other Annual Compensation paid to Mr. Quaintance consist of a $750 automobile allowance. For the year ended December 31, 2004, the amounts shown as Other Annual Compensation paid to Mr. Quaintance consist of a $6,000 automobile allowance and $300 in travel-related club membership fees. For the year ended December 31, 2003, the amounts shown as Other Annual Compensation paid to Mr. Quaintance consists of a $6,000 automobile allowance.

90

Named Executive Officers on December 31, 2004 or December 31, 2003 (Former Named Executive Officers)

			Annual Compensation			Long-Term Compensation
						Awards				Payouts
Name and Principal Position(1)	Year		Salary ($)(2)	Bonus ($)(3)	Other Annual Compensation ($)(4)	Restricted Stock Awards ($)		Securities Under- Lying Options /SARs (#)		LTIP Payouts ($)		All Other Compensation ($)(5)
Stephen H. Rusckowski(6)		2004	—	—	—		—		—		—		—
Former Interim President and Chief Executive Officer		2003	—	—	—		—		—		—		—
R. Timothy Stack(7)		2003	83,653	135,000	—		696,500		—		—		280,054
Former President and Chief Executive Officer
David A. Cohen		2003	254,907	—	13,200		—		—		—		186,253
Former President and Chief Executive Officer
Gregory M. Sebasky(8)		2005	—	—	150,000		—		—		—		—
Former Acting President		2004	—	—	500,000		—		—		—		—
John M. Suender		2004	179,138	—	3,000		—		—		—		300,863
Former Executive Vice President and Chief Legal Officer		2003	206,038	144,826	9,278		—		11,500		—		6,928
Brian J. Kearns		2004	155,351	—	8,000		—		—		—		404,868
Former Executive Vice President and Chief Financial Officer		2003	228,307	146,070	9,278		—		11,500		—		7,064
Ethan H. Cohen		2004	190,132	—	—		—		—		—		370,263
Former Executive Vice President and Chief Technology Officer		2003	197,207	41,130	4,399		—		11,500		—		5,647
Ronald F. Scarpone		2004	166,691	40,572	8,020		—		—		—		397,733
Former Senior Vice President, Marketing and Business Development		2003	192,287	40,723	9,908		—		11,500		—		4,737
Jim Weiland		2005	168,673	—	800		—		—		—		211,262
Former Senior Vice President, Sales		2004	9,558	75,000	—		—		—		—		—

(1)Mr. Rusckowski ceased acting as our interim President and Chief Executive Officer on February 13, 2004 and as our interim Chief Executive Officer on July 30, 2004, but continues to serve on our board of directors. Mr. Stack left our employment on December 3, 2003 and is no longer employed by us. Mr. D. Cohen left our employment on April 1, 2004 and is no longer employed by us. Mr. Sebasky ceased acting as our President on March 8, 2005 but currently serves on our board of directors. Mr. Kearns left our employment on August 1, 2004 and is no longer employed by us. Mr. Suender left our employment on August 1, 2004 and is no longer employed by us. Mr. E. Cohen left our employment on October 28, 2004 and is no longer employed by us. Mr. Scarpone left our employment on October 29, 2004 and is no longer employed by us. Mr. Weiland left our employment on October 6, 2005 and is no longer employed by us.

(2)For the year ended December 31, 2004, Salary includes compensation deferred pursuant to our Executive Deferred Compensation Plan in the following amounts: Mr. Suender—$40,060; Mr Kearns—$14,123 and Mr. E. Cohen—$13,617.

For the year ended December 31, 2003, Salary includes compensation deferred pursuant to our Executive Deferred Compensation Plan in the following amounts: Mr. Suender—$3,917; Mr. Kearns—$20,505 and Mr. E. Cohen—$11,952.

(3)For the year ended December 31, 2004, Bonus consists of the following amounts: Mr. Scarpone—$40,572 (annual performance bonus) and Mr. Weiland—$75,000 (signing bonus).

For the year ended December 31, 2003, Bonus consists of the following amounts: Mr. Stack—$135,000 (signing bonus); Mr. Suender—$144,826 (annual performance bonus); Mr. Kearns—$146,070 (annual performance bonus); Mr. E. Cohen—$41,130 (annual performance bonus) and Mr. Scarpone—$40,723 (annual performance bonus).

(4)For the year ended December 31, 2005, All Other Compensation consists of $800 of travel-related club membership fees for Mr. Weiland.

For the year ended December 31, 2004, All Other Compensation consists of (a) automobile allowances in the following amounts: Mr. Suender—$3,000; Mr. Kearns—$3,000 and Mr. Scarpone—$6,002; (b) $5,000 of reimbursement payments for cancelled vacation for Mr. Kearns; and (c) $2,018 of automobile insurance payments for Mr. Scarpone.

For the years ended December 31, 2005 and 2004, the amounts shown as Other Annual Compensation paid to Mr. Sebasky represent total payments of $150,000 and $500,000, respectively, to Philips, the primary purpose of which was to reimburse Philips for Mr. Sebasky’s services as our acting President.

For the year ended December 31, 2003, All Other Compensation consists of (a) automobile allowances in the following amounts: Mr. D. Cohen—$13,200; Mr. Suender—$4,600; Mr. Kearns—$4,600 and Mr. Scarpone—$7,202; and (b) subsidy payments for medical and dental plans in the following amounts: Mr. Suender—$4,678; Mr. Kearns—$4,678; Mr. E. Cohen—$4,399 and Mr. Scarpone—$2,706.

91

(5)For the year ended December 31, 2005, All Other Compensation consists of: (a) a payment made to Mr. Weiland pursuant to a separation agreement in the amount of $210,000 (including $175,000 of severance paid in 2006); (b) premiums for group life insurance paid by us on behalf of Mr. Weiland in the amount of $597 and (c) premiums for long-term disability insurance paid by us on behalf of Mr. Weiland in the amount of $665.

For the year ended December 31, 2004, All Other Compensation consists of: (a) payments made pursuant to separation agreements in the following amounts: Mr. Suender—$295,963 (including $21,139 of accrued but unpaid vacation and $183,216 of severance paid in 2005); Mr. Kearns—$400,000 (including $288,889 of severance paid in 2005); Mr. E. Cohen—$364,337 (including $182,005 of severance paid in 2005) and Mr. Scarpone—$393,698 (including $19,206 for accrued but unpaid vacation, $228,856 of severance paid in 2005 and $83,220 of severance paid in 2006); (b) matching contributions by us to our 401(k) plan on behalf of the following individuals in the following amounts: Mr. Suender—$2,399; Mr. Kearns—$2,282; Mr. E. Cohen—$2,674 and Mr. Scarpone—$2,500; (c) premiums for group life insurance paid by us for the following individuals in the following amounts: Mr. Suender—$498; Mr. Kearns—$512; Mr. E. Cohen—$577 and Mr. Scarpone—$637; (d) premiums for long-term disability insurance paid by us for the following individuals in the following amounts: Mr. Suender—$644; Mr. Kearns—$662; Mr. E. Cohen—$910 and Mr. Scarpone—$898 and (e) matching contributions by us to our Executive Deferred Compensation Plan for the following individuals in the following amounts: Mr. Suender—$1,359; Mr. Kearns—$1,412 and Mr. E. Cohen—$1,765.

For the year ended December 31, 2003, All Other Compensation consists of: (a) a payment made to Mr. D. Cohen pursuant to a separation agreement in the amount of $179,725 (payment relates to a lump sum severance payment to Mr. D. Cohen in connection with his service as a special advisor to us until April 1, 2004); (b) matching contributions by us to our 401(k) plan on behalf of the following individuals in the following amounts: Mr. D. Cohen—$2,875; Mr. Suender—$3,059; Mr. Kearns—$3,144; Mr. E. Cohen—$2,806 and Mr. Scarpone—$2,884; (c) premiums for group life insurance paid by us for the following individuals in the following amounts: Mr. D. Cohen—$1,040; Mr. Suender—$927; Mr. Kearns—$952 and Mr. Scarpone—$839; (d) premiums for long-term disability insurance paid by us for the following individuals in the following amounts: Mr. D. Cohen—$2,613; Mr. Suender—$1,111; Mr. Kearns—$1,142; Mr. E. Cohen—$1,017 and Mr. Scarpone—$1,014; (e) relocation assistance paid by us to Mr. Stack in the amount of $280,054 and (f) matching contributions by us to our Executive Deferred Compensation Plan for the following individuals in the following amounts: Mr. Suender—$1,831; Mr. Kearns—$1,826 and Mr. E. Cohen—$1,824.

(6)Mr. Rusckowski remained an employee of Philips while serving as our interim President and Chief Executive Officer. We did not pay Mr. Rusckowski or reimburse Philips for his services as our interim President and Chief Executive Officer.

(7)On August 22, 2003, we granted to Mr. Stack 35,000 shares of our common stock as part of a restricted stock award in connection with his employment agreement. Mr. Stack forfeited all 35,000 shares upon the termination of his employment in December 2003.

(8)Mr. Sebasky remained an employee of Philips while serving as our acting President.

Stock Option Grants

2005 Named Executive Officers

The following table identifies all stock option grants made to our 2005 Named Executive Officers. All options were granted under our 2002 Stock Option Plan. Each of the options granted below shall vest in equal 20% installments on each of the first five anniversaries of the grant date provided the employee holding such stock options remains employed by us.

			Individual Grants									Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1)
Name	Year		Number of Securities Underlying Options Granted (#)(2)(3)		Percent of Total Options Granted to Employees in Fiscal Year			Exercise or Base Price ($)		Expiration Date		5% ($)	10% ($)
John W. Quaintance		2003		11,500		1.63	%		17.45		02/04/13	126,203		319,824

(1)The potential realizable value portion of the foregoing table represents a hypothetical value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the common stock over the term of the options, based on the fair market value of the common stock at the time the options were awarded. The amounts do not take into account provisions of the options relating to vesting, nontransferability or termination of the option following termination of employment.

(2)Mr. Quaintance was issued a non-qualified stock option to purchase 6,900 shares of common stock and an incentive stock option to purchase 4,600 shares of common stock during the year ended December 31, 2003.

(3)On July 23, 2004, our board of directors affirmed our June 16, 2004 decision to indefinitely suspend the exercise of options under our stock option plans. Notwithstanding the foregoing, the post-termination option exercise period for unexercised stock options held by certain of our executive officers that are no longer employed by us, including Mr. Quaintance, was frozen, so that the post-termination exercise period for each of those holders will not begin to run until we become current in our reporting obligations under the Exchange Act. Mr. Quaintance left our employment on January 31, 2005 and is no longer employed by us. Upon his termination of employment, 2,300 of the 11,500 options were vested.

92

Former Named Executive Officers

The following table identifies all stock option grants made to our Former Named Executive Officers. All options were granted under our 2002 Stock Option Plan. Each of the options granted below shall vest in equal 20% installments on each of the first five anniversaries of the grant date provided the employee holding such options remains employed by us.

			Individual Grants									Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1)
Name	Year		Number of Securities Underlying Options Granted (#)(2)(3)		Percent of Total Options Granted to Employees in Fiscal Year			Exercise or Base Price ($)		Expiration Date		5% ($)	10% ($)
John M. Suender		2003		11,500		1.63	%		17.45		02/04/13	126,203		319,824
Brian J. Kearns		2003		11,500		1.63	%		17.45		02/04/13	126,203		319,824
Ethan H. Cohen		2003		11,500		1.63	%		17.45		02/04/13	126,203		319,824
Ronald F. Scarpone		2003		11,500		1.63	%		17.45		02/04/13	126,203		319,824

(1)The potential realizable value portion of the foregoing table represents a hypothetical value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the common stock over the term of the options, based on the fair market value of the common stock at the time the options were awarded. The amounts do not take into account provisions of the options relating to vesting, nontransferability, or termination of the option following termination of employment.

(2)The amounts listed in this column represent the following: Mr. Suender—7,359 shares of common stock issuable upon exercise of a non-qualified stock option and 4,141 shares of common stock issuable upon exercise of an incentive stock option; Mr. Kearns—7,359 shares of common stock issuable upon exercise of a non-qualified stock option and 4,141 shares of common stock issuable upon exercise of an incentive stock option; Mr. E. Cohen—6,956 shares of common stock issuable upon exercise of a non-qualified stock option and 4,544 shares of common stock issuable upon exercise of an incentive stock option and Mr. Scarpone—6,956 shares of common stock issuable upon exercise of a non-qualified stock option and 4,544 shares of common stock issuable upon exercise of an incentive stock option.

(3)On July 23, 2004, our board of directors affirmed our June 16, 2004 decision to indefinitely suspend the exercise of options under our stock option plans. Notwithstanding the foregoing, the post-termination option exercise period for unexercised stock options held by certain of our executive officers that are no longer employed by us, including Mr. Suender, Mr. Kearns, Mr. E. Cohen and Mr. Scarpone, was frozen, so that the post-termination exercise period for each of those holders will not begin to run until we become current in our reporting obligations under the Exchange Act. Messrs. Suender, Kearns, E. Cohen and Scarpone left our employment on August 1, 2004, August 1, 2004, October 28, 2004 and October 29, 2004, respectively. Upon each person’s termination of employment, 2,300 out of the 11,500 options were vested.

Aggregated Stock Option Exercises and Fiscal Year-End Options

2005 Named Executive Officers

None of our 2005 Named Executive Officers exercised any options during the years ended December 31, 2005, 2004 and 2003. The following table sets forth information concerning unexercised stock options held by our 2005 Named Executive Officers during the years ended December 31, 2005, 2004 and 2003.

						Number of Securities Underlying Unexercised Options at Fiscal Year End (#)				Value of Unexercised In-The- Money Options at Fiscal Year End ($)(1)(2)
Name	Year	Shares Acquired on Exercise (#)		Value Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable
Michael F. Clark	2005		—		—		15,600		13,400		—		—
John W. Quaintance	2005		—		—		108,460		—		33,984		—
	2004		—		—		98,540		36,960		45,224		—
	2003		—		—		76,320		59,180		55,040		360

(1)Based upon the last reported sale price of our common stock as reported by the over-the-counter “Pink Sheets” market on December 30, 2005 of $12.15 and on December 31, 2004 of $14.80.

93

(2)On July 23, 2004, our board of directors affirmed our June 16, 2004 decision to indefinitely suspend the exercise of options under our stock option plans. Notwithstanding the foregoing, the post-termination option exercise period for unexercised stock options held by certain of our executive officers that are no longer employed by us, including Mr. Quaintance, was frozen, so that the post-termination exercise period for those holders will not begin to run until we become current in our reporting obligations under the Exchange Act.

Other than Mr. Clark and Mr. Quaintance, none of our 2005 Named Executive Officers hold, or held during any of the years ended December 31, 2005, 2004 and 2003, any options to acquire shares of our common stock.

Former Named Executive Officers

The following table sets forth information concerning options exercised by our Former Named Executive Officers during the years ended December 31, 2005, 2004 and 2003, as well as information concerning unexercised options held by them.

						Number of Securities Underlying Options at Fiscal Year End (#)				Value of Unexercised In-The-Money Options at Fiscal Year End ($)(1)(2)
Name	Year	Shares Acquired on Exercise (#)		Value Realized ($)		Exercisable		Unexercisable		Exercisable		Unexercisable
R. Timothy Stack(3)	2003		—		—		3,000		—		—		—
David A. Cohen(3)	2004		171,028		2,334,179		526,974		—		2,080,994		—
	2003		—		—		747,124		98,480		4,774,336		1,260
John M. Suender	2005		—		—		122,346		—		77,280		—
	2004		—		—		122,346		—		119,027		—
	2003		—		—		125,726		72,780		163,879		360
Brian J. Kearns	2005		—		—		84,940		—		—		—
	2004		—		—		84,940		—		—		—
	2003		—		—		76,320		76,780		240		360
Ethan H. Cohen	2005		—		—		12,000		—		—		—
	2004		—		—		12,000		—		—		—
	2003		—		—		97,314		53,820		101,076		360
Ronald F. Scarpone	2005		—		—		136,978		—		119,256		—
	2004		—		—		136,978		—		178,529		—
	2003		—		—		114,598		59,820		232,341		360

(1)    Based upon the last reported sale price of our common stock as reported by the over-the-counter “Pink Sheets” market on December 30, 2005 of $12.15 and on December 31, 2004 of $14.80; as well as the last reported sale price of our common stock as reported by the NASDAQ National Market on December 31, 2003 of $16.06.

(2)    On July 23, 2004, our board of directors affirmed our June 16, 2004 decision to indefinitely suspend the exercise of options under our stock option plans. Notwithstanding the foregoing, the post-termination option exercise period for unexercised stock options held by certain of our executive officers that are no longer employed by us, including Mr. Suender, Mr. Kearns, Mr. E. Cohen and Mr. Scarpone, was frozen, so that the post-termination exercise period for those holders will not begin to run until we become current in our reporting obligations under the Exchange Act.

(3)    All of the unexercised options listed in the above table for each of Mr. Stack and Mr. D. Cohen have been cancelled, and therefore have no actual value as of the date of this filing. We include this information only because the options were in effect during the periods covered by this filing.

94

Compensation of Directors

Philips Directors and Management Directors (as described in Item 10, Directors and Executive Officers of the Registrant, and in Item 13, Certain Relationships and Related Transactions) do not receive any compensation for their service on our board of directors, but are reimbursed for all reasonable expenses incurred by them in connection with their service on our board of directors. Independent Directors (as described in Item 10, Directors and Executive Officers of the Registrant, and in Item 13, Certain Relationships and Related Transactions) are entitled to compensation for their service on our board of directors and on any committees of our board of directors.

2003 and 2004 Compensation

In 2003 and 2004 we had a stock based deferred compensation plan for our board of directors (Board Deferred Stock Plan). Under the Board Deferred Stock Plan, each Independent Director was entitled to receive deferred compensation in the form of our common stock having a fair market value of $18,000 on the date of grant, which was the business day immediately preceding January 1 of each year. Common stock awarded under the Board Deferred Stock Plan is issued when a director leaves our board of directors, unless a director elected not to defer receipt under a particular grant. If an Independent Director had elected not to defer receipt of the award, the common stock would have been issued as of the date of grant and the director could have elected to receive up to $6,000 of the award in cash. An Independent Director choosing not to defer receipt of the award would have nevertheless been prohibited from selling the common stock issued pursuant to the Board Deferred Stock Plan until leaving our board of directors. Fair market value of a particular grant equals the closing price of our common stock on the date of grant. In 2003 and 2004, the fair market value of a share of our common stock on the date of grant (December 31) under such plan was $16.06 and $14.80, respectively.

In addition to deferred compensation under the Board Deferred Stock Plan, our Independent Directors each received $54,000 as the cash portion of their compensation for a two year period (2003 and 2004) for their service on our board of directors. We also reimbursed our Independent Directors for all reasonable expenses incurred by them in connection with their service on our board of directors.

2005 Compensation

Commencing on January 1, 2005, our Independent Directors receive the following annual compensation:

·deferred compensation in the form of common stock having a far market value of $50,000 on the date of grant; and

·$25,000 in cash to cover all meetings, with committee chairs receiving an additional $2,000 in cash and the chair of the Audit Committee receiving and additional $5,000 in cash.

Our board of directors postponed the granting of the deferred compensation awards for 2005 and 2006 until such time as we become current in our periodic reporting obligations with the SEC. However, the cash component of the independent directors’ compensation was paid in 2005 and 2006.

Employment Agreements with our 2005 Named Executive Officers

Howard S. Hoffmann

On July 30, 2004, our board of directors appointed Howard S. Hoffmann to serve as our Chief Executive Officer. On June 14, 2007, our board of directors appointed Mr. Hoffmann as our President. In connection with his appointment, we entered into a letter agreement with Nightingale, dated as of July 29, 2004 and amended as of December 16, 2004, September 25, 2006 and January 8, 2007, pursuant to which

95

Nightingale assigns the services of Mr. Hoffmann to us to serve as our Chief Executive Officer. Mr. Hoffmann serves as the Managing Partner of Nightingale. Mr. Hoffmann continues to serve as our full time Chief Executive Officer pursuant to the terms of the agreement, which expired on June 30, 2007. We are currently negotiating the terms of an extension of this agreement. We currently pay to Nightingale the sum of $120,000 per month for Mr. Hoffmann’s service as our Chief Executive Officer. In addition, we reimburse Nightingale for any out-of-pocket expenses incurred by Mr. Hoffmann in the course of his service as our Chief Executive Officer. Examples of such out-of-pocket expenses include transportation, meals, lodging, telephone, specifically assignable secretarial and office assistance, and report production. Upon the completion of his service as our Chief Executive Officer, if we decide to employ Mr. Hoffmann as a consultant, we will pay Nightingale $525 per hour for Mr. Hoffmann’s services as a consultant.

Nightingale may be entitled to an additional performance related bonus payment of up to $480,000, which will be paid no later than July 16, 2007, in connection with Mr. Hoffmann’s service in 2007 as our Chief Executive Officer (2007 Performance Bonus). The amount, if any, of the 2007 Performance Bonus that Nightingale is to receive will be based on the achievement of certain operational objectives that have been established by our board of directors and Nightingale.

In addition, 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 our Chief Executive Officer (2006 Discretionary Bonus). Whether or not such payment will be made to Nightingale will be decided upon by a committee composed of the Non-Executive Chairman of our board of directors, the Chairman of the Audit Committee and the Chairman of the Compensation Committee. The committee will inform Nightingale of the amount, if any, of the 2006 Discretionary Bonus that is to be paid by the date that is 14 days following completion of the filing of our periodic filings covering the years 2003, 2004 and 2005 and the first three quarters of 2006 with the SEC.

Kathleen E. Donovan

On June 2, 2005, we entered into an employment agreement with Kathleen E. Donovan, our Senior Vice President and Chief Financial Officer. The initial term of Ms. Donovan’s employment agreement is three years, and will be automatically renewed for additional one year periods until either we or Ms. Donovan gives written notice to the other of nonrenewal at least 90 days prior to the end of the term. Ms. Donovan’s annual base salary is $375,000. Additionally, Ms. Donovan received a signing bonus of $200,000 which was paid as follows:

·$50,000 within 30 days of her employment commencement date;

·$50,000 on the 12 month anniversary of her employment commencement date; and

·$100,000 on the 24 month anniversary of her employment commencement date.

Ms. Donovan is eligible to receive an annual target bonus of 45% of her base salary pursuant to our Management Bonus Plan (our 2007 Management Incentive Plan is described in “—Employee Benefit Plans—2007 Management Incentive Plan” below), based upon attainment of pre-established bonus plan target objectives by Ms. Donovan and us. Ms. Donovan’s actual bonus award may be higher or lower than the target bonus amount based upon achievement of the objectives by Ms. Donovan and us. Ms. Donovan is also entitled to participate in the benefit programs generally available to our employees.

In connection with her employment, Ms. Donovan is entitled to a special stock option grant of non-qualified stock options to purchase up to 80,000 shares of our common stock pursuant to our 2002 Stock Option Plan. The grant date of the special options will occur on the later of the date we become current in our reporting obligations under the Exchange Act and the first date thereafter when the Form S-8 Registration Statement registering shares of our common stock issuable under our 2002 Stock Option Plan complies with the requirements of the SEC, provided that Ms. Donovan is still an employee

96

on the grant date. The option will vest annually over five years subject to Ms. Donovan’s continued employment with us and will have an exercise price equal at least to the fair market value of our common stock as of the grant date. Upon a change of control while Ms. Donovan is our employee, the special option grant may, from and after the date which is six months after the change of control (but not beyond the expiration date of the option), be exercised for up to 100% of the total number of shares then subject to the special option grant minus the number of shares previously purchased upon exercise of such option and the vesting date will accelerate accordingly. A “change of control” will be deemed to have occurred upon the happening of either:

·a change within a 12 month period in the holders of more than 50% of our outstanding voting stock; or

·any other event deemed to constitute a “change of control” by our board of directors.

Additionally, contingent upon her continued attainment of certain performance objectives, Ms. Donovan will be entitled to receive a long term incentive value of $60,000 annually through one of the following, as determined in our sole discretion:

·a stock option grant pursuant to our 2002 Stock Option Plan;

·a restricted stock grant; or

·a cash-based long term incentive program to be developed.

Ms. Donovan has not received, nor is entitled to receive, any long term incentive value for any periods through the date of this report, as her corresponding performance objectives have not yet been defined.

If Ms. Donovan’s employment is terminated by us without cause, she will be entitled to a severance benefit equivalent to her then current annual base salary plus a payment equal to the average of the last three annual bonuses received by Ms. Donovan; in the event Ms. Donovan has not been employed by us at least three years at the time of the termination of her employment, then the average of the last two years will apply.

Michael F. Clark

On April 21, 2005, we entered into an agreement with Michael F. Clark, our Senior Vice President of Operations, that sets forth the severance benefits to which Mr. Clark would be entitled in the event that his employment with us is terminated by us without cause. If Mr. Clark’s employment is terminated by us without cause, the agreement provides for the payment by us of a severance benefit equivalent to his then current annual base salary. Mr. Clark will not be entitled to any severance benefits in the event that he resigns his employment with us or if he is terminated for cause. We will, however, pay severance benefits to Mr. Clark if he tenders his written resignation within 30 days following a substantial and material diminution of his duties or a reduction in his base salary in excess of 10%, which diminution or reduction is not cured by us within 10 days of receiving Mr. Clark’s written resignation.

Frank W. Lavelle

Employment Agreement

On February 24, 2005, we entered into an employment agreement with Frank W. Lavelle, our former President. We entered into an amendment to Mr. Lavelle’s employment agreement on February 16, 2007. Mr. Lavelle left our employment on May 14, 2007 and is no longer employed by us.

Under his employment agreement, Mr. Lavelle received a minimum annual base salary of $500,000 (which was subject to annual review and adjustment). Mr. Lavelle also received a signing bonus of $46,000

97

upon the execution of his employment agreement. Mr. Lavelle received a bonus of $125,000 in 2007 for his service in 2006.

Under Mr. Lavelle’s employment agreement, we were obligated to issue Mr. Lavelle shares of restricted stock upon us becoming current in our reporting obligations under the Exchange Act; provided, however, since we did not become currenton or before December 31, 2005, under the terms of Mr. Lavelle’s agreement we paid Mr. Lavelle $250,000 in cash in January 2006 in lieu of issuing such restricted stock.

Mr. Lavelle’s employment agreement further provided for severance payments; however, these rights were superseded by a separation agreement and general release with us as described below.

Separation Agreement and General Release

We entered into a separation agreement and general release with Mr. Lavelle on June 28, 2007. The separation agreement and general release provides that Mr. Lavelle’s employment with us terminated effective as May 14, 2007 and terminates the employment agreement between us and Mr. Lavelle dated February 24, 2005 and amended on February 16, 2007.

The separation agreement and general release further requires us to provide Mr. Lavelle with severance in the amount of $875,000 payable in equal installments over 18 months, up to $100,000 in outplacement services, and the continuation of medical coverage following the date of termination until the earlier to occur of the expiration of 18 months or the date on which Mr. Lavelle is eligible for coverage under a plan maintained by a new employer or a plan maintained by his spouse’s employer, at the level in effect on the date of his termination (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, as the same may be changed by us from time to time for employees generally, as if Mr. Lavelle had continued in employment during such period.

The separation agreement also provides that, notwithstanding its termination, certain sections of Mr. Lavelle’s employment agreement will continue in effect, including those relating to confidentiality, non-competition, non-solicitation and indemnification.

Adele Barbato

On February 9, 2005, we entered into an executive employment agreement with Adele T. Barbato, our former Senior Vice President, Human Resources. The initial term of Ms. Barbato’s employment agreement was three years. Ms. Barbato left our employment on August 3, 2006 and is no longer employed by us. Pursuant to the terms of Ms. Barbato’s employment agreement, her annual base salary was $220,000 and she received a $70,000 signing bonus which was paid pursuant to the following schedule:

·$45,000 which was paid within 30 days of her employment commencement date; and

·$25,000 which was paid on the 12 month anniversary of her employment commencement date.

Ms. Barbato was also eligible to receive an annual target bonus of 40% of her base salary pursuant to our Management Bonus Plan, based upon attainment of pre-established bonus plan target objectives by us and Ms. Barbato. We paid Ms. Barbato a performance bonus in the amount of $36,667 for 2005. Ms. Barbato was also entitled to participate in the benefit programs generally available to our employees.

In connection with her employment by us, Ms. Barbato was entitled to a special stock option grant of non-qualified stock options to purchase up to 10,000 shares of our common stock pursuant to our 2002 Stock Option Plan. The grant date of the special option grant was not to occur until after we become current in our reporting obligations under the Exchange Act, provided that Ms. Barbato is still an employee on the grant date. Ms. Barbato’s right to receive the special option grant was cancelled upon her termination of employment with us.

98

Additionally, contingent upon Ms. Barbato’s continued attainment of performance objectives, she was entitled to receive a long term incentive value of $60,000 annually through one of the following, as determined in our sole discretion:

·a stock option grant pursuant to our 2002 Stock Option Plan;

·a restricted stock grant; or

·a cash-based long term incentive program to be developed.

Ms. Barbato did not receive, nor was she entitled to receive, any long term incentive value, as her corresponding performance objectives were not defined at the time of her termination of employment with us.

Her employment agreement also provided that if Ms. Barbato’s employment was terminated by us without cause, she would receive a severance benefit equivalent to one year’s annual base salary (at the rate in effect as of the date of termination) plus a payment equal to the average of the last three annual performance bonuses received by Ms. Barbato. In the event that there are not three full years of employment, then the average of the last two years will apply. Ms. Barbato voluntarily resigned and is not entitled to the above severance benefits.

Terry L. Cameron

Employment Agreement

On November 15, 2004, we entered into an executive employment agreement with Terry L. Cameron, our Senior Vice President, Marketing and Business Development. The initial term of Mr. Cameron’s employment agreement was three years. Mr. Cameron left our employment on October 6, 2005 and is no longer employed by us. Pursuant to the terms of his employment agreement, Mr. Cameron’s annual base salary was $220,000 and he was entitled to a signing bonus of $350,000; however, he only received $150,000 of such bonus because his employment with us terminated prior to when Mr. Cameron became eligible for the remaining portion of the bonus.

Mr. Cameron was also eligible to receive an annual target bonus of 45% of his base salary pursuant to our Management Bonus Plan, based upon attainment of pre-established bonus plan target objectives by us and Mr. Cameron. We did not pay Mr. Cameron a bonus pursuant to our Management Bonus Plan while he was employed by us. Mr. Cameron was also entitled during his employment to participate in the benefit programs generally available to our employees.

99

As provided in the employment agreement, Mr. Cameron was entitled to a special stock option grant of non-qualified stock options to purchase up to 60,000 shares of our common stock pursuant to our 2002 Stock Option Plan. The grant date of the special option grant was to occur on the later of

·the date we become current in our reporting obligations under the Exchange Act; or

·the first date thereafter when the Form S-8 Registration Statement for the 2002 Stock Option Plan complies with SEC requirements;

provided that Mr. Cameron is still an employee on the grant date. Mr. Cameron’s right to receive the special option grant was cancelled upon his termination of employment with us.

Additionally, contingent upon Mr. Cameron’s continued attainment of performance objectives, he was entitled to receive a long term incentive value of $120,000 annually through one of the following, as determined in our sole discretion:

·a stock option grant pursuant to our 2002 Stock Option Plan;

·a restricted stock grant; or

·a cash-based long term incentive program to be developed.

Mr. Cameron did not receive, nor was he entitled to receive, any long term incentive value, as his corresponding performance objectives were not defined at the time of his termination of employment with us.

Mr. Cameron’s employment agreement further provided for severance payments; however, these rights were superseded by a separation agreement with us as described below.

Separation Agreement

We entered into a separation agreement with Mr. Cameron on October 24, 2005. The separation agreement provided that Mr. Cameron’s employment with us was terminated effective as of the close of business on October 6, 2005 and the separation agreement also terminated the employment agreement between us and Mr. Cameron dated November 15, 2004.

The separation agreement further required us to pay for all accrued but unpaid salary and unreimbursed expenses of Mr. Cameron through October 6, 2005. In addition, the separation agreement provided that we pay to Mr. Cameron the following amounts as severance:

·continued payment of Mr. Cameron’s current base salary (at the base salary rate of $220,000 annually) for a period of 12 months to be paid in 12 equal monthly installments on the first of every month commencing on November 1, 2005; and

·within seven days of the full execution of the separation agreement, payment in one lump sum of $99,000, which constitutes 45% of Mr. Cameron’s current base salary.

The separation agreement also provides that, notwithstanding its termination, certain sections of Mr. Cameron’s employment agreement will continue in effect, including those relating to confidentiality, non-competition, and non-solicitation; provided, however, that the non-competition period set forth in the employment agreement was reduced from 18 months to 12 months.

John W. Quaintance

Employment Agreement

On May 22, 2000, we entered into an executive employment agreement with John Quaintance, our former Chief Operating Officer. The initial term of Mr. Quaintance’s employment agreement was

100

three years, with automatic one year renewals until cancelled upon 90 days prior written notice prior to the end of the term by us or Mr. Quaintance. Mr. Quaintance left our employment on January 31, 2005 and is no longer employed by us. When Mr. Quaintance left our employment, his annual base salary was $240,000.

Pursuant to the terms of his employment agreement, Mr. Quaintance was eligible to participate in our bonus plan and in the benefit programs generally available to our employees.

Mr. Quaintance’s employment agreement further provided for severance payments; however, the rights were superseded by a separation agreement with us as described below.

Separation Agreement

We entered into a separation agreement with Mr. Quaintance on December 10, 2004. The separation agreement provided that Mr. Quaintance resigned from our employment effective January 31, 2005 and the separation agreement also terminated the employment agreement between us and Mr. Quaintance dated May 22, 2000.

The separation agreement provided that, notwithstanding his resignation, Mr. Quaintance would be entitled to receive separation payments in an amount that he would have been entitled to if he had been terminated without cause under his employment agreement with us, provided that he continued to perform the services that are appropriate for a person in his position as well as provide all reasonable assistance to us in transitioning the responsibilities of his position. The separation payments consisted of:

·$33,155 as payment for accrued but unused paid time off; and

·any unreimbursed expenses incurred by Mr. Quaintance through January 31, 2005.

In addition to the benefits to which Mr. Quaintance is entitled to under his employment agreement, the separation agreement provided:

·for a lump sum payment in the amount of $582,450, which is equal to 1.5 multiplied by the sum of all cash compensation awarded to Mr. Quaintance in the fiscal year through October 31, 2004;

·for the right to reimbursement by us for up to 18 months of COBRA continuation coverage premiums;

·that the post-termination exercise period provided in the option award agreements for unexercised vested stock options held by Mr. Quaintance as of January 31, 2005 shall not commence until our board of directors lifts the suspension regarding the issuance and exercise of stock options pursuant to our stock options plans; and

·that, in accordance with our Executive Discretionary Bonus Plan for 2004, Mr. Quaintance will be eligible to receive the portion of the discretionary bonus for 2004 that is dependent upon our financial performance for the calendar year 2004.

We paid Mr. Quaintance $40,500 as an annual performance bonus for 2004.

The separation agreement further provides that, notwithstanding the termination of his employment agreement, certain sections of the employment agreement will continue in effect, including confidentiality, non-competition, and non-solicitation; provided, however, that the non-competition and non-solicitation periods set forth in his employment agreement were reduced from two years to 18 months. Under the separation agreement, Mr. Quaintance released us from claims arising or occurring on or prior to the December 10, 2004 in connection with his employment.

101

Employee Benefit Plans

Stock Option Plans

On July 23, 2004, our board of directors affirmed our June 16, 2004 decision to indefinitely suspend the exercise of options under our stock option plans. Notwithstanding the foregoing, the post-termination option exercise period for unexercised stock options held by certain of our executive officers that are no longer employed by us was frozen, such that the post-termination exercise period for those holders will not begin to run until we become current in our reporting obligations under the Exchange Act.

2002 Stock Option Plan

Our 2002 Stock Option Plan was adopted by our board of directors in December 2001 and our shareholders in May 2002. Our 2002 Stock Option Plan is administered by the Compensation Committee of our board of directors. The purpose of our 2002 Stock Option Plan is to provide additional incentives to our officers, other key employees and non-employee directors (and those officers, other key employees and non-employee directors of each of our present or future parent or subsidiary corporations), by encouraging them to invest in shares of our common stock, and to thereby acquire a proprietary interest in our equity ownership and an increased personal interest in our continued success and progress. Options may not be granted pursuant to our 2002 Stock Option Plan after December 2011.

Number of Shares and Adjustment.   The aggregate number of shares which may presently be issued upon the exercise of options granted under our 2002 Stock Option Plan is 1,500,000 shares of our common stock. As of May 31, 2007, options to purchase 356,200 shares of our common stock were outstanding under our 2002 Stock Option Plan. The aggregate number and kind of shares issuable under our 2002 Stock Option Plan is subject to appropriate adjustment in the sole discretion of the Compensation Committee to reflect changes in the number of outstanding shares of our common stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion, or other similar circumstances. Any shares of our common stock subject to options that terminate unexercised will be available for future grants under our 2002 Stock Option Plan.

Eligibility and Administration.   All of our officers and key employees (or any officers and key employees of any of our current or future parent or subsidiary corporations), including all non-employee directors are eligible to receive options under our 2002 Stock Option Plan to purchase shares of our common stock. The Compensation Committee determines, among other things, which of our officers and key employees will be granted options under our 2002 Stock Option Plan, whether options granted will be incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (Code) or non-qualified stock options not intended to meet the requirements of Section 422 of the Code, the number of shares subject to an option, the time at which an option is granted and the duration of an option and the exercise price of an option. No individual may receive options under our 2002 Stock Option Plan for more than 80% of the total number of shares of our common stock authorized for issuance under our 2002 Stock Option Plan. Our 2002 Stock Option Plan also provides that each person who is a director of ours as of June 1 of each year and who is not an employee of ours shall automatically be granted an option to purchase 3,000 shares of our common stock, subject to such adjustment or modification as may be adopted by our board of directors. On October 14, 2004, our board of directors suspended indefinitely the annual grant of 3,000 options to each of our non-employee directors.

Amendment, Supplement, Suspension and Termination.   Our board of directors reserves the right at any time, and from time to time, to modify or amend our 2002 Stock Option Plan in any way, or to suspend or terminate it, provided, however, that such action shall not affect options granted under our 2002 Stock Option Plan prior to the actual date on which such action occurred.

102

Exercise Price and Terms.   The exercise price for options granted under our 2002 Stock Option Plan shall be equal to at least the fair market value of our common stock as of the date of the grant of the option, except that the option exercise price of incentive stock options granted to individuals owning shares our common stock possessing more than 10% of the total combined voting power of all classes of our equity securities must not be less than 110% of the fair market value as of the date of the grant of the option. Unless terminated earlier by the option’s terms, options granted under our 2002 Stock Option Plan will expire 10 years after the date they are granted, except that, with respect to incentive stock options granted to individuals owning shares of our common stock possessing more than 10% of the total combined voting power of all classes of our equity securities on the date of the grant, Section 422 of the Code requires that such options expire five years after the date they are granted.

Payment of Exercise Price.   Payment of the option price on exercise of incentive stock options and non-qualified stock options may be made in cash, with shares of our common stock, or a combination of both.

Termination of Service; Death; Non-Transferability.   All unexercised incentive stock options will terminate such number of days (not to exceed 90) as determined by the Compensation Committee after the date that either:

·the optionee ceases to perform services for us; or

·we deliver to or receive notice from the optionee of an intention to terminate his or her employment relationship, regardless of whether or not a different effective date of termination is provided in such notice;

provided, however, that this termination date shall not apply in the case of disability or death of the optionee (but in no event shall the option expire later than the expiration date).

A holder of an incentive stock option under our 2002 Stock Option Plan who ceases to be an employee because of a disability must exercise any vested but unexercised options within one year after he or she ceases to be an employee (but in no event later than the expiration date). The heirs or personal representative of a deceased employee who could have exercised an option while alive may exercise such option within one-year following the employee’s death (but in no event later than the expiration date). No option is transferable except by will, the laws of descent and distribution or pursuant to a qualified domestic relations order.

1992 Stock Option Plan

Our 1992 Stock Option Plan was adopted by our board of directors and shareholders in January 1992. Our 1992 Stock Option Plan, which replaced our 1988 Stock Option Plan, is administered by the Compensation Committee. Options may no longer be issued under our 1992 Stock Option Plan.

Number of Options Outstanding.   As of May 31, 2007, options to purchase 1,636,454 shares of our common stock were outstanding under our 1992 Stock Option Plan.

Option Term.   Options issued under our 1992 Stock Option Plan have a maximum term of 10 years.

Termination of Service; Death.   Options issued under our 1992 Stock Option Plan terminate one year after the termination of employment by reason of death or disability and 90 days after any other termination of employment (but in no event shall the option expire later than the expiration date).

Nonstatutory Stock Option Plan for Non-Employee Directors

Our Nonstatutory Stock Option Plan for Non-Employee Directors was adopted by our board of directors and our shareholders in January 1992. Our Nonstatutory Stock Option Plan for Non-Employee

103

Directors is administered by our board of directors and was created to enhance our ability to attract, retain and motivate non-employee members of our board of directors and to provide additional incentives to non-employee members of our board of directors. Options may no longer be issued pursuant to our Nonstatutory Stock Option Plan for Non-Employee Directors.

Number of Options Outstanding.   As of May 31, 2007, options to purchase 95,240 shares of our common stock were outstanding under our Nonstatutory Stock Option Plan for Non-Employee Directors.

Option Term.   Options are exercisable in full from the grant date and terminate 30 days after the date the grantee ceases to be a member of our board of directors. Unless terminated earlier by the option’s terms, options granted under our Nonstatutory Stock Option Plan for Non-Employee Directors expire 10 years after the date of grant (but in no event shall the option expire later than the expiration date). Any options granted on or after June 1996, to the extent not exercised, terminate two years after the individual ceases to be a director (but in no event shall the option expire later than the expiration date).

The MRC Group, Inc. 1992 Stock Option Plan

We assumed administration responsibility for The MRC Group, Inc. 1992 Stock Option Plan in connection with our acquisition of MRC in December 1998. Pursuant to the acquisition agreement, each outstanding unexpired option to purchase shares of MRC common stock was converted into an option to purchase shares of our common stock at the conversion rate set forth in the acquisition agreement. Otherwise, the terms of The MRC Group, Inc. 1992 Stock Option Plan still govern the outstanding options granted under the plan. Options may no longer be issued pursuant to The MRC Group, Inc. 1992 Stock Option Plan.

Number of Options Outstanding.   As of May 31, 2007, options to purchase 14,586 shares of our common stock were issued and outstanding under The MRC Group, Inc. 1992 Stock Option Plan.

Option Terms.   Each option under The MRC Group, Inc. 1992 Stock Option Plan expires no later than 10 years from the date on which the option was granted.

Termination of Service; Death.   Options issued under The MRC Group, Inc. 1992 Stock Option Plan terminate one year after the termination of employment by reason of death or disability and 90 days after any other termination of employment; provided, however, if his or her employment relationship with us is terminated by us then the unexercised options will terminate not later than 30 days after the termination of employment of the optionee. In no event shall the option expire later than the expiration date.

Executive Deferred Compensation Plan

We established the MedQuist Inc. Executive Deferred Compensation Plan (EDCP) in 2001. The EDCP, which is administered by the Compensation Committee, allows certain members of management and highly compensated employees to defer a certain percentage of their income. Contributions may no longer be made to our EDCP. Under the EDCP, participants were able to defer compensation to an account in which proceeds would be available either during or after termination of employment. The Compensation Committee was permitted to match certain contributions made to a retirement distribution account with either shares of our common stock or cash. However, matching contributions were only made with cash. Participants were not entitled to receive matching contributions if they elected to make deferrals to an account in which proceeds would be available during employment. Participants were able to defer up to 15% of base salary (or such other maximum percentage as may be approved by the Compensation Committee) and 90% of bonus amounts (or such other maximum percentage as may be approved by the Compensation Committee). Distributions to a participant made pursuant to an account in which proceeds are available after termination of employment may be made to the participant upon the participant’s termination or attainment of age 65, as elected by the participant in his or her enrollment agreement.

104

Distributions to a participant made pursuant to an account in which proceeds are available during employment may be made at the election of the participant in their enrollment agreement, subject to certain exceptions. The balances in the EDCP are not funded but are segregated, and participants in the plan are our general creditors. All amounts deferred in the EDCP increase or decrease based on hypothetical investment results of the executive’s selected investment alternatives, but plan distributions are paid out of our funds rather than from a dedicated investment portfolio.

Board of Directors Deferred Compensation Plan

2003 and 2004 Compensation

Under the Board Deferred Stock Plan, each Independent Director was entitled to receive deferred compensation in the form of our common stock having a fair market value of $18,000 on the date of grant, which was the business day immediately preceding January 1 of each year. Common stock awarded under the Board Deferred Stock Plan is issued when a director leaves our board of directors, unless a director elected not to defer receipt under a particular grant. If an Independent Director had elected not to defer receipt of the award, the common stock would have been issued as of the date of grant and the director could have elected to receive up to $6,000 of the award in cash. An Independent Director choosing not to defer receipt of the award would have nevertheless been prohibited from selling the common stock issued pursuant to the Board Deferred Stock Plan until leaving our board of directors. Fair market value of a particular grant equals the closing price of our common stock on the date of grant. In 2003 and 2004, the fair market value of a share of Common Stock on the date of grant (December 31) under such plan was $16.06 and $14.80, respectively.

In addition to deferred compensation under the Board Deferred Stock Plan, our Independent Directors each received $54,000 as the cash portion of their compensation for a two year period (2003 and 2004) for their service on our board of directors. We also reimbursed our Independent Directors for all reasonable expenses incurred by them in connection with their service on our board of directors.

2005 Compensation

Commencing on January 1, 2005, our Independent Directors receive the following annual compensation:

·deferred compensation in the form of common stock having a far market value of $50,000 on the date of grant; and

·$25,000 in cash to cover all meetings, with committee chairs receiving an additional $2,000 in cash and the chair of the audit committee receiving and additional $5,000 in cash.

Our board of directors postponed the granting of the deferred compensation awards for 2005 and 2006 until such time as we become current in our periodic reporting obligations with the SEC. However, the cash component of the independent directors’ compensation was paid in 2005 and 2006.

401(k) Plan

We maintain a tax-qualified retirement plan named the MedQuist 401(k) Plan (401(k) Plan) that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. Our 401(k) Plan allows eligible employees to contribute up to 25% of their annual eligible compensation on a pre-tax basis, subject to applicable Code limits. Elective deferral contributions are allocated to each participant’s account according to their investment selection(s). Employee elective deferrals are 100% vested at all times. We have historically matched, in cash, 50% of a participant’s elective deferral contributions, up to 5% of the participant’s total annual eligible compensation. Beginning in April 2007, matching contributions will be made based upon our operating results in the discretion of our

105

executive officers. Matching contributions are 33% vested after one year of service, 67% vested after two years of service and 100% vested after three years of service. Our 401(k) Plan and its related trust are intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to our 401(k) Plan and earnings on those contributions are not taxable to the employees until distributed from our 401(k) Plan, and all contributions are deductible by us when made.

Employee Stock Purchase Plan

All full-time employees other than those who own 5% or more of our common stock are eligible to participate in our Employee Stock Purchase Plan. Our Employee Stock Purchase Plan provides that participants may authorize us to withhold up to 10% of their earnings (up to a maximum of $25,000) for the purchase of shares of our common stock. The purchase price of our common stock is determined by the Compensation Committee but shall not be less than 85% of the fair market value of our common stock on the date of purchase. Our board of directors indefinitely suspended participation in our Employee Stock Purchase Plan on June 15, 2004.

2007 Management Incentive Plan

Under our 2007 Management Incentive Plan, all management level employees with influence on our financial results have the opportunity to earn an annual bonus in the event that we and/or such employee attain pre-established bonus plan target objectives. For those eligible employees who commenced employment with us during the first six months of 2007, the bonus payment will be calculated on a pro rata basis. Management-level employees hired on or after July 1, 2007 are not eligible to participate in our 2007 Management Incentive Plan. Bonuses pursuant to our 2007 Management Incentive Plan will be paid in a lump sum amount in 2008.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of our board of directors is currently composed John H. Underwood (Chair), N. John Simmons, Jr. and Richard H. Stowe. None of the members of the Compensation Committee has ever been an officer or employee of ours. None of our 2005 Named Executive Officers serves or has served as a member of the board of directors or compensation committee of any other company that had one or more executive officers serving as a member of our board of directors or the Compensation Committee.

Item 12.Security Ownership of Certain Beneficial Owners and Management

Principal Holders of Voting Securities

The following table sets forth information regarding the beneficial ownership of our common stock as of May 31, 2007, for:

·each person who is known by us to own beneficially more than 5% of the outstanding shares of our common stock;

·each of our current directors and each additional person serving as a director as of December 31, 2005;

·each of our 2005 Named Executive Officers; and

·all of our current directors and current executive officers as a group.

106

The percentages of shares outstanding provided in the table below are based on 37,483,723 shares of common stock outstanding as of May 31, 2007. Beneficial ownership is determined in accordance with SEC rules and regulations and generally includes voting or investment power with respect to securities. Unless otherwise indicated, each person or entity named in the table below has sole voting and investment power, or shares voting and investment power with his or her spouse, with respect to all shares of stock listed as owned by that person. Shares issuable upon the exercise of options that are exercisable within 60 days of May 31, 2007 are considered to be outstanding for the purpose of calculating the percentage of outstanding shares of our common stock held by the individual, but not for the purpose of calculating the percentage of outstanding shares held by any other individual. The address of our directors and executive officers is c/o MedQuist Inc., 1000 Bishops Gate Blvd., Suite 300, Mount Laurel, New Jersey, 08054.

	Shares Beneficially Owned
Name of Beneficial Owner	Number of Shares			Percentage of Class
Koninklijke Philips Electronics N.V. Rembrandt Tower Amstelplein 1 1096 HA Amsterdam, the Netherlands		26,085,086			69.6	%
Newcastle Partners, L.P. 300 Crescent Court, Suite 1110 Dallas, Texas 75201		2,679,974(	1)		7.1	%
Jan H.M. Hommen		26,085,086(	2)(3)		69.6	%
Jouko Karvinen		26,085,086(	2)(4)		69.6	%
Clement Revetti, Jr.		26,085,086(	2)		69.6	%
Stephen H. Rusckowski		26,085,086(	2)		69.6	%
Gregory M. Sebasky		26,085,086(	2)		69.6	%
N. John Simmons, Jr.		—			—
Richard H. Stowe		31,644(	5)(6)		*
John H. Underwood		37,930(	7)(6)		*
Scott M. Weisenhoff		26,085,086(	2)		69.6	%
Howard S. Hoffmann		—			—
Frank W. Lavelle		—(	8)		—
Kathleen E. Donovan		—			—
Michael F. Clark		27,200(	9)		*
Adele Barbato		—(	10)		—
Terry L. Cameron		—(	11)		—
John W. Quaintance		108,460(	12)(6)		*
All directors and executive officers as a group (14 persons)(9)(5)(7)(6)(13)		26,183,936			69.7	%

* Less than 1%.

(1) According to a Schedule 13D/A filed with the SEC on July 14, 2006: (i) Newcastle Partners, L.P. (NP) is a Texas limited partnership, the principal business of which is investing in securities; (ii) Newcastle Capital Management, L.P. (NCM) is a Texas limited partnership, the principal business of which is

107

acting as the general partner of NP; (iii) Newcastle Capital Group, L.L.C. (NCG) is a Texas limited liability company, the principal business of which is acting as the general partner of NCM; (iv) Mark E. Schwarz (Schwarz) is an individual whose principal business is serving as the managing member of NCG and (v) by reason of such relationships, Schwartz, NDG and NCM may be deemed, pursuant to Rule 13d-3 of the Exchange Act, to be the beneficial owners of all shares of common stock held by NP.

(2) Represents 26,085,086 shares of our common stock beneficially owned by Koninklijke Philips Electronics N.V. Each Philips Director has disclaimed beneficial ownership of such shares.

(3) Mr. Hommen ceased being a director in July 2006. The information presented in the table represents the most current information we have for this individual.

(4) Mr. Karvinen ceased being a director in October 2006. The information presented in the table represents the most current information we have for this individual.

(5) Includes options to purchase 6,529 shares of our common stock held by Mr. Stowe that may be exercised within 60 days of May 31, 2007, options to purchase 15,000 shares of our common stock held by Monashee Associates LLC, an entity controlled by Mr. Stowe, and 4,903 shares of our common stock held pursuant to the Board Deferred Stock Plan.

(6) On July 23, 2004, our board of directors affirmed our June 16, 2004 decision to indefinitely suspend the exercise of options under our stock option plans. Notwithstanding the foregoing, the post-termination option exercise period for unexercised stock options held by certain of our executive officers that are no longer employed by us was frozen, so that the post-termination exercise period for such persons will not begin to run until we become current in our reporting obligations under the Exchange Act.

(7) Includes options to purchase 33,124 shares of our common stock held by Mr. Underwood that may be exercised within 60 days of May 31, 2007, 1,056 shares of our common stock indirectly owned in an Individual Retirement Account and 3,750 shares of our common stock held pursuant to the Board Deferred Stock Plan.

(8) According to a Form 3 filed with the SEC on March 18, 2005. This is the most current information we have for this individual.

(9) Includes options to purchase 27,200 shares of our common stock held by Mr. Clark that may be exercised within 60 days of May 31, 2007.

(10) According to a Form 3 filed with the SEC on April 19, 2005. This is the most current information we have for this individual.

(11) According to a Form 3 filed with the SEC on April 19, 2005. This is the most current information we have for this individual.

(12) Includes options to purchase 108,460 shares of our common stock held by Mr. Quaintance that may be exercised within 60 days of May 31, 2007. This is the most current information we have for this individual.

(13)Includes our current directors (Messrs. Revetti, Rusckowski, Sebasky, Simmons, Stowe, Underwood and Weisenhoff) and our current executive officers (Ms. Donovan and Messrs. Hoffmann, Ivie, Bennett, Clark, Brennan and Sullivan). Includes options to purchase 2,000 shares of our common stock that may be exercised within 60 days of May 31, 2007.

108

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth, as of December 31, 2005, information concerning equity compensation plans under which our securities are authorized for issuance. The table does not reflect grants, awards, exercises, terminations or expirations since that date. All share amounts and exercise prices have been adjusted to reflect stock splits that occurred after the date on which any particular underlying plan was adopted, to the extent applicable.

	(A)		(B)			(C)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (A)
Plans Approved by Shareholders		3,431,676		$	28.18		1,649,260(	1)
Plans Not Approved by Shareholders		—		—			—
Total		3,431,676		$	28.18		1,649,260

(1)This amount represents 1,024,050 shares of our common stock available for future issuance pursuant to stock options available for grant under our 2002 Equity Incentive Plan, 18,626 shares of our common stock available for future issuance pursuant to outstanding stock awards under our Board Deferred Stock Plan and 606,584 shares of our common stock available for future issuance pursuant to our Employee Stock Purchase Plan.

For a description of the material features of our equity compensation plans, see Item 11, Executive Compensation, above.

Item 13.Certain Relationships and Related Transactions

Majority Shareholder

On July 6, 2000, Philips completed a tender offer in which Philips acquired approximately 60% of our outstanding common stock. Subsequent to the completion of that tender offer, Philips increased its ownership position and currently owns approximately 69.6% of our outstanding common stock.

Governance Agreement

Under the terms of the Governance Agreement, we agree to take any and all action necessary so that our board of directors consists of 11 persons, including:

·two Management Directors;

·six Philips Directors; and

·three Independent Directors.

Notwithstanding the preceding, our board of directors has the discretionary authority under the Governance Agreement to increase or decrease the size of our board of directors, provided that:

·there are at least two Management Directors and three Independent Directors; and

·the relative percentage of Management Directors, Independent Directors and Philips Directors is maintained.

109

In addition, the number of directors that Philips is permitted to designate or nominate under the Governance Agreement, which is based upon Philips’ relative ownership of our equity securities having the right to vote generally in any election of our directors, is as follows:

Philips’ Beneficial Ownership of Our Voting Stock	Number of Philips Directors
More than 50%		6
36% - 50%		4
27% - 35%		3
18% - 26%		2
5% - 17%		1
Less than 5%		0

If at any time Philips has the right to designate fewer than six directors under the terms of the Governance Agreement, the Nominating Committee of our board of directors will nominate a number of additional Independent Directors as is necessary to constitute the entire board of directors.

Philips has the right to designate a replacement Philips Director upon the termination of a Philips Director’s term or upon a Philips Director’s death, resignation, retirement, disqualification or removal from office. Our Chief Executive Officer has the right to designate a replacement Management Director upon the termination of a Management Director’s term or upon a Management Director’s death, resignation, retirement, disqualification or removal from office.

Notwithstanding the preceding, the composition of our current board of directors is as follows:

·three Independent Directors (Messrs. Simmons, Stowe and Underwood); and

·four Philips Directors designated by Philips (Messrs. Revetti, Rusckowski, Sebasky and Weisenhoff).

The Governance Agreement also requires us to establish and maintain the following committees of our board of directors:

·Nominating Committee consisting solely of two Independent Directors, one Philips Director and one Management Director which is responsible, among other things, for the nomination of the Independent Directors. We currently maintain a Nominating Committee composed of one Independent Director (Mr. Stowe) and one Philips Director (Mr. Rusckowski);

·Compensation Committee consisting of two Independent directors and two Philips Directors which is responsible, among other things, for the adoption, amendment and administration of all of our employee benefit plans and arrangements and the compensation of all or our officers. We currently maintain a Compensation Committee composed of three Independent Directors (Messrs. Simmons, Stowe and Underwood); and

·Supervisory Committee consisting of at least three Independent directors which is responsible, among other things, for the general oversight, administration, amendment and enforcement of the Governance Agreement and all other material agreements or arrangements between Philips and us. We currently maintain a Supervisory Committee composed of three Independent Directors (Messrs. Simmons, Stowe and Underwood).

The Governance Agreement will terminate on the first date that Philips is no longer the beneficial owner of at least 5% of our equity securities having the right to vote generally in any election of our directors. The provisions of the Governance Agreement relating to the establishment of committees of our board of directors will terminate on the first date that Philips is the beneficial owner of less than a majority of our equity securities having the right to vote generally in any election of our directors.

110

Management Personnel

On December 7, 2003, our board of directors appointed Stephen H. Rusckowski to serve as our interim President and Chief Executive Officer. Mr. Rusckowski served as our interim President and Chief Executive Officer until February 2004. From February 2004 until July 2004, Mr. Rusckowski served as our interim Chief Executive Officer. Mr. Rusckowski has continuously served as a member of our board of directors since February 2002 as a Philips Director. At the time of his appointment as our interim President and Chief Executive Officer, Mr. Rusckowski served as Executive Vice President of Philips Medical Systems and Chief Executive Officer of Philips Medical Systems’ Cardiac and Monitoring Systems business group. Mr. Rusckowski maintained his employment (and retained the duties of his positions) with these affiliates of Philips throughout his tenure as an executive officer of us and presently serves as Chief Executive Officer of Philips Medical Systems. We did not pay Mr. Rusckowski, or reimburse Philips, for Mr. Rusckowski’s service as our interim President and Chief Executive Officer.

On February 13, 2004, our board of directors appointed Gregory M. Sebasky to serve as our acting President, reporting to Mr. Rusckowski. At the time of his appointment as our acting President, Mr. Sebasky served as Senior Vice President of Operations of Cardiac and Monitoring Systems, Philips Electronics Corporation. Mr. Sebasky resigned as our acting President on March 8, 2005. On April 1, 2005, Mr. Sebasky was appointed to our board of directors as a Philips Director. Mr. Sebasky maintained his employment with Philips Medical Systems throughout his tenure as our acting President and currently serves as Senior Vice President and Chief Executive Officer of Global Customer Services for Philips Medical Systems. In lieu of paying Mr. Sebasky directly for his services, we paid Philips $500,000 and $150,000 for the services of Mr. Sebasky as our acting President during 2004 and 2005, respectively.

On July 30, 2004, our board of directors appointed Howard S. Hoffmann to serve as our Chief Executive Officer. On June 14, 2007, our board of directors appointed Mr. Hoffmann as our President. In connection with his appointment, we entered into a letter agreement with Nightingale, dated as of July 29, 2004 and amended as of December 16, 2004, September 25, 2006 and January 8, 2007, pursuant to which Nightingale assigns the services of Mr. Hoffmann to us to serve as our Chief Executive Officer. Mr. Hoffmann serves as the Managing Partner of Nightingale. Mr. Hoffmann continues to serve as our full time Chief Executive Officer pursuant to the terms of the agreement, which expired on June 30, 2007. We are currently negotiating the terms of an extension of this agreement. We currently pay to Nightingale the sum of $120,000 per month for Mr. Hoffmann’s service as our Chief Executive Officer. In addition, we reimburse Nightingale for any out-of-pocket expenses incurred by Mr. Hoffmann in the course of his service as our Chief Executive Officer. Examples of such out-of-pocket expenses include transportation, meals, lodging, telephone, specifically assignable secretarial and office assistance, and report production. Upon the completion of his service as our Chief Executive Officer, we will pay Nightingale $525 per hour for Mr. Hoffmann’s services as a consultant.

Nightingale may be entitled to a 2007 Performance Bonus of up to $480,000. The amount, if any, of the 2007 Performance Bonus that Nightingale is to receive will be based on the achievement of certain operational objectives that have been established by our board of directors and Nightingale.

In addition, Nightingale may be entitled to a 2006 Discretionary Bonus. Whether or not such payment will be made to Nightingale will be decided upon by a committee composed of the Non-Executive Chairman of our board of directors, the Chairman of the Audit Committee and the Chairman of the Compensation Committee. The committee will inform Nightingale of the amount, if any, of the 2006 Discretionary Bonus that is to be paid by the date that is 14 days following completion of the filing of our periodic filings covering the years 2003, 2004 and 2005 and the first three quarters of 2006 with the SEC.

111

Indemnification Agreements

On July 3, 2007, we entered into indemnification agreements with each of Richard H. Stowe and John H. Underwood. Each indemnification agreement is substantially similar to the indemnification agreement we entered into on July 15, 2005 with N. John Simmons, Jr. and provides, among other things, that to the extent permitted by New Jersey law, we will indemnify the director against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in conjunction with any suit in which he is a party or otherwise involved as a result of his service as a member of our board of directors.

Our letter agreement with Nightingale also permits us to engage personnel employed by Nightingale in addition to Mr. Hoffmann to provide consulting services to us from time to time. Pursuant to this arrangement, we incurred the following costs (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006		2005		2004
$251	$	976	$	765	$	274

Licensing Agreement

In connection with Philips’ tender offer, we entered into the Licensing Agreement. The Licensing Agreement was subsequently amended by the parties as of January 1, 2002, February 23, 2003, August 10, 2003, September 1, 2004, December 30, 2005 and February 13, 2007.

Under the Licensing Agreement, we license from PSRS its SpeechMagic speech recognition and processing software, including any updated versions of the software developed by PSRS during the term of the License Agreement (Licensed Product), for use by us anywhere in the world. We pay a fee for use of the Licensed Product based upon a per line fee for each transcribed line of text processed through the Licensed Product.

Upon the expiration of its initial term on June 28, 2005, the Licensing Agreement was renewed for an additional five year term. PSRS may terminate the Licensing Agreement for cause immediately in the event that we:

·default in any payment due to PSRS and the default continues for a period of 30 business days after written notice to us;

·fail to perform any material obligation, duty or responsibility or are in default with any material term or condition of the Licensing Agreement and the default continues for a period of 30 business days after written notice to us; or

·become insolvent or file for bankruptcy.

We may terminate the Licensing Agreement for cause immediately in the event that PSRS:

·fails to perform any material obligation, duty or responsibility or is in default with any material term or condition of the Licensing Agreement and the default continues for a period of 30 business days after written notice to PSRS; or

·becomes insolvent or files for bankruptcy.

Either PSRS or we may terminate the Licensing Agreement for any reason upon at least two years prior written notice to the other party.

We may purchase, license or use a product competing with the Licensed Product during the term of the Licensing Agreement provided we give PSRS at least three months prior written notice and the

112

opportunity to submit to us a commercially and technologically competitive offer. We, however, have no obligation to accept such an offer. PSRS is not prohibited from granting a license for the Licensed Product or any similar products to any of our competitors that provide outsourced medical transcription services in North America.

In connection with the Licensing Agreement, we have a consulting arrangement with PSRS whereby PSRS assists us with the integration of its speech and transcription technologies. We incurred the following aggregate costs under the Licensing Agreement and this consulting arrangement (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006		2005		2004		2003
$514	$	2,393	$	1,378	$	435	$	2,167

OEM Supply Agreement

We entered into an OEM Supply Agreement with PSRS on September 23, 2004 pursuant to which we obtained the exclusive right in North America to sell certain PSRS Products (as defined below) created and/or developed by PSRS to third parties, to service such PSRS Products and to incorporate such PSRS Products into our own products (OEM Supply Agreement). Under the OEM Supply Agreement, “PSRS Products” is defined as:

·PSRS’ in-house solution for radiology products, together with all derivations and future versions thereof; and

·all multi-user solutions PSRS develops that include the core functionality of front-end speech recognition software for the medical market in North America.

Upon the expiration of its initial term on June 30, 2007, the OEM Agreement was renewed for an additional three year term. PSRS may terminate the OEM Agreement:

·in the event of material breach by us which is not cured after 30 days written notice;

·if we assign the OEM Agreement without PSRS’ consent; or

·if we undergo a change of control and the control changes to a third party doing business in the dictation market or in the speech recognition market.

We may terminate the OEM Supply Agreement in the event of material breach by PSRS that is not cured after 30 days written notice.

PSRS may elect to convert the exclusive license under the OEM Supply Agreement to a non-exclusive license if we fail to meet the sales forecasts and commitments with respect to software purchases and payments set forth in the OEM Supply Agreement during its initial term. To exercise this right, PSRS must pay us a fixed amount for each month remaining in the initial term after the date exclusivity is terminated. In 2004, we made a payment to PSRS with respect to software purchases and payments under the OEM Supply Agreement in an amount equal to the sales forecast and commitment set forth in the OEM Supply Agreement for such year. We did not meet the sales forecast and commitment set forth in the OEM Supply Agreement for 2005 or 2006.

If PSRS decides to discontinue all business relating to the PSRS Products in North America, PSRS has the right to terminate the OEM Supply Agreement by giving us six months prior written notice, in which case PSRS agrees to negotiate in good faith with us the terms and conditions under which it will provide training and access to source code of the PSRS Products to the extent reasonably necessary for us to continue development and to support the installed base of PSRS Products in North America.

113

In consideration of PSRS’ development, maintenance and support for the first version of the PSRS Products, we paid PSRS a development fee in 2004. In addition, we pay monthly license fees to PSRS, subject to certain reductions based upon the level of purchases of PSRS Products by us under the OEM Supply Agreement relative to annual forecasted amounts.

Under the OEM Supply Agreement, we are required to use reasonable commercial efforts to sell end users a software maintenance agreement. The software maintenance agreement provides that the customer will obtain certain product releases and technical support directly from PSRS or from PSRS through us. We pay a fee to PSRS for each software maintenance agreement contract sold by us.

In connection with the OEM Supply Agreement, we incurred the following costs (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006		2005		2004		2003
$166	$	1,428	$	1,521	$	1,851		$	—

Equipment Sales

We purchase dictation related equipment from Philips. We incurred the following costs for such equipment (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006		2005		2004		2003
$171	$	878	$	1,238	$	720	$	1,061

Insurance Coverage through Philips

We obtain all of our business insurance coverage (other than workers’ compensation) through Philips. We incurred the following costs for business insurance coverage (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006		2005		2004		2003
$215	$	891	$	957	$	696	$	522

Marketing Activities

In 2005, 2004 and 2003, we reimbursed Philips approximately $98,000, $88,000 and $7,000, respectively, for certain marketing costs, including costs incurred in connection with the payment by Philips for our exhibit space at certain conventions and trade shows.

Purchasing Agreements

We enter into annual letter agreements with Philips Electronics North America Corporation (PENAC), an affiliate of Philips, to purchase products and services from certain suppliers under the terms of the prevailing agreements between such suppliers and PENAC (Philips Supply Agreements). We incurred the following service fees for use of the Philips Supply Agreements (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006			2005			2004			2003
$—		$	30		$	54		$	50		$	65

114

Purchases of Products and Implementation Services

From time to time Philips purchases certain products and implementation services from us. We have recorded net revenues from Philips in the following amounts pursuant to this arrangement (dollars in thousands):

Three months ended	For the years ended December 31,
March 31, 2007	2006			2005		2004		2003
$—		$	26	$	754	$	650	$	523

Item 14.Principal Accountant Fees and Services

The Audit Committee of our board of directors is responsible for the appointment, compensation, oversight and replacement, if necessary, of our independent registered public accounting firm. In accordance with the charter of the Audit Committee, the Audit Committee must approve, in advance of the service, all audit, internal control-related and permissible non-audit services provided by our independent registered public accounting firm, subject to a de minimis exception for non-audit services. In its review of non-audit service fees, the Audit Committee considers, among other things, the possible effect of the performance of such services on the independence of our independent registered public accounting firm. Our independent registered public accounting firm may not be retained to perform any of the non-audit services specified in Section 10A(g) of the Exchange Act.

All services provided by KPMG LLP, our independent registered accounting firm, for the years ended December 31, 2005, 2004 and 2003 were preapproved by the Audit Committee.

Fees Paid to the Principal Accountant—2005, 2004, 2003

The following table sets forth approximate aggregate fees billed to us for the years ended December 31, 2005, 2004 and 2003 by KPMG LLP (dollars in thousands):

Fees	2005		2004		2003
Audit Fees(1)	$	1,014	$	175	$	386
Audit-Related Fees(2)	—		756		—
Tax Fees(3)	240		240		276
All Other Fees	—		—		—
Total Fees	$	1,254	$	1,171	$	662

(1)Audit Fees—represents (2005 only) aggregate fees paid or accrued for the audit of management’s assessment of, and the effective operation of, our internal control over financial reporting as required by Section 404, the audit of our annual financial statements and review of our interim financial statements, and fees for services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings.

(2)Audit-Related Fees—represents aggregate fees paid or accrued for services rendered in connection with the independent review of alleged improper billing practices.

(3)Tax Fees—represents fees for all professional services rendered by our independent registered public accounting firm’s tax professionals, except those related to the audit of our financial statements, including tax compliance, tax advice and tax planning.

115

PART IV

Item 15.Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report:

(1)   Financial Statements.   The consolidated financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page F-1.

(2)   Financial Statement Schedules.   All financial statement schedules have been omitted here because they are not applicable, not required, or the information is shown in the consolidated financial statements or notes thereto.

116

(3)   Exhibits.   See (b) below.

(b) Exhibits:

No.	Description
3.1	Certificate of Incorporation of MedQuist Inc. (as amended)
3.2	By-Laws of MedQuist Inc. (as amended)
4.1	Specimen Stock Certificate
10.1*	The MRC Group, Inc. Amended and Restated 1992 Stock Option Plan
10.2*	1992 Stock Option Plan of MedQuist Inc., as amended
10.3*	Nonstatutory Stock Option Plan for Non-Employee Directors of MedQuist Inc.
10.4*	MedQuist Inc. 2002 Stock Option Plan
10.5*	Form of Award Agreement under the MedQuist Inc. 2002 Stock Option Plan
10.6*	1996 Employee Stock Purchase Plan
10.7*	MedQuist Inc. Executive Deferred Compensation Plan
10.8*	Separation Agreement, dated as of December 10, 2004, between MedQuist Inc. and John W. Quaintance
10.9*	Separation Agreement, dated as of December 20, 2004, between MedQuist Inc. and Ethan Cohen
10.10*	Separation Agreement, dated as of October 24, 2005, between MedQuist Inc. and Terry Cameron
10.11*	Separation Agreement, dated as of October 27, 2005, between MedQuist Inc. and James Weiland
10.12*	Employment Agreement, dated as of February 9, 2005, between MedQuist Inc. and Adele Barbato
10.13*	Separation Agreement and General Release dated June 28, 2007 by and between MedQuist Inc. and Frank Lavelle
10.14*	Separation Agreement and General Release dated June 28, 2007 by and between MedQuist Inc. and Linda Reino
10.15*	Relocation Letter Agreement, dated as of April 26, 2006, between MedQuist Inc. and Adele T. Barbato
10.16*	Employment Agreement, dated as of February 24, 2005, between MedQuist Inc. and Frank Lavelle
10.16.1*	Amendment to Employment Agreement, dated as of February 16, 2007, between MedQuist Inc. and Frank Lavelle
10.17*	Letter Agreement, dated as of April 21, 2005, between MedQuist Inc. and Michael Clark
10.18*	Letter Agreement, dated as of April 21, 2005, between MedQuist Inc. and Mark Sullivan
10.19*	Employment Agreement, dated as of May 27, 2005, between MedQuist Inc. and Mark Ivie
10.20*	Employment Agreement, dated as of June 2, 2005, between MedQuist Inc. and Kathleen Donovan
10.21*	Employment Agreement, dated as of October 26, 2005, between MedQuist Inc. and R. Scott Bennett

117

10.22*	Employment Agreement, dated as of August 10, 2006, between MedQuist Inc. and Linda Reino
10.23*	Letter Agreement, dated as of November 10, 2006, by and between MedQuist Inc. and James Brennan
10.24*	Engagement Letter, dated as of July 30, 2004, between MedQuist Inc. and Nightingale & Associates, LLC
10.24.1*	Amendment to Engagement Letter, dated as of January 7, 2005, between MedQuist Inc. and Nightingale & Associates, LLC
10.24.2*	Amendment to Engagement Letter, dated as of September 25, 2006 between MedQuist Inc. and Nightingale & Associates, LLC
10.24.3*	Amendment to Engagement Letter, dated as of January 8, 2007, between MedQuist Inc. and Nightingale & Associates, LLC
10.25	Governance Agreement, dated as of May 22, 2000, between MedQuist Inc. and Koninklijke Philips Electronics N.V.
10.26	Licensing Agreement, dated as of May 22, 2000, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.1	Amendment No. 1 to Licensing Agreement, dated as of January 1, 2002, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.2#	Amendment No. 2 to Licensing Agreement, dated as of December 10, 2002, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.3#	Amendment No. 3 to Licensing Agreement, dated as of August 10, 2003, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.4#	Amendment No. 4 to Licensing Agreement, dated as of September 1, 2004, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.5#	Amendment No. 5 to Licensing Agreement, dated as of December 30, 2005, between MedQuist Transcriptions, Ltd. and Philips Speech Recognition Systems GmbH f/k/a Philips Speech Processing GmbH
10.26.6#	Amendment No. 6 to Licensing Agreement, dated as of February 13, 2007, between MedQuist Inc. and Philips Speech Recognition Systems GmbH f/k/a Philips Speech Processing GmbH
10.27#	OEM Supply Agreement, dated as of September 23, 2004, between MedQuist Inc. and Philips Speech Processing GmbH
10.28*	Indemnification Agreement, dated as of July 15, 2005, between MedQuist Inc. and John Simmons
10.29	Norcross, Georgia Office Lease Agreement dated as of September 6, 2002
10.30	Mt. Laurel, New Jersey Office Lease Agreement dated as of June 17, 2003
10.31	First Amendment to Mt. Laurel, New Jersey Office Lease Agreement dated as of August 26, 2003
10.32	Second Amendment to Mt. Laurel, New Jersey Office Lease Agreement dated as of November 30, 2003
10.33	Third Amendment to Mt. Laurel, New Jersey Office Lease Agreement dated as of November 30, 2003

118

10.34	Confirmation of Lease Term regarding Mt. Laurel, New Jersey Office Lease dated as of August 10, 2006
10.35	Marietta, Georgia Office Lease Agreement dated as of September 6, 2002
10.36	First Amendment to Marietta, Georgia Office Lease Agreement dated March 24, 2006
10.37	Memorandum of Understanding dated March 23, 2007 by and among (i) MedQuist, Inc., Brian J. Kearns, David A. Cohen, John A. Donohoe, Ethan Cohen, John W. Quaintance, and Ronald F. Scarpone, and (ii) Greater Pennsylvania Carpenters Pension Fund
10.38*	MedQuist Inc. Board of Directors Deferred Compensation Plan
10.39*	Indemnification Agreement, dated as of July 3, 2007 between MedQuist Inc. and John H. Underwood
10.40*	Indemnification Agreement, dated as of July 3, 2007 between MedQuist Inc. and Richard H. Stowe
18.1	Preferability Letter from KPMG LLP
21	Subsidiaries of MedQuist Inc.
23	Consent of KPMG LLP
24	Power of Attorney (included on the signature page hereto)
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Management contract or compensatory plan or arrangement.

#Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

(c) Financial Statement Schedules.

None.

119

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEDQUIST INC.
By:	/s/ HOWARD S. HOFFMANN
	Howard S. Hoffmann
	Chief Executive Officer and President
Date: July 5, 2007

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Each person, in so signing also makes, constitutes, and appoints Howard S. Hoffmann and Kathleen E. Donovan, and each of them acting alone, as his or her true and lawful attorneys-in-fact, with full power of substitution, in his or her name, place, and stead, to execute and cause to be filed with the SEC any or all amendments to this report.

	Signature		Capacity		Date
/s/ HOWARD S. HOFFMANN		Chief Executive Officer and President		July 5, 2007
Howard S. Hoffmann		(Principal Executive Officer)
/s/ KATHLEEN E. DONOVAN		Senior Vice President and Chief Financial		July 5, 2007
Kathleen E. Donovan		Officer (Principal Financial Officer)
/s/ JAMES BRENNAN		Principal Accounting Officer, Controller and		July 5, 2007
James Brennan		Vice President
/s/ STEPHEN H. RUSCKOWSKI		Non-Executive Chairman of the Board of		July 5, 2007
Stephen H. Rusckowski		Directors
/s/ CLEMENT REVETTI, JR.		Director		July 5, 2007
Clement Revetti, Jr.
/s/ GREGORY M. SEBASKY		Director		July 5, 2007
Gregory M. Sebasky
/s/ N. JOHN SIMMONS, JR.		Director		July 5, 2007
N. John Simmons, Jr.
/s/ RICHARD H. STOWE		Director		July 5, 2007
Richard H. Stowe
/s/ JOHN H. UNDERWOOD		Director		July 5, 2007
John H. Underwood
/s/ SCOTT M. WEISENHOFF		Director		July 5, 2007
Scott M. Weisenhoff

120

EXHIBIT INDEX

No.	Description
3.1	Certificate of Incorporation of MedQuist Inc. (as amended)
3.2	By-Laws of MedQuist Inc. (as amended)
4.1	Specimen Stock Certificate
10.1*	The MRC Group, Inc. Amended and Restated 1992 Stock Option Plan
10.2*	1992 Stock Option Plan of MedQuist Inc., as amended
10.3*	Nonstatutory Stock Option Plan for Non-Employee Directors of MedQuist Inc.
10.4*	MedQuist Inc. 2002 Stock Option Plan
10.5*	Form of Award Agreement under the MedQuist Inc. 2002 Stock Option Plan
10.6*	1996 Employee Stock Purchase Plan
10.7*	MedQuist Inc. Executive Deferred Compensation Plan
10.8*	Separation Agreement, dated as of December 10, 2004, between MedQuist Inc. and John W. Quaintance
10.9*	Separation Agreement, dated as of December 20, 2004, between MedQuist Inc. and Ethan Cohen
10.10*	Separation Agreement, dated as of October 24, 2005, between MedQuist Inc. and Terry Cameron
10.11*	Separation Agreement, dated as of October 27, 2005, between MedQuist Inc. and James Weiland
10.12*	Employment Agreement, dated as of February 9, 2005, between MedQuist Inc. and Adele Barbato
10.13*	Separation Agreement and General Release dated June 28, 2007 by and between MedQuist Inc. and Frank Lavelle
10.14*	Separation Agreement and General Release dated June 28, 2007 by and between MedQuist Inc. and Linda Reino
10.15*	Relocation Letter Agreement, dated as of April 26, 2006, between MedQuist Inc. and Adele T. Barbato
10.16*	Employment Agreement, dated as of February 24, 2005, between MedQuist Inc. and Frank Lavelle
10.16.1*	Amendment to Employment Agreement, dated as of February 16, 2007, between MedQuist Inc. and Frank Lavelle
10.17*	Letter Agreement, dated as of April 21, 2005, between MedQuist Inc. and Michael Clark
10.18*	Letter Agreement, dated as of April 21, 2005, between MedQuist Inc. and Mark Sullivan
10.19*	Employment Agreement, dated as of May 27, 2005, between MedQuist Inc. and Mark Ivie
10.20*	Employment Agreement, dated as of June 2, 2005, between MedQuist Inc. and Kathleen Donovan
10.21*	Employment Agreement, dated as of October 26, 2005, between MedQuist Inc. and R. Scott Bennett
10.22*	Employment Agreement, dated as of August 10, 2006, between MedQuist Inc. and Linda Reino

10.23*	Letter Agreement, dated as of November 10, 2006, by and between MedQuist Inc. and James Brennan
10.24*	Engagement Letter, dated as of July 30, 2004, between MedQuist Inc. and Nightingale & Associates, LLC
10.24.1*	Amendment to Engagement Letter, dated as of January 7, 2005, between MedQuist Inc. and Nightingale & Associates, LLC
10.24.2*	Amendment to Engagement Letter, dated as of September 25, 2006 between MedQuist Inc. and Nightingale & Associates, LLC
10.24.3*	Amendment to Engagement Letter, dated as of January 8, 2007, between MedQuist Inc. and Nightingale & Associates, LLC
10.25	Governance Agreement, dated as of May 22, 2000, between MedQuist Inc. and Koninklijke Philips Electronics N.V.
10.26	Licensing Agreement, dated as of May 22, 2000, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.1	Amendment No. 1 to Licensing Agreement, dated as of January 1, 2002, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.2#	Amendment No. 2 to Licensing Agreement, dated as of December 10, 2002, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.3#	Amendment No. 3 to Licensing Agreement, dated as of August 10, 2003, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.4#	Amendment No. 4 to Licensing Agreement, dated as of September 1, 2004, between MedQuist Inc. and Philips Speech Processing GmbH
10.26.5#	Amendment No. 5 to Licensing Agreement, dated as of December 30, 2005, between MedQuist Transcriptions, Ltd. and Philips Speech Recognition Systems GmbH f/k/a Philips Speech Processing GmbH
10.26.6#	Amendment No. 6 to Licensing Agreement, dated as of February 13, 2007, between MedQuist Inc. and Philips Speech Recognition Systems GmbH f/k/a Philips Speech Processing GmbH
10.27#	OEM Supply Agreement, dated as of September 23, 2004, between MedQuist Inc. and Philips Speech Processing GmbH
10.28*	Indemnification Agreement, dated as of July 15, 2005, between MedQuist Inc. and John Simmons
10.29	Norcross, Georgia Office Lease Agreement dated as of September 6, 2002
10.30	Mt. Laurel, New Jersey Office Lease Agreement dated as of June 17, 2003
10.31	First Amendment to Mt. Laurel, New Jersey Office Lease Agreement dated as of August 26, 2003
10.32	Second Amendment to Mt. Laurel, New Jersey Office Lease Agreement dated as of November 30, 2003
10.33	Third Amendment to Mt. Laurel, New Jersey Office Lease Agreement dated as of November 30, 2003
10.34	Confirmation of Lease Term regarding Mt. Laurel, New Jersey Office Lease dated as of August 10, 2006

10.35	Marietta, Georgia Office Lease Agreement dated as of September 6, 2002
10.36	First Amendment to Marietta, Georgia Office Lease Agreement dated March 24, 2006
10.37	Memorandum of Understanding dated March 23, 2007 by and among (i) MedQuist, Inc., Brian J. Kearns, David A. Cohen, John A. Donohoe, Ethan Cohen, John W. Quaintance, and Ronald F. Scarpone, and (ii) Greater Pennsylvania Carpenters Pension Fund
10.38*	MedQuist Inc. Board of Directors Deferred Compensation Plan
10.39*	Indemnification Agreement, dated as of July 3, 2007 between MedQuist Inc. and John H. Underwood
10.40*	Indemnification Agreement, dated as of July 3, 2007 between MedQuist Inc. and Richard H. Stowe
18.1	Preferability Letter from KPMG LLP
21	Subsidiaries of MedQuist Inc.
23	Consent of KPMG LLP
24	Power of Attorney (included on the signature page hereto)
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Management contract or compensatory plan or arrangement.

#Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Report of Independent Registered Public Accounting Firm	F-5
Consolidated Statements of Operations—Years ended December 31, 2005, 2004 and 2003	F-6
Consolidated Balance Sheets—December 31, 2005, 2004 and 2003	F-7
Consolidated Statements of Cash Flows—Years ended December 31, 2005, 2004 and 2003	F-8
Consolidated Statements of Shareholders’ Equity and Other Comprehensive Income—Years ended December 31, 2005, 2004 and 2003	F-9
Notes to Consolidated Financial Statements—December 31, 2005, 2004 and 2003	F-10
Financial Statement Schedule—Valuation and Qualifying Accounts—December 31, 2005, 2004 and 2003	F-42
Condensed Consolidated Financial Statements—Quarter ended December 31, 2005	Q-1
Condensed Consolidated Financial Statements—Quarter ended September 30, 2005	Q-13
Condensed Consolidated Financial Statements—Quarter ended June 30, 2005	Q-23
Condensed Consolidated Financial Statements—Quarter ended March 31, 2005	Q-32
Condensed Consolidated Financial Statements—Quarter ended December 31, 2004	Q-41
Condensed Consolidated Financial Statements—Quarter ended September 30, 2004	Q-52
Condensed Consolidated Financial Statements—Quarter ended June 30, 2004	Q-66
Condensed Consolidated Financial Statements—Quarter ended March 31, 2004	Q-80

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders’
MedQuist Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting as of December 31, 2005 (Item 9A(c)), that MedQuist Inc. (the Company) did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of material weaknesses identified in management’s assessment, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). MedQuist Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment as of December 31, 2005:

Entity Level Controls

·The Company did not have adequate policies and procedures regarding communications throughout its organization with respect to matters affecting its financial reporting. Specifically, management’s process of providing and disseminating the Company’s policies and procedures to the Company’s employees did not ensure their effective communication and adoption. This led to

F-2

a lack of awareness, understanding and consistent application of the Company’s policies and procedures in the performance of assigned responsibilities.

·The Company did not maintain a sufficient complement of accounting and finance personnel that were adequately trained and that possessed the appropriate level of knowledge in generally accepted accounting principles (GAAP) to properly account for complex accounting transactions. Specifically, the Company did not have personnel possessing sufficient technical expertise related to accounting for revenue recognition activities.

·The Company did not have sufficient processes, controls and management oversight to ensure that its books and records were appropriately maintained and that complex accounting transactions were effectively researched and recorded in accordance with GAAP. There was a lack of appropriate processes and controls within the financial close process, inconsistent preparation and review of journal entries as well as inadequate training and expertise within the accounting and finance organization.

These material weaknesses resulted in more than a remote likelihood that a material misstatement of the Company’s annual or interim consolidated financial statements would not be prevented or detected. These material weaknesses also contributed to the other material weaknesses identified below.

Revenue Recognition

·The Company did not have a formal process to ensure that all non-DocQment™ Enterprise Platform (DEP) contract terms were accurately entered and maintained in the systems. This material weakness resulted in errors in calculating the proper amount of revenue to be recognized in the Company’s 2005 consolidated financial statements.

·The Company did not have adequate policies and procedures to ensure the proper recognition of post-contract customer support (PCS) and related hardware, software and implementation services in accordance with GAAP. In addition, individuals responsible for recording revenues in the Company’s consolidated financial statements did not fully comprehend criteria for revenue recognition. This material weakness resulted in errors in calculating the proper amount of revenues to defer in the Company’s 2005 consolidated financial statements.

These material weaknesses resulted in more than a remote likelihood that a material misstatement of the Company’s annual or interim consolidated financial statements would not be prevented or detected.

Property and Equipment

·The Company did not maintain adequate policies and procedures to ensure that the Company’s employees accurately accounted for property and equipment. Specifically, the Company did not have a formal process in place to ensure that the disposal or transfer of its property and equipment was properly recorded in its general ledger.

This material weakness resulted in errors in calculating the proper amount of property and equipment to be capitalized in the Company’s 2005 consolidated financial statements. This material weakness resulted in more than a remote likelihood that a material misstatement of the Company’s annual or interim consolidated financial statements would not be prevented or detected.

Information Technology

·The Company did not maintain adequate policies and procedures related to its information technology change management and access controls process in connection with its non-DEP medical transcription platforms.

F-3

This material weakness resulted in more than a remote likelihood that a material misstatement of the Company’s annual or interim consolidated financial statements would not be prevented or detected.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MedQuist Inc. and subsidiaries as of December 31, 2005, 2004 and 2003 and the related consolidated statements of operations, shareholders’ equity and other comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2005. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated July 5, 2007, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, management’s assessment that MedQuist Inc. did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, MedQuist Inc. has not maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Philadelphia, Pennsylvania
July 5, 2007

F-4

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders’ MedQuist Inc.:

We have audited the accompanying consolidated balance sheets of MedQuist Inc. and subsidiaries as of December 31, 2005, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and other comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2005. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MedQuist Inc. and subsidiaries as of December 31, 2005, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U. S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of MedQuist Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 5, 2007 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania

July 5, 2007

F-5

MedQuist Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)

	Years ended December 31,
	2005			2004		2003
Net revenues	$	353,005		$	451,894	$	484,762
Operating costs and expenses:
Cost of revenues	315,399			336,232		348,428
Selling, general and administrative	54,558			46,436		43,738
Research and development	9,784			10,539		10,228
Depreciation	17,099			18,521		18,658
Amortization of intangible assets	8,193			8,888		9,754
Cost of investigation and legal proceedings	34,127			10,253		—
Shareholder securities litigation settlement	7,750			—		—
Impairment charges	148			15,078		—
Restructuring charges (credits)	3,257			—		(277		)
Total operating costs and expenses	450,315			445,947		430,529
Operating (loss) income	(97,310		)	5,947		54,233
Equity in income (loss) of affiliated company	500			188		(513		)
Interest income, net	5,940			1,840		1,073
(Loss) income before income taxes	(90,870		)	7,975		54,793
Income tax provision	20,762			4,233		19,226
Net (loss) income	$	(111,632	)	$	3,742	$	35,567
Net (loss) income per share:
Basic	$	(2.98	)	$	0.10	$	0.96
Diluted	$	(2.98	)	$	0.10	$	0.94
Weighted average shares outstanding:
Basic	37,484			37,451		37,172
Diluted	37,484			37,636		37,715

The accompanying notes are an integral part of these consolidated financial statements.

F-6

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)

	As of December 31,
	2005		2004		2003
Assets
Current assets:
Cash and cash equivalents	$	178,271	$	196,219	$	162,420
Accounts receivable, net	71,761		77,119		78,815
Income tax receivable	21,708		5,682		2,704
Deferred income taxes	2,385		12,589		11,267
Other current assets	9,973		11,111		8,288
Total current assets	284,098		302,720		263,494
Property and equipment, net	23,961		33,197		35,614
Goodwill	123,849		124,826		139,042
Other intangible assets, net	51,278		58,927		68,191
Deferred income taxes	2,756		13,915		12,689
Other assets	7,249		7,349		7,438
Total assets	$	493,191	$	540,934	$	526,468
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	10,046	$	12,395	$	13,461
Accrued expenses	37,401		18,372		12,476
Accrued compensation	21,073		20,542		19,821
Customer accommodation and quantification	46,878		9,702		8,771
Deferred revenue	18,039		21,777		21,108
Total current liabilities	133,437		82,788		75,637
Deferred income taxes	15,482		—		—
Other non-current liabilities	3,052		4,196		3,339
Commitments and contingencies (Note 14)
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484, 37,484 and 37,259 shares issued and outstanding, respectively	232,963		232,926		231,368
Retained earnings	104,635		216,267		212,525
Deferred compensation	332		332		278
Accumulated other comprehensive income	3,290		4,425		3,321
Total shareholders’ equity	341,220		453,950		447,492
Total liabilities and shareholders’ equity	$	493,191	$	540,934	$	526,468

The accompanying notes are an integral part of these consolidated financial statements.

F-7

MedQuist Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

	Years ended December 31,
	2005			2004			2003
Operating activities:
Net (loss) income	$	(111,632	)	$	3,742		$	35,567
Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:
Depreciation and amortization	25,292			27,409			28,412
Gain on disposal of property	—			—			(814		)
Equity in (income) loss of affiliated company	(500		)	(188		)	513
Write-off and impairment of intangible assets	148			15,078			—
Deferred income tax (benefit) provision	36,655			(2,203		)	1,005
Stock option expense	37			209			159
Stock based compensation—Board Members	—			54			54
Tax benefit from exercise of employee stock options	—			319			670
Provision for doubtful accounts	8,111			5,992			5,737
Asset writeoff charges	4,096			99			51
Changes in operating assets and liabilities excluding effects of acquisitions:
Accounts receivable	(2,749		)	(4,253		)	2,149
Income tax receivable	(15,981		)	(1,824		)	(2,705		)
Other current assets	1,132			(3,041		)	(43		)
Other non-current assets	600			277			(663		)
Accounts payable	(2,583		)	(2,005		)	1,656
Accrued expenses	16,799			5,327			(2,052		)
Accrued compensation	527			30			2,600
Customer accommodation and quantification	37,176			931			2,142
Deferred revenue	(3,737		)	1,140			2,184
Other non-current liabilities	(1,142		)	409			1,209
Net cash (used in) provided by operating activities	(7,751		)	47,502			77,831
Investing activities:
Purchase of property and equipment	(9,535		)	(14,754		)	(16,892		)
Capitalized software	(638		)	(22		)	(547		)
Proceeds from sale of property	—			—			814
Acquisitions, net of cash acquired	—			—			(3,568		)
Net cash used in investing activities	(10,173		)	(14,776		)	(20,193		)
Financing activities:
Repayment of debt	(25		)	(29		)	(30		)
Proceeds from issuance of stock	—			216			459
Proceeds from exercise of stock options	—			814			931
Net cash (used in) provided by financing activities	(25		)	1,001			1,360
Effect of exchange rate changes	1			72			30
Net (decrease) increase in cash and cash equivalents	(17,948		)	33,799			59,028
Cash and cash equivalents—beginning of year	196,219			162,420			103,392
Cash and cash equivalents—end of year	$	178,271		$	196,219		$	162,420
Supplemental cash flow information:
Cash paid for:
Interest	$	—		$	3		$	5
Income taxes	$	162		$	9,609		$	20,883

The accompanying notes are an integral part of these consolidated financial statements.

F-8

MedQuist Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity and Other Comprehensive Income
Years ended December 31, 2005, 2004 and 2003
(In thousands)

											Accumulated
											Other				Total
	Common Stock				Retained			Deferred			Comprehensive				Shareholders’
	Shares		Amount		Earnings			Compensation			Income (Loss)				Equity
Balance, December 31, 2002 as reported		37,091	$	229,149	$	181,216			$	—		$	596			$	410,961
Adjustments		—	—		(4,258		)		224			—				(4,034		)
Balance, December 31, 2002 as restated (Note 5)		37,091	229,149		176,958				224			596				406,927
Comprehensive income:
Net income		—	—		35,567				—			—				35,567
Foreign currency translation adjustments		—	—		—				—			2,725				2,725
Total comprehensive income																38,292
Exercise of stock options, including tax benefit of $670		143	1,601		—				—			—				1,601
Employee stock compensation		—	159		—				—			—				159
Deferred compensation—stock grants		—	—		—				54			—				54
Issuance of common stock		25	459		—				—			—				459
Balance, December 31, 2003		37,259	231,368		212,525				278			3,321				447,492
Comprehensive income:
Net income		—	—		3,742				—			—				3,742
Foreign currency translation adjustments		—	—		—				—			1,104				1,104
Total comprehensive income																4,846
Exercise of stock options, including tax benefit of $319		210	1,133		—				—			—				1,133
Employee stock compensation			209		—				—			—				209
Deferred compensation—stock grants		—	—		—				54			—				54
Issuance of common stock		15	216		—				—			—				216
Balance, December 31, 2004		37,484	232,926		216,267				332			4,425				453,950
Comprehensive loss:
Net loss		—	—		(111,632		)		—			—				(111,632		)
Foreign currency translation adjustments		—	—		—				—			(1,135		)		(1,135		)
Total comprehensive loss																(112,767		)
Employee stock compensation		—	37		—				—			—				37
Balance, December 31, 2005		37,484	$	232,963	$	104,635			$	332		$	3,290			$	341,220

The accompanying notes are an integral part of these consolidated financial statements.

F-9

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

1.   Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Introductory Note

It has been over three years since our last periodic report which was a Form 10-Q for the quarterly period ended September 30, 2003 and filed with the Securities and Exchange Commission (SEC) on November 12, 2003. A summary of significant events that have occurred since that time is listed below.

In November 2003, one of our employees raised allegations that we had engaged in improper billing practices. In response, our board of directors undertook an independent review of these allegations and engaged the law firm of Debevoise and Plimpton LLP, who in turn retained PricewaterhouseCoopers LLP, to assist in the review (Review). On March 16, 2004, we announced that we had delayed the filing of our 2003 annual report on Form 10-K pending completion of the Review. Subsequently, on March 25, 2004, we filed a Form 8-K detailing our determination that the Review would not be completed by the March 30, 2004 filing deadline for our 2003 Form 10-K. As a result of our noncompliance with the SEC’s periodic disclosure requirements, our common stock was delisted from the NASDAQ National Market on June 16, 2004.

On July 30, 2004, we issued a press release entitled “MedQuist Announces Key Findings Of Independent Review Of Client Billing,” which announced certain findings in the Review regarding our billing practices (July 2004 Press Release). The Review found, among other things, that with respect to our medical transcription services contracts that called for billing based on the “AAMT line” billing unit of measure, we used ratios and formulae to help calculate the number of AAMT transcription lines for which our customers (AAMT Customers) were billed rather than counting each of the relevant characters to determine a billable line as provided for in the contracts.  With respect to these contracts, our use of ratios and formulae to arrive at AAMT line counts was generally not disclosed to our AAMT Customers.

The AAMT line unit of measure was developed in 1993 by three medical transcription industry groups, including the American Association for Medical Transcription (AAMT), in an attempt to standardize industry billing practices for medical transcription services. Following the development of the AAMT line unit of measure, customers increasingly began to request AAMT line billing. Accordingly, we, along with other vendors in the medical transcription industry, began to incorporate the AAMT line unit of measure into certain customer contracts. The AAMT line definition provides that a “line” consists of 65 characters and defined the term “character” to include such things as macros and function keys as well as other information necessary for the final appearance and content of a document. However, these definitions turned out to be inherently ambiguous and difficult to apply in practice. As a result, the AAMT line was applied inconsistently throughout the medical transcription industry. In fact, no single set of

F-10

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

AAMT characters was ever defined or agreed upon for this unit of measure, and it was eventually renounced by the groups responsible for its development.

The Review concluded that our rationale for using ratios and formulae to determine the number of AAMT transcription lines for billing was premised on a good faith attempt to adopt a consistent and commercially reasonable billing method given the lack of common standards in the industry and ambiguities inherent in the AAMT line definition. The Review concluded that the use of ratios and formulae within the medical transcription platform setups may have resulted in over billing and under billing of some customers. In addition, in some instances, customers’ ratios and formulae were adjusted without disclosure to the AAMT Customers. However, the Review found no evidence that the amounts we billed AAMT Customers were, in general, commercially unfair or inconsistent with what competitors would have charged. Moreover, it was noted in the Review that we have been able to attract and retain customers in a competitive market.

Following the issuance of the July 2004 Press Release, we began an extensive review of our historical AAMT line billing (Management’s Billing Assessment) and in August 2004 informed our current and former customers that we would be contacting them to discuss how they might have been impacted. In response, several former and current customers, including some of our largest customers, contacted us requesting, among other things, (i) an explanation of the billing methods employed by us for the customer’s account; (ii) an individualized review of the customer’s past billings, and/or (iii) a meeting with a member of our management team to discuss the July 2004 Press Release as it pertained to the customer’s particular account. Some customers demanded an immediate refund or credit to their account; others threatened to withhold payment on invoices and/or take their business elsewhere unless we timely responded to their information and/or audit requests.

In response to our customers’ concern over the July 2004 Press Release, we made the decision to take action to try to avoid litigation and preserve and solidify our customer business relationships by offering a financial accommodation to our AAMT Customers. See Note 4.

Disclosure of the findings of the Review, along with the delisting of our common stock, precipitated a number of governmental investigations and civil lawsuits. See Note 14.

On November 2, 2004, we filed a Form 8-K disclosing our board of directors’ conclusion that our previously issued consolidated financial statements included in our Form 10-K for the fiscal year ended December 31, 2002, our Forms 10-Q filed during 2002 and 2003, and all earnings releases and similar communications related to such periods, should no longer be relied upon.

3.Significant Accounting Policies

Principles of Consolidation

Our consolidated financial statements include the accounts of MedQuist Inc. and its subsidiary companies. All intercompany balances and transactions have been eliminated in consolidation.

F-11

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Use of Estimates and Assumptions in the Preparation of Consolidated Financial Statements

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in our consolidated financial statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, valuation of long-lived and intangible assets and goodwill, valuation allowances for receivables, inventories and deferred income taxes, revenue recognition, and commitments and contingencies. Actual results could differ from those estimates.

Revenue Recognition

We follow revenue recognition criteria outlined in Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, as amended by SAB 104. The majority of our revenues are derived from providing medical transcription services. Revenues for medical transcription services and medical records coding are recognized when the services are rendered. These services are based on contracted rates. The remainder of our revenues are derived from the sale and implementation of voice-capture and document management products including software, hardware and implementation, training and maintenance service related to these products.

We recognize software and software-related revenues pursuant to the requirements of American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2 Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, Software Revenue Recognition, With Respect to Certain Transactions, SOP 81-1, Accounting for Performance of Construction-type and Certain Production-type Contracts, Emerging Issues Task Force (EITF) 00-03 Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, EITF 03-05 Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software and other authoritative accounting guidance.

We recognize software-related revenues using the residual method when vendor-specific objective evidence (VSOE) of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more delivered elements. We allocate revenues to each undelivered element based on its respective fair value determined by the price charged when that element is sold separately or, for elements not yet sold separately, the price established by management if it is probable that the price will not change before the element is sold separately. We defer revenues for the undelivered elements and recognize the residual amount of the arrangement fee, if any, when the basic criteria in SOP 97-2 have been met.

Under SOP 97-2, provided that the arrangement does not involve significant production, modification, or customization of the software, revenues are recognized when all of the following four criteria have been met; persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable.

If at the outset of an arrangement, we determine that the arrangement fee is not fixed or determinable, revenues are deferred until the arrangement fee becomes due and payable by the customer. If at the outset of an arrangement we determine that collectibility is not probable, revenues are deferred until payment is received. Our license agreements typically do not provide for a right of return other than

F-12

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

during the standard warranty period. If an arrangement allows for customer acceptance of the software or services, we defer revenues until the earlier of customer acceptance or when the acceptance rights lapse.

We separately market and sell hardware and software post contract customer support (PCS). PCS covers phone support, hardware parts and labor, software bug fixes and limited upgrades, if and when available. We do not commit to specific future software upgrades or releases. The contract period for PCS is generally one year. We recognize both hardware and software PCS on a straight line basis over the life of the underlying PCS contract. In some of our PCS contracts, we bill the customer prior to performing the services. As of December 31, 2005, 2004 and 2003, deferred PCS revenues of $13,895, $15,614 and $15,955 respectively, are included in deferred revenue and $956, $1,151 and $679, respectively, are included in non-current liabilities in the accompanying consolidated balance sheets.

Certain arrangements include multiple elements involving software, hardware and implementation, training, or other services that are not essential to the functionality of the software. VSOE for services does not exist. Since the undelivered elements are typically services, we recognize the entire arrangement fee ratably over the period during which the services are expected to be performed or the PCS period, whichever is longer, beginning with delivery of the software, provided that all other revenue recognition criteria in SOP 97-2 are met. The services are typically completed before the PCS term expires. As such, upon completion of the services, the difference between the VSOE of fair value for the remaining PCS period and the remaining unrecognized portion of the arrangement fee is recognized as revenue (i.e. the residual method), and the remaining deferred revenue is recognized ratably over the remaining PCS period, provided that all other revenue recognition criteria in SOP 97-2 are met.

Accounting for Consideration Given to a Customer

As a result of the Accommodation Analysis (which is described in Note 4), we offered significant financial accommodations to our customers. Pursuant to EITF Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products), (EITF 01-9), cash consideration given by a vendor to a customer is presumed to be a reduction of the selling price of the vendor’s services and, therefore, should be characterized as a reduction of revenues when recognized in the vendor’s income statement. For the year ended December 31, 2005, $57,678 of the authorized cash accommodation amount was recorded as a reduction of revenues. See Note 4.

Litigation and Settlement Costs

From time to time, we are involved in litigation, claims, contingencies and other legal matters. We record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of the loss can be reasonably estimated. We expense legal costs, including those legal costs expected to be incurred in connection with a loss contingency, as incurred.

F-13

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Services Provided by Independent Registered Public Accounting Firm

Services provided by our independent registered public accounting firm are expensed as the services are provided and were $1,254, $1,171, and $662 for the years ended December 31, 2005, 2004 and 2003, respectively.

Restructuring Costs

A liability for restructuring cost associated with an exit or disposal activity is recognized and measured initially at fair value when the liability is incurred. We record a liability for severance costs when employees are notified that they are to be terminated and for future, non-cancellable operating lease costs when we vacate a facility.

Our estimates of future liabilities may change, requiring us to record additional restructuring charges or reduce the amount of liabilities recorded. At the end of each reporting period, we evaluate the remaining accrued restructuring charges to ensure their adequacy, that no excess accruals are retained and the utilization of the provisions are for their intended purposes in accordance with developed exit plans. We periodically evaluate currently available information and adjust our accrued restructuring charges as necessary. Changes in estimates are accounted for as restructuring costs or credits in the period identified.

Research and Development Costs

Research and development costs are expensed as incurred.

Income Taxes

Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using statutory tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in our statements of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. Management considers future taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance.

Stock-Based Compensation

In December 2002, Financial Accounting Standards Board (FASB) Statement 148, Accounting for Stock-Based Compensation-Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25),

F-14

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied. Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Years ended December 31,
	2005			2004			2003
Net (loss) income	$	(111,632	)	$	3,742		$	35,567
Add: Stock-based employee compensation expense included in reported net (loss) income	37			209			159
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(3,487		)	(3,771		)	(6,188		)
Pro forma net (loss) income	$	(115,082	)	$	180		$	29,538
Basic net (loss) income per share:
As reported	$	(2.98	)	$	0.10		$	0.96
Pro forma	$	(3.07	)	$	0.00		$	0.79
Diluted net (loss) income per share:
As reported	$	(2.98	)	$	0.10		$	0.94
Pro forma	$	(3.07	)	$	0.00		$	0.78

We did not grant any options during the years ended December 31, 2005 and 2004. The fair value of options granted for the year ended December 31, 2003 was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rate	3.0%
Expected volatility	37.7%
Expected dividend yield	0%
Expected option life	5 years

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by

F-15

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

The following table reflects weighted average shares outstanding used to compute basic and diluted net income (loss) per share for the years ended December 31:

	2005	2004	2003
Basic	37,484	37,451	37,172
Effect of dilutive stock options	—	185	543
Diluted	37,484	37,636	37,715

The computation of diluted net income (loss) per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income (loss) per share. During 2005, we had a net loss; as a result, any assumed conversions would result in reducing the loss per share and, therefore, are not included in the calculation. Shares having an anti-dilutive effect on net income (loss) per share and, therefore, excluded from the calculation of diluted income (loss) per share, totaled 3,432 shares, 3,619 shares and 3,362 shares for the years ended December 31, 2005, 2004 and 2003, respectively.

Advertising Costs

Advertising costs are expensed as incurred and for the years ended December 31, 2005, 2004 and 2003 were $2,098, $1,881 and $1,863, respectively.

Cash and Cash Equivalents

We consider all highly liquid instruments with original maturities of three months or less to be cash equivalents. Our cash management and investment policies dictate that cash equivalents be limited to investment grade, highly liquid securities. We place our temporary cash investments with high-credit rated, quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Consequently, our cash equivalents are subject to potential credit risk. As of December 31, 2005, 2004 and 2003, cash equivalents consisted of securities and obligations of the United States Treasury and money market investments. The carrying value of cash and cash equivalents approximates fair value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The carrying value of accounts receivable approximates fair value. The allowance for doubtful accounts is our best estimate for losses inherent in our accounts receivable portfolio. This allowance is used to state trade receivables at estimated net realizable value.

We estimate uncollectible amounts based upon our historical write-off experience, current customer receivable balances, age of customer receivable balances, the customer’s financial condition and current economic conditions. Historically, these estimates have been adequate to cover our accounts receivable exposure.

F-16

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

We enter into medical transcription service arrangements which contain provisions for performance penalties in the event certain service levels, primarily related to turnaround time on transcribed reports, are not achieved. We reduce revenues for any performance penalties incurred and have included an estimate of such credits in our allowance for uncollectible accounts.

Product revenues for sales to end-user customers and resellers are recognized upon passage of title if all other revenue recognition criteria have been met. End-user customers generally do not have a right of return. We provide certain of our resellers and distributors with limited rights of return of our products. We reduce revenues for rights to return our product based upon our historical experience and have included an estimate of such credits in our allowance for uncollectible accounts.

Inventories

Inventories, which are primarily comprised of finished goods, are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. Inventories in excess of anticipated future demand or for obsolete products are reserved. As of December 31, 2005, 2004 and 2003, the net inventory balances were $4,200, $4,942 and $5,929, respectively, and are included in other current assets in the accompanying consolidated balance sheets.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets which range from three to seven years for furniture, equipment and software, and the lesser of the lease term or estimated useful life for leasehold improvements. Repairs and maintenance costs are charged to expense as incurred while additions and betterments are capitalized. Gains or losses on disposals are charged to operations. Upon retirement, sale or other disposition, the related cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included in operations.

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is reviewed for impairment at least annually.

The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). We consider three methods when determining fair value; the discounted cash flow method, the quoted price method and the public company method. Of these three methods, we assign the most significant weighting to the discounted cash flow method. If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with FASB Statement 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill.

F-17

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Software Development

We capitalize software development costs pursuant to the requirements of FASB Statement 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (Statement 86), for our software developed for sale and AICPA SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for internal Use (SOP 98-1), for our software developed for internal use.

Statement 86 specifies that costs incurred in creating a computer software product shall be charged to expense when incurred as research and development until technical feasibility has been established. Technical feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs shall be capitalized until the product is available for release to customers.

SOP 98-1 specifies that software costs incurred in the preliminary project stage should be expensed as incurred. Capitalization of costs should begin when the preliminary project stage is completed and management, with the relevant authority, authorizes and commits funding of the project and it is probable that the project will be completed and the software will be used to perform the function intended. Capitalization should cease no later than the point at which the project is substantially complete and ready for its intended use.

Capitalized software is reported at the lower of unamortized cost or net realizable value and is amortized over the product’s estimated economic life which is generally three years. As of December 31, 2005, 2004 and 2003, $689, $387 and $998, respectively, of unamortized software development costs are included in other intangible assets in the accompanying consolidated balance sheets. During 2005, 2004 and 2003, software amortization expense was $336, $633 and $583, respectively.

Long-Lived and Other Intangible Assets

Long-lived assets, including property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To determine the recoverability of long-lived assets, the estimated future undiscounted cash flows expected to be generated by an asset is compared to the carrying value of the asset. If the carrying value of the long-lived asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized in the amount by which the carrying value of the asset exceeds its fair value. Annually we evaluate the reasonableness of the useful lives of these assets.

F-18

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Intangible assets include certain assets (primarily customer lists) obtained from business acquisitions and are being amortized using the straight-line method over their estimated useful lives which range from three to 20 years.

Foreign Currency Translation

Our operating subsidiaries in the United Kingdom and Canada use the local currency as their functional currency. We translate the assets and liabilities of those entities into U.S. dollars using the month-end exchange rate. We translate revenues and expenses using the average exchange rates prevailing during the reporting period. The resulting translation adjustments are recorded in accumulated other comprehensive income within shareholders’ equity. Gains and losses from foreign currency transactions are included in net income (loss) and were not material for the years ended December 31, 2005, 2004 and 2003, respectively.

Business Enterprise Segments

We operate in one reportable operating segment, medical transcription technology and services. As a result of the acquisition of Lanier Healthcare, LLC (Lanier) during July 2002, from July 2002 through December 31, 2004, we operated as two operating segments. Effective January 1, 2005, we changed the way we review our financial performance to include the provision of medical transcription services and technology as a single operating platform. Accordingly, as of January 1, 2005, we have determined that we have one operating segment for financial reporting purposes. All periods in these consolidated financial statements have been presented to reflect our current financial reporting structure.

Concentration of Risk, Geographic Data and Enterprise-wide Disclosures

No single customer accounted for more than 10% of our net revenues in any period. There is no single geographic area of significant concentration other than the United States.

The following table summarizes the net revenues generated by the categories of our products and services as a percentage of our total net revenues.

	2005		2004		2003
Medical transcription	79.5	%	83.0	%	82.5	%
Products and related services	8.1	%	7.1	%	8.0	%
PCS	9.3	%	7.6	%	6.9	%
Other	3.1	%	2.3	%	2.6	%
Total	100.0	%	100.0	%	100.0	%

Other includes medical coding, application service provider and time and material revenues.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected in our consolidated balance sheets at carrying values which approximate fair value due to the short-term nature of these instruments and the variability of the respective interest rates where applicable.

F-19

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Restatements and Reclassifications

We recorded adjustments to our December 31, 2002 retained earnings balance to reflect restatements of net income for the years 1999 - 2002, as well as a reclassification related to deferred compensation for stock grants previously reported in other liabilities. These adjustments to net income related to the Quantification (which is described in Note 4) and a change in estimate related to the useful lives of certain intangible assets. See Notes 4 and 5.

We have determined that certain costs previously classified as cost of revenues are no longer directly related to customer support activities and, therefore, should not be reported as cost of revenues, but rather, should be classified as selling, general and administrative and research and development expenses. Accordingly, certain reclassifications have been made to the first, second and third quarters of our 2003 consolidated financial statements to conform to our current year presentation. This change in classification had no effect on our previously reported operating income, net income or net income per share.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement 123(R), which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. Statement 123(R) is a revision to Statement 123 and supersedes APB 25 and its related implementation guidance and requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock options. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. We adopted Statement 123(R) on January 1, 2006 under the modified prospective method of application. Under this method, we recognize compensation costs for new grants of share-based awards, awards modified after the effective date, and the remaining portion of the fair value of the unvested awards at the adoption date. The adoption of Statement 123(R) will result in our recording approximately $2,000 of compensation expense in 2006.

In June 2006, the EITF reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Government Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation). The consensus allows companies to choose between two acceptable alternatives based on their accounting policies for transactions in which the company collects taxes on behalf of a governmental authority, such as sales taxes. Under the gross method, taxes collected are accounted for as a component of sales revenue with an offsetting expense. Conversely, the net method allows a reduction to sales revenue. If such taxes are reported gross and are significant, companies should disclose the amount of those taxes. The guidance should be applied to financial reports through retrospective application for all periods presented, if amounts are significant, for interim and annual reporting beginning after December 31, 2006. We have historically presented taxes on a net basis and we do not intend to change our policy.

In July 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

F-20

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. We are currently in the process of assessing the impact of FIN 48 on our consolidated financial statements.

In September 2006, the SEC issued SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), which addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 will require registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is determined to be material, SAB 108 allows for a cumulative effect adjustment to beginning retained earnings. The requirements are effective for annual financial statements covering the first fiscal year ending after November 15, 2006. We do not expect the adoption of SAB 108 to have any impact on our consolidated financial statements.

In September 2006, the FASB issued Statement 157, Fair Value Measurements, (Statement 157) which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. Statement 157 does not require any new fair value measurements. The provisions of this statement are effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of Statement 157 to have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement 115 (SFAS 159) which permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings at each subsequent reporting date. The following balance sheet items are within the scope of SFAS 159:

·Recognized financial assets and financial liabilities unless a special exception applies;

·Firm commitments that would otherwise not be recognized at inception and that involve only financial instruments;

·Non-financial insurance contracts; and

·Host financial instruments resulting from separation of an embedded non-financial derivative instrument from a non-financial hybrid instrument

SFAS 159 will be effective for fiscal years beginning after November 2007 with early adoption possible but subject to certain requirements. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.

4. Customer Accommodation and Quantification

As discussed in Note 2, in connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation

F-21

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

In connection with the Quantification, we recorded the following:

·A reduction in revenues and a corresponding increase in accrued expenses of $133, $931, and $2,142 in 2005, 2004 and 2003, respectively.

·Adjusted retained earnings by $3,977, deferred tax asset by $2,652 and accrued expenses by $6,629 as of December 31, 2002 for periods prior to fiscal 2003. See Note 5.

The following is a summary of the activity in accrued expenses related to the Accommodation Analysis and the Quantification:

Cumulative effect as of January 1, 2003	$	6,629
Impact of Quantification in 2003	2,142
Balance as of December 31, 2003	8,771
Impact of Quantification in 2004	931
Balance as of December 31, 2004	9,702
Impact of Quantification in 2005	133
Customer accommodation	57,678
Payments	(20,635		)
Balance as of December 31, 2005	$	46,878

Cumulative effect as of January 1, 2003 reflects an adjustment for periods prior to fiscal 2003 of $2,219, $2,048, $1,762 and $600 in 2002, 2001, 2000 and 1999, respectively.

F-22

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

The goal of our customer accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our customer accommodation to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond amounts previously authorized.

5. Restatement of Financial Statements

We recorded a cumulative effect of a prior period adjustment to our December 31, 2002 retained earnings of $7,097 ($4,258, net of taxes). This adjustment relates to the following:

·The Quantification adjustments of $6,629 (see Note 4).

·A reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $468 of additional amortization expense in 2002.

In addition, we recorded an adjustment to deferred compensation for stock grants which represents a reclassification from previously reported other liabilities. The following is a summary of the prior period adjustments made to our December 31, 2002 shareholders’ equity:

	Common Stock			Retained			Deferred			Accumulated Other Comprehensive			Total Shareholders’
	Shares	Amount		Earnings			Compensation			Income			Equity
Balance, December 31, 2002 as reported	37,091	$	229,149	$	181,216			$	—		$	596		$	410,961
Cumulative effect of Quantification adjustments, net of taxes of $2,652				(3,977		)								(3,977		)
Change in estimated useful lives of intangible assets for 2002, net of taxes of $187	—	—		(281		)		—			—			(281		)
Deferred compensation—stock grants	—	—		—				224			—			224
Balance, December 31, 2002 as restated	37,091	$	229,149	$	176,958			$	224		$	596		$	406,927

6. Cost of Investigation and Legal Proceedings

For the years ended December 31, 2005 and 2004, we recorded a charge of $34,127 and $10,253, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. We did not record a charge

F-23

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

in 2003. The following is a summary of the amounts recorded in the accompanying consolidated statements of operations:

	2005		2004
Legal fees	$	20,858	$	8,408
Other professional fees	9,789		471
Nightingale and Associates, LLC (Nightingale) services	3,207		1,371
Other	273		3
Total	$	34,127	$	10,253

Other professional fees represent accounting and dispute analysis costs and document search and retrieval costs.

7. Restructuring Charges

2005 Restructuring Plan

During 2005, we implemented a restructuring plan (2005 Plan) based on the implementation of a centralized national service delivery model. The plan involved the consolidation of operating facilities and a related reduction in workforce. The table below reflects the financial statement activity related to the 2005 Plan which is included in accrued expenses in the accompanying consolidated balance sheet as of December 31, 2005.

	Total			Non-Cancelable Leases				Severance				Equipment
Initial charge	$	3,257			$	2,334			$	704			$	219
Usage	(1,207		)		(641		)		(347		)		(219		)
Balance as of December 31, 2005	$	2,050			$	1,693			$	357			$	—

The 2005 Plan will be completed in 2007 for severance and 2009 for non-cancelable leases. We expect to incur approximately $3,400 of additional charges in 2006 related to the 2005 Plan.

F-24

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

2001 Restructuring Plans

During 2001, we implemented a restructuring plan associated with the rollout of a new medical transcription platform and recorded restructuring charges of $1,468. Also in 2001, we completed the purchase of a medical transcription company. In connection with this acquisition, we recorded restructuring charges of $1,790. The table below reflects the financial statement activity related to the 2001 plans for the years ended December 31, 2005, 2004 and 2003:

	Total			Non-Cancelable Leases				Severance
Balance as of December 31, 2002	$	1,095			$	1,004			$	91
Usage	(707		)		(657		)		(50		)
Reserve reversal	(242		)		(201		)		(41		)
Balance as of December 31, 2003	$	146			$	146			$	—
Usage	(120		)		(120		)		—
Balance as of December 31, 2004	$	26			$	26			$	—
Additional charge	5				5				—
Usage	(31		)		(31		)		—
Balance as of December 31, 2005	$	—			$	—			$	—

8.Accounts Receivable

Accounts receivable consisted of the following as of December 31:

	2005			2004			2003
Trade accounts receivable	$	76,150		$	81,762		$	84,069
Less: Allowance for doubtful accounts and returns	(4,389		)	(4,643		)	(5,254		)
Total accounts receivable, net	$	71,761		$	77,119		$	78,815

9.Property and Equipment

Property and equipment consisted of the following as of December 31:

	2005			2004			2003
Computer equipment	$	36,640		$	69,206		$	59,878
Communication equipment	11,466			45,355			49,501
Software	13,067			11,841			9,539
Furniture and office equipment	2,165			3,874			4,094
Leasehold improvements	2,760			4,157			2,946
Other	—			35			48
Total property and equipment	66,098			134,468			126,006
Less: accumulated depreciation	(42,137		)	(101,271		)	(90,392		)
Property and equipment, net	$	23,961		$	33,197		$	35,614

F-25

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

In the fourth quarter of 2005, based upon an inventory of fixed assets, we recorded a write-off of $4,070 (original cost $29,116 less accumulated depreciation $25,046). This expense was allocated between cost of revenues ($3,851) and restructuring charges related to the 2005 Plan ($219). In addition, during 2005, 2004 and 2003, $50,832, $7,942 and $11,819, respectively, in fully depreciated assets no longer in use were written off which had no impact on net (loss) income.

10.Goodwill and Other Intangible Assets

Goodwill

After our annual goodwill impairment testing was performed on May 31, 2005, we changed our annual goodwill impairment test date to December 1 in order to align this testing with our normal business process for updating our strategic plan and forecasts which are finalized in the fourth quarter. As a result of this change in the method of applying an accounting principle, which we believe is preferable, we performed a goodwill impairment test on December 1, 2005. We believe the accounting change described above is an alternative accounting principle that is preferable under the circumstances and that the change was not intended to delay, accelerate or avoid an impairment charge.

In December 2004, we changed our organization structure from two reporting units (Services and Solutions) to one reporting unit. At that time, we tested the goodwill valuation of each reporting unit for impairment. Due to reduced sales and margins experienced in the Solutions reporting unit, expected operating profits and cash flows were forecast lower than previously anticipated. Accordingly, in December 2004, a goodwill impairment charge of $14,603 was recorded related to the Solutions reporting unit. The impairment charge is included as a separate line item in the accompanying consolidated statements of operations.

The following table reflects the activity and changes in the carrying amount of goodwill for the years ended December 31, 2005, 2004 and 2003:

Balance as of December 31, 2002	$	136,127
Foreign currency adjustments	1,925
Tax adjustment	(95		)
Adjustment to contingent purchase price	1,085
Balance as of December 31, 2003	139,042
Foreign currency adjustments	668
Tax adjustment	(281		)
Goodwill impairment	(14,603		)
Balance as of December 31, 2004	124,826
Foreign currency adjustments	(696		)
Tax adjustment	(281		)
Balance as of December 31, 2005	$	123,849

The foreign currency adjustments reflect changes in the period-end currency rates of our foreign subsidiaries. The tax adjustment is due to book/tax differences related to two acquisitions in which tax

F-26

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

goodwill exceeded the book value of the goodwill, resulting in a permanent favorable difference that reduces goodwill as it is recognized on our tax returns.

Other Intangible Assets

As of December 31, the other intangible asset balances were:

	2005
	Cost		Accumulated  Amortization				Net book Value
Customer lists	$	77,185		$	(27,920	)	$	49,265
Noncompete agreements	4,559			(4,095		)	464
Tradenames	5,325			(4,465		)	860
Capitalized software	2,539			(1,850		)	689
Total	$	89,608		$	(38,330	)	$	51,278

	2004
	Cost		Accumulated  Amortization				Net book Value
Customer lists	$	77,160		$	(23,211	)	$	53,949
Noncompete agreements	4,547			(3,165		)	1,382
Tradenames	5,325			(3,152		)	2,173
Capitalized software	1,901			(1,514		)	387
Other	2,601			(1,565		)	1,036
Total	$	91,534		$	(32,607	)	$	58,927

	2003
	Cost		Accumulated  Amortization				Net book Value
Customer lists	$	77,107		$	(18,461	)	$	58,646
Noncompete agreements	5,061			(2,707		)	2,354
Tradenames	5,800			(1,908		)	3,892
Capitalized software	1,879			(881		)	998
Other	6,188			(3,887		)	2,301
Total	$	96,035		$	(27,844	)	$	68,191

The estimated useful life and the weighted average remaining lives of the intangible assets as of December 31, 2005 are as follows:

	Estimated	Weighted Average
	Useful Life	Remaining Lives
Customer lists	10 - 20 years		12.5 years
Noncompete agreements	4 - 5 years		0.4 years
Tradenames	3 years		1.8 years
Capitalized software	3 years		3.0 years

F-27

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

As part of the Lanier acquisition in 2002, we acquired a tradename used on Lanier products. In December 2004, our plans to continue selling this product changed and we determined that the tradename would be disposed of before its previously established useful life. In accordance with FASB Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we compared the carrying value to its fair value. An impairment charge of $475 was recorded in December 2004 representing the excess of carrying value over fair value.

Estimated annual amortization expense for intangible assets is as follows:

2006	$	5,867
2007	5,411
2008	4,989
2009	4,770
2010	4,714
Thereafter	25,527
Total	$	51,278

11.Contractual Obligations

Leases

Minimum rental payments under operating leases are recognized on a straight-line basis over the term of the lease, including any periods of free rent and landlord incentives. Rental expense for operating leases for the years ended December 31, 2005, 2004 and 2003 was $5,710, $7,139 and $8,042, respectively. Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2005 are:

	Total		Continuing			Restructuring
2006	$	4,311		$	2,941		$	1,370
2007	3,031			2,449			582
2008	1,756			1,605			151
2009	1,332			1,196			136
2010 and thereafter	1,449			1,449			—
Total minimum lease payments	$	11,879		$	9,640		$	2,239

F-28

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Other Contractual Obligations

The following summarizes our other contractual obligations as of December 31, 2005:

	Total		Purchase		Severance and Other Guaranteed Payments			Other
2006	$	13,492	$	11,001		$	991	$	1,500
2007	6,200		6,100			100		—
2008	6,100		6,100			—		—
2009	6,100		6,100			—		—
2010 and thereafter	7,785		7,785			—		—
Total	$	39,677	$	37,086		$	1,091	$	1,500

Purchase obligations represent telecommunication contracts ($34,000), data center storage and disaster recovery ($2,300) and other recurring purchase obligations ($786). Severance and other guaranteed payments include severance ($441) and guaranteed compensation ($650). Other obligations are for consulting services provided by Nightingale ($200) and recruitment services ($300) as well as a prepayment required pursuant to a licensing agreement we entered into with Philips Speech Processing GmbH ($1,000) an affiliate of Koninklijke Philips Electronics N.V. (Philips) which is now known as Philips Speech Recognition Systems GmbH (PSRS). See Note 18.

As of December 31, 2005 we had agreements with certain of our senior management that provided for severance payments in the event these individuals were terminated without cause. The maximum cost related to these agreements was $2,161 as of December 31, 2005.

12.Investment in A-Life Medical, Inc. (A-Life)

We have an investment in A-Life, a privately held entity which provides advanced natural language processing technology for the medical industry. Our investment is recorded under the equity method of accounting since we owned 33.6% of A-Life’s outstanding voting shares as of December 31, 2005, 2004 and 2003. The table below reflects the financial statement activity related to A-Life for the years ended December 31, 2005, 2004 and 2003 that is recorded in other assets in the accompanying consolidated balance sheets.

Balance as of December 31, 2002	$	4,840
Amortization software	(333		)
Share in loss	(180		)
Balance as of December 31, 2003	4,327
Amortization software	(333		)
Share in income	521
Balance as of December 31, 2004	4,515
Share in income	500
Balance as of December 31, 2005	$	5,015

F-29

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

In August 2001, we entered into an Advance Agreement with A-Life (Advance Agreement). The Advance Agreement required a prepayment of $1,000 for $1,600 in services to be provided by A-Life to us. The Advance Agreement had an expiration date of December 31, 2005. Due to significantly lower than expected revenues as well as a determination that services to be provided by A-Life over the remaining life of the contract would not utilize the prepaid balance as of December 31, 2004, we recorded an impairment charge of $706 in the fourth quarter of 2004 in cost of revenues. The Advance Agreement terminated on December 31, 2005.

13.Accrued Expenses

Accrued expenses consisted of the following as of December 31:

	2005		2004		2003
Professional services	$	11,294	$	1,875	$	109
Shareholder litigation settlement	7,750		—		—
Other	18,357		16,497		12,367
Total accrued expenses	$	37,401	$	18,372	$	12,476

No other individual accrued expense is in excess of 5% of total current liabilities.

14.Commitments and Contingencies

Governmental Investigations

The SEC is currently conducting a formal investigation of us relating to our billing practices (see Notes 3, 4 and 5).

We have received an administrative Health Insurance Portability and Accountability Act of 1996 subpoena from the Department of Justice (DOJ) on December 17, 2004. The subpoena sought information primarily about our provision of medical transcription services to governmental and non-governmental customers. The information was requested in connection with a government investigation into whether we and others violated federal laws in connection with the provision of medical transcription services.

Civil Litigation

Customer Litigation—In September 2004, a purported class action was filed against us and some of our current and former officers on behalf of certain of our customers claiming, among other things, that they were wrongfully and fraudulently overcharged for medical transcription services based primarily on our use of the AAMT line billing unit of measure as discussed above. In January 2006, plaintiffs filed a third amended complaint which expanded their claims to include certain of our customers whose charges for medical transcription services were based on other, non-AAMT billing units of measure. On March 30, 2007, the Court issued an order holding that plaintiffs could not make out a claim that we had violated the Racketeer Influenced and Corrupt Organizations Act statute, thus eliminating any claim against us for treble damages. The Court also found that plaintiffs could not make out a claim that we had engaged in any unfair or deceptive acts or practices in violation of state law or that we were liable for any negligent misrepresentations to plaintiffs. In its ruling, the Court, without reaching a decision of whether any

F-30

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

wrongdoing had occurred, allowed plaintiffs to proceed with their claims against us for fraud, unjust enrichment and an accounting. The Court denied our motion to compel arbitration regarding those customers whose contracts contained an agreement to arbitrate. We have appealed that decision to the Third Circuit Court of Appeals and moved to stay all proceedings pending appeal. Plaintiffs oppose any stay and have filed a motion for summary action in the Third Circuit to dismiss the non-arbitration plaintiffs from the appeal.

Shareholder Securities Litigation—In November 2004, a complaint was filed, and thereafter amended twice, against us and some of our former and current officers, directors and auditors, purporting to be a class action under the federal securities laws on behalf of those shareholders who purchased our common stock during a period beginning March 29, 2000 and ending June 14, 2004. A hearing on our motion to dismiss was held on August 17, 2006. On September 29, 2006, the Court issued an order denying our motion to dismiss. However, in the same order, the Court granted the motion to dismiss filed by our former and current external auditors. On March 23, 2007, we entered into a memorandum of understanding with the lead plaintiff in which we agreed to pay $7,750 to settle all claims, throughout the class period, against all defendants in the action. On May 16, 2007, the Court issued an Order Preliminarily Approving Settlement and Providing for Notice. The Court scheduled a final approval hearing for August 15, 2007. The settlement is subject to final documentation by the parties and conditioned on final approval by the Court after notice to the putative class. Neither we nor any of the individuals named in the action has admitted or will admit to liability or any wrongdoing in connection with the proposed settlement. We recognized the $7,750 loss of the settlement in our consolidated statement of operations for the year ended December 31, 2005 and this amount is included in accrued expenses as of December 31, 2005 in our consolidated balance sheet.

Shareholder Derivative Litigation—In November 2004, a shareholder derivative lawsuit was filed against our majority shareholder, Philips, some current and former members of our board of directors, and us, as a nominal defendant, alleging that the defendants had breached their fiduciary duties. This matter was dismissed with prejudice in September 2005. In December 2005, plaintiff filed an appeal, which was denied on May 25, 2007.

Medical Transcriptionist Litigation—Between November 2004 and October 2005, three separate actions were filed by different parties against us and some of our current and former company officials, purportedly on behalf of an alleged class of our current and former employees and statutory workers, alleging among other things, breach of contract, breach of the covenant of good faith and fair dealing and unjust enrichment. Since the causes of action in each matter were substantially similar, the three cases were consolidated into one action. A hearing on our motion to dismiss was held on August 7, 2006. On December 21, 2006, the Court issued an order denying our motion to dismiss and the case has proceeded to the discovery stage.

Other than the shareholder securities litigation discussed above, at this time, based on the stage of litigation, and a review of the current facts and circumstances, no amount is probable and no amount within a range of possible outcomes is a better amount within the range that might result from an adverse judgment or a settlement of the matters discussed above.

F-31

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Developments relating to third party litigation and governmental investigations will continue to create various risks and uncertainties that could materially and adversely affect our business, financial condition, results of operations and cash flows.

Other Matters

From time to time, we have been involved in various claims and legal actions arising in the ordinary course of business. In our opinion, the outcome of such actions will not have a material adverse effect on our consolidated financial position, results of operations, liquidity or cash flows.

We provide certain indemnification provisions within our standard agreement for the sale of software and hardware (collectively, Products) to protect our customers from any liabilities or damages resulting from a claim of U.S. patent, copyright or trademark infringement by third parties relating to our Products. We have never incurred a liability relating to one of these indemnification provisions in the past and we believe that the likelihood of any future payout relating to these provisions is remote. Accordingly, we have not recorded any liability in our consolidated financial statements as of December 31, 2005, 2004 or 2003 related to these indemnification provisions.

We have insurance policies which provide coverage for certain of the matters related to the legal actions described herein. We filed claims for insurance recoveries, but, as of December 31, 2005, it was not probable that we would receive any of these insurance recoveries.

15.Stock Option Plans

Our stock option plans provide for the granting of options to purchase shares of common stock to eligible employees (including officers) as well as to our non-employee directors. Options may be issued at the fair market value of the common stock on the date of grant or at a price determined by a committee of our board of directors. Stock options vest and are exercisable over periods determined by the committee, generally five years and expire no more than 10 years after the grant.

In July 2004, our board of directors affirmed our June 2004 decision to indefinitely suspend the exercise and future grant of options under our stock option plans. Ten former executives separated from us in 2004 and 2005. Notwithstanding the suspension, to the extent such executives held options that were vested as of their resignation date, such options remain exercisable for the post-termination period, generally 90 days, commencing on the date that the suspension is lifted for the exercise of options. There are 580 shares that have qualified for this post-termination exercise period at a weighted average exercise price of $37.59 per share. A summary of these post-termination options as of December 31, 2005 is as follows:

	Options exercisable
Range of Exercise Prices	Number of  Shares		Intrinsic Value		Average  Exercise  Price
$  2.71 - $10.00		34	$	280		$	5.39
$10.01 - $20.00		123	—			$	15.59
$20.01 - $70.00		423	—			$	46.59
		580	$	280

F-32

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

The extension of the life of the awards resulted in a modification of the grants. Under APB 25, the modification creates intrinsic value for vested stock if the market value of the stock on the date of termination exceeds the grant price. Therefore, these grants required an immediate recognition of the compensation expense with an offsetting credit to common stock. We recorded a charge of $37 and $209 for the years ended December 31, 2005 and 2004, respectively.

Information with respect to our common stock options is as follows:

			Exercise price		Weighted average
	Shares		per share		exercise price
Outstanding, December 31, 2002	5,479		$	2.17 - 70.00		$	30.92
Granted	706		$	16.02 - 20.50		$	17.48
Exercised	(143	)	$	2.17 - 16.00		$	6.52
Canceled	(614	)	$	5.21 - 70.00		$	34.40
Outstanding, December 31, 2003	5,428		$	2.71 - 70.00		$	29.42
Exercised	(210	)	$	3.17 - 16.00		$	3.87
Canceled	(1,169	)	$	3.17 - 70.00		$	36.33
Outstanding, December 31, 2004	4,049		$	2.71 - 70.00		$	28.76
Canceled	(617	)	$	5.21 - 70.00		$	31.99
Outstanding, December 31, 2005	3,432		$	2.71 - 70.00		$	28.18

A summary of outstanding and exercisable options as of December 31, 2005 is as follows:

	Options outstanding							Options exercisable
Range of Exercise Prices	Number of  Shares		Weighted  Average  Remaining  Contractual  Life (yrs)		Weighted  Average  Exercise  Price			Number of  Shares		Weighted  Average  Exercise Price
$ 2.71 - $10.00		327		0.7		$	5.75		327		$	5.75
$ 10.01 - $20.00		1,057		3.2		$	15.62		780		$	15.03
$ 20.01 - $30.00		1,035		4.5		$	26.97		755		$	26.45
$ 30.01 - $40.00		354		2.4		$	32.27		337		$	32.27
$ 40.01 - $70.00		659		3.3		$	59.12		659		$	59.12
		3,432		3.3		$	28.18		2,858		$	29.19

As of December 31, 2005, there were 1,024 additional options available for grant under our stock option plans. When we become up to date in our reporting to the SEC, certain executive officers, in accordance with their employment agreements, will receive an aggregate of 200 options with an exercise price equal to the market value of our common stock on the date of grant. In 2005, $78 is included in the pro forma stock-based compensation amount depicted in Note 3 related to these options.

F-33

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

16.   Income Taxes

The sources of (loss) income from operations before income taxes and the income tax (benefit) provision for the years ended December 31, 2005, 2004 and 2003 are as follows:

	2005			2004			2003
(Loss) income before income taxes:
Domestic	$	(93,021	)	$	6,394		$	54,010
Foreign	2,151			1,581			783
(Loss) income before income taxes	$	(90,870	)	$	7,975		$	54,793
Current (benefit) provision:
Federal	$	(16,171	)	$	5,501		$	15,708
State and local	(151		)	529			2,286
Foreign	429			406			227
Current income tax (benefit) provision	(15,893		)	6,436			18,221
Deferred (benefit) provision:
Federal	28,702			(3,506		)	1,258
State and local	7,830			(1,036		)	52
Foreign	123			2,339			(305		)
Deferred income tax (benefit) provision	36,655			(2,203		)	1,005
Income tax provision	$	20,762		$	4,233		$	19,226

The reconciliation of the statutory federal income tax rate to our effective income tax rate is as follows:

Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax effect	5.0	%	(3.9	)%	1.0	%
Valuation allowance	(62.5	)%	17.8	%	—
Impact of foreign operations	(0.5	)%	2.0	%	—
Adjustments to tax reserves	0.5	%	1.1	%	(1.2	)%
Permanent differences	(0.7	)%	1.8	%	0.5	%
Other	0.2	%	(0.7	)%	(0.2	)%
Effective income tax rate	(22.8	)%	53.1	%	35.1	%

F-34

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31, 2005, 2004 and 2003 were as follows:

	2005			2004			2003
Deferred tax assets:
Foreign net operating loss carryforwards	$	3,022		$	3,628		$	3,478
Domestic net operating loss carryforwards	2,687			101			—
Accounts receivable	1,964			2,040			2,192
Property and equipment	1,285			—			—
Intangibles	24,192			25,145			19,887
Employee compensation and benefit plans	2,136			1,799			1,616
Deferred compensation	954			1,332			1,151
Customer accommodation and quantification	18,485			3,832			3,465
Accruals and reserves	8,078			4,187			3,265
Other	1,761			1,851			1,155
Total gross deferred tax assets	64,564			43,915			36,209
Less: Valuation allowance	(58,039		)	(1,476		)	—
Total deferred tax assets	6,525			42,439			36,209
Deferred tax liabilities:
Property and equipment	—			(1,922		)	(1,512		)
Intangibles	(15,947		)	(13,110		)	(10,274		)
Other	(919		)	(903		)	(467		)
Total deferred tax liabilities	(16,866		)	(15,935		)	(12,253		)
Net deferred tax (liability) asset	$	(10,341	)	$	26,504		$	23,956

As of December 31, 2005, 2004 and 2003, we had state net operating loss carry forwards of approximately $61,849, $6,650 and $0, respectively, which will expire between 2007 and 2025. In addition, we have foreign net operating loss carry forwards of approximately $14,853 which do not expire. Utilization of the net operating loss carry forwards may be subject to an annual limitation in the event of a change in ownership in future years as defined by Section 382 of the Internal Revenue Code and similar state and foreign provisions.

In assessing the future realization of deferred taxes, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized based on projections of our future taxable earnings. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

In the fourth quarter of 2004, a valuation allowance of $1,476 was established against deferred tax assets generated in foreign jurisdictions since management felt it was more likely than not that these assets would not be utilized. This valuation allowance was decreased by $245 during 2005.

F-35

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

In the fourth quarter of 2005, a valuation allowance of $56,808 was established against various domestic deferred tax assets. After consideration of all evidence, both positive and negative, management concluded that it was more likely than not that a majority of the domestic deferred tax assets would not be realized.

Domestic deferred tax assets were recognized to the extent that objective positive evidence existed with respect to their future utilization. The objective positive evidence included the potential to carry back any losses generated by the deferred tax assets in the future as well as income expected to be recognized due to the reversal of deferred tax liabilities as of December 31, 2005. In analyzing deferred tax liabilities as a source for potential income for purposes of recognizing deferred tax assets, the deferred tax liabilities related to excess book basis in goodwill over tax basis in goodwill were not considered a source of future income due to their indefinite life and uncertainty of reversal during the same period as the deferred tax assets.

17.   Employee Benefit Plans

401(k) Plan

We have a tax-qualified retirement plan named the MedQuist 401(k) Plan (401(k) Plan) that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Our 401(k) Plan allows eligible employees to contribute up to 25% of their annual eligible compensation on a pre-tax basis, subject to applicable Internal Revenue Code limits. Elective deferral contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participant’s directives. Employee elective deferrals are 100% vested at all times. We match 50% of each participant’s contribution, up to a maximum of 5% of each participant’s total annual eligible compensation. Matching contributions are 20% vested after two years of service, 40% after three years of service, 60% after four years of service and 100% vested after five years of service. A matching contribution was made on a per pay basis semi-monthly, using our common stock until April 2004. Subsequent to April 2004, our match was made in cash. The charge to operations for our matching contributions for the years ended December 31, 2005, 2004 and 2003 was $1,380, $1,511 and $1,580, respectively. For the years ended December 31, 2004 and 2003, our 401(k) Plan purchased on the open market 53 shares of common stock for $801 and 85 shares of common stock for $1,563, respectively, to be invested in the funds offered in our 401(k) Plan at each participant’s direction.

Employee Stock Purchase Plan

In 2003, all full-time employees except those who owned 5% or more of our common stock were eligible to participate in our Employee Stock Purchase Plan (ESPP). The ESPP provided that participants could authorize us to withhold up to 10% of their earnings for the purchase of shares of our common stock. The purchase price of the common stock was determined by the compensation committee of our board of directors, but could not be less than 85% of the fair market value of our common stock on the date of purchase. For the years ended December 31, 2004 and 2003, the ESPP purchased from us 15 and 25 shares of common stock, respectively, at a total purchase price of $216 and $459, respectively. Effective June 15, 2004, we suspended the ESPP indefinitely and no purchases have been made since the plan was suspended.

F-36

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Executive Deferred Compensation Plan

We established the MedQuist Inc. Executive Deferred Compensation Plan (EDCP) in 2001. The EDCP, which is administered by the compensation committee of our board of directors, allowed certain members of management and highly compensated employees to defer a certain percentage of their income. Participants were permitted to defer compensation into an account in which proceeds were available either during or after termination of employment. The compensation committee authorized that certain contributions made to a retirement distribution account be matched with either shares of our common stock or cash. Participants were not entitled to receive matching contributions if they elected to make deferrals to an account into which proceeds are available during employment. Participants were able to defer up to 15% of base salary (or such other maximum percentage as may be approved by the compensation committee) and 90% of bonus (or such other maximum percentage as may be approved by the compensation committee). Distributions to a participant made pursuant to a retirement distribution account may be made to the participant upon the participant’s termination or attainment of age 65, as elected by the participant in their enrollment agreement. Distributions to a participant made pursuant to an in-service distribution account may be made at the election of the participant in their enrollment agreement, subject to certain exceptions. The balances in the EDCP are not funded, but are segregated, and participants in the EDCP are our general creditors. All amounts deferred in the EDCP increase or decrease based on hypothetical investment results of the executive’s selected investment alternatives, however, EDCP distributions are paid out of our funds rather than from a dedicated investment portfolio. As of December 31, 2005, 2004 and 2003, the value of the assets held, managed and invested pursuant to the EDCP was $1,096, $1,693 and $1,220, respectively, and is included in other current assets in the accompanying consolidated balance sheets. As of December 31, 2005, 2004 and 2003, the corresponding deferred compensation liability reflecting amounts due to employees was $1,017, $1,882 and $1,408, respectively, and is included in accrued expenses in the accompanying consolidated balance sheets.

Effective January 1, 2005, the EDCP was suspended and no further contributions have been made.

Board of Directors Deferred Compensation Plan

Under our Board of Directors Deferred Compensation Plan (BDDCP) in effect through December 31, 2003, each independent director had the right to receive an annual grant of deferred compensation in the form of our common stock having a fair market value of $18 on the date of grant. Under the BDDCP, common stock will not be issued until the date a director leaves our board of directors. For purposes of valuing common stock granted under the plan, fair market value equaled the closing price of the common stock on the date of grant. Grants were automatically made on January 1 of each year.

In 2004, our independent directors received cash payments for their services in lieu of deferred compensation in the form of common stock. Commencing on January 1, 2005, a portion of the compensation paid to our independent directors was deferred compensation in the form of common stock having a fair market value of $50 on the date of grant. Our board of directors postponed the granting of the deferred compensation awards for 2005 and 2006 until such time as we become up to date with our periodic reporting obligations with the SEC. As of December 31, 2005, 2004 and 2003, $332, $332 and $278, respectively, related to deferred compensation is included in the accompanying consolidated statements of shareholders’ equity and other comprehensive income.

F-37

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

18.   Related-Party Transactions

From time to time, we enter into transactions in the normal course of business with related parties.

In connection with Philips’ investment in us, we have entered into various agreements with Philips. All material transactions between Philips and us are reviewed and approved by the supervisory committee of our board of directors. The supervisory committee is comprised of directors independent from Philips. Listed below is a summary of our material agreements with Philips.

Licensing Agreement

In connection with Philips’ tender offer, we entered into a Licensing Agreement on May 22, 2000 with PSRS (Licensing Agreement). The Licensing Agreement was subsequently amended by the parties as of January 1, 2002, February 23, 2003, August 10, 2003, September 1, 2004, December 30, 2005 and February 13, 2007.

Under the Licensing Agreement, we license from PSRS its SpeechMagic speech recognition and processing software, including any updated versions of the software developed by PSRS during the term of the License Agreement (Licensed Product), for use by us anywhere in the world. We pay a fee for use of this license based upon a per line fee for each transcribed line of text processed through the Licensed Product.

Upon the expiration of its initial term on June 28, 2005, the Licensing Agreement was renewed for an additional five year term.

In connection with the Licensing Agreement, we have a consulting arrangement with PSRS whereby PSRS assists us with the integration of its speech and transcription technologies.

OEM Supply Agreement

We entered into an OEM Supply Agreement with PSRS on September 23, 2004 pursuant to which we obtained the exclusive right in North America to sell certain PSRS Products (as defined below) created and/or developed by PSRS to third parties, to service such PSRS Products and to incorporate such PSRS Products into our own products (OEM Supply Agreement).

The initial term of the OEM Supply Agreement expires on June 30, 2007. Unless earlier terminated, the OEM Agreement automatically renews for two additional three year terms, provided that we are in compliance with the OEM Agreement at the end of the initial term and each renewal term.

In 2004, we made a payment to PSRS with respect to software purchases and payments under the OEM Supply Agreement in an amount equal to the sales forecast and commitment set forth in the OEM Supply Agreement for such year. We did not meet the sales forecast and commitment set forth in the OEM Supply Agreement for 2005.

If PSRS decides to discontinue all business relating to the PSRS Products in North America, PSRS has the right to terminate the OEM Supply Agreement by giving us six months prior written notice, in which case PSRS agrees to negotiate in good faith with us the terms and conditions under which it will

F-38

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

provide training and access to source code of the PSRS Products to the extent reasonably necessary for us to continue development and to support the installed base of PSRS Products in North America.

In consideration of PSRS’s development, maintenance and support for the first version of the PSRS Products, we paid PSRS a development fee in 2004. In addition, we pay monthly license fees to PSRS, subject to certain reductions based upon the level of purchases of PSRS Products by us under the OEM Supply Agreement relative to annual forecasted amounts.

Under the OEM Supply Agreement, we are required to use reasonable commercial efforts to sell end users a software maintenance agreement. The software maintenance agreement provides that the customer will obtain certain product releases and technical support directly from PSRS or from PSRS through us. We pay a fee to PSRS for each software maintenance agreement contract sold by us.

Equipment Sales

We purchase dictation related equipment from Philips.

Insurance Coverage through Philips

We obtain all of our business insurance coverage (other than workers’ compensation) through Philips.

Purchasing Agreements

We enter into annual letter agreements with Philips Electronics North America Corporation (PENAC), an affiliate of Philips, to purchase products and services from certain suppliers under the terms of the prevailing agreements between such suppliers and PENAC.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $754, $650 and $523 for the years ended December 31, 2005, 2004 and 2003, respectively.

Our consolidated balance sheets as of December 31, 2005, 2004 and 2003 reflect other current assets related to Philips of $1,786, $2,249 and $0, respectively, and accrued expenses related to Philips of $987, $847 and $219, respectively.

F-39

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the years ended December 31, 2005, 2004 and 2003. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying consolidated statements of operations.

	Years ended December 31,
	2005		2004		2003
PSRS licensing	$	1,216	$	—	$	1,724
PSRS consulting	162		435		443
OEM agreement	1,521		1,851		—
Dictation equipment	1,238		720		1,061
Insurance	957		696		522
PENAC	54		50		65
Management and marketing	248		589		8
Total	$	5,396	$	4,341	$	3,823

On July 29, 2004, we entered into an agreement with Nightingale under which Nightingale agreed to provide interim chief executive services to us. On July 30, 2004, our board of directors appointed Howard S. Hoffmann to serve as our Chief Executive Officer (CEO). Mr. Hoffmann serves as the Managing Partner of Nightingale. Pursuant to the terms of the Nightingale agreement, Mr. Hoffmann is to serve as our full time CEO until June 30, 2007. We expect that Mr. Hoffmann will continue to serve as our full time CEO after June 30, 2007 and we are currently negotiating the terms of an extension of this agreement. Our agreement with Nightingale also permits us to engage additional personnel employed by Nightingale to provide consulting services to us from time to time.

For the years ended December 31, 2005 and 2004, we incurred charges of $3,207 and $1,371, respectively, for Nightingale services. As of December 31, 2005 and 2004, accrued expenses included $487 and $529, respectively, for amounts due to Nightingale for services performed.

See Note 12 for a discussion of our agreements with A-Life.

F-40

MedQuist Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(In thousands, except per share amounts)

19.Quarterly Data (unaudited)

	1st			2nd			3rd			4th
	Quarter			Quarter			Quarter			Quarter
2003
Net revenues, as reported	$	124,662		$	123,444		$	121,166		$	117,594
Adjustments and corrections	(752		)	(687		)	(665		)	—
Net revenues, as restated	$	123,910		$	122,757		$	120,501		$	117,594
Net income, as reported	$	10,525		$	10,812		$	9,000		$	6,711
Adjustments and corrections	(522		)	(498		)	(461		)	—
Net income, as restated	$	10,003		$	10,314		$	8,539		$	6,711
Net income per share:
Basic, as reported	$	0.28		$	0.29		$	0.24		$	0.18
Diluted, as reported	$	0.28		$	0.29		$	0.24		$	0.18
Basic, as restated	$	0.27		$	0.28		$	0.23		—
Diluted, as restated	$	0.27		$	0.27		$	0.23		—
Weighted average shares outstanding:
Basic, as reported	37,110			37,120			37,192			37,218
Diluted, as reported	37,630			37,768			37,827			37,656
Basic, as restated	37,110			37,145			37,192			—
Diluted, as restated	37,620			37,755			37,819			—
2004
Net revenues	$	116,789		$	112,845		$	112,605		$	109,655
Net income (loss)	$	7,239		$	4,461		$	3,450		$	(11,408	)
Net income (loss) per share:
Basic	$	0.19		$	0.12		$	0.09		($0.30		)
Diluted	$	0.19		$	0.12		$	0.09		($0.30		)
Weighted average shares outstanding:
Basic	37,387			37,473			37,484			37,484
Diluted	37,709			37,656			37,595			37,484
2005
Net revenues	$	108,449		$	103,364		$	97,084		$	44,108
Net loss	$	(1,160	)	$	(3,248	)	$	(4,722	)	$	(102,502	)
Net loss per share:
Basic	($0.03		)	($0.09		)	($0.13		)	($2.73		)
Diluted	($0.03		)	($0.09		)	($0.13		)	($2.73		)
Weighted average shares outstanding:
Basic	37,484			37,484			37,484			37,484
Diluted	37,484			37,484			37,484			37,484

Net revenues, as reported refers to the amounts shown on our previously filed Forms 10-Q for the first, second and third quarters of 2003. The adjustments and corrections to the “net income, as reported” are the net result, after tax effect, of the Quantification adjustments and a change in the estimated useful lives for certain intangible assets. See Note 5.

F-41

MedQuist Inc. and Subsidiaries
Schedule II—Valuation and Qualifying Accounts
(In thousands)

Allowance for Doubtful Accounts and Returns

	Balance at			Charged		Doubtful			Balance at
	Beginning			to Costs		Accounts			End of
	of Period			and Expenses		Written Off			Period
December 31, 2003		$	5,606		5,737		(6,089	)		$	5,254
December 31, 2004		$	5,254		5,992		(6,603	)		$	4,643
December 31, 2005		$	4,643		8,111		(8,365	)		$	4,389

Includes amounts written off to costs and expenses for bad debts of ($101), ($519) and $540 for the years ended December 31, 2003, 2004 and 2005, respectively, and amounts charged to revenues for customer credits of $5,838, $6,511 and $7,571 for the years ended December 31, 2003, 2004 and 2005, respectively.

F-42

MEDQUIST INC. and SUBSIDIARIES
Condensed Consolidated Financial Statements
For the Three Months and Year ended December 31, 2005

Q-1

MedQuist Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited

	Three months ended						Years ended
	December 31,						December 31,
	2005			2004			2005			2004
Net revenues	$	44,108		$	109,655		$	353,005		$	451,894
Operating costs and expenses:
Cost of revenues	76,770			85,001			315,399			336,232
Selling, general and administrative	15,658			13,725			54,558			46,436
Research and development	2,197			2,788			9,784			10,539
Depreciation	4,040			4,608			17,099			18,521
Amortization of intangible assets	2,011			2,092			8,193			8,888
Cost of investigation and legal proceedings	10,153			3,660			34,127			10,253
Shareholder securities litigation settlement	7,750			—			7,750			—
Impairment charges	148			15,078			148			15,078
Restructuring charges	2,627			—			3,257			—
Total operating costs and expenses	121,354			126,952			450,315			445,947
Operating (loss) income	(77,246		)	(17,297		)	(97,310		)	5,947
Equity in income of affiliated company	96			221			500			188
Interest income, net	1,913			801			5,940			1,840
(Loss) income before income taxes	(75,237		)	(16,275		)	(90,870		)	7,975
Income tax provision (benefit)	27,265			(4,867		)	20,762			4,233
Net (loss) income	$	(102,502	)	$	(11,408	)	$	(111,632	)	$	3,742
Net (loss) income per share:
Basic	$	(2.73	)	$	(0.30	)	$	(2.98	)	$	0.10
Diluted	$	(2.73	)	$	(0.30	)	$	(2.98	)	$	0.10
Weighted average shares outstanding:
Basic	37,484			37,484			37,484			37,451
Diluted	37,484			37,484			37,484			37,636

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-2

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	December 31,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents		$	178,271		$	196,219
Accounts receivable, net of allowance of $4,389 and $4,643, respectively		71,761			77,119
Income tax receivable		21,708			5,682
Deferred income taxes		2,385			12,589
Other current assets		9,973			11,111
Total current assets		284,098			302,720
Property and equipment, net		23,961			33,197
Goodwill		123,849			124,826
Other intangible assets, net		51,278			58,927
Deferred income taxes		2,756			13,915
Other assets		7,249			7,349
Total assets		$	493,191		$	540,934
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	10,046		$	12,395
Accrued expenses		37,401			18,372
Accrued compensation		21,073			20,542
Customer accommodation and quantification		46,878			9,702
Deferred revenue		18,039			21,777
Total current liabilities		133,437			82,788
Deferred income taxes		15,482			—
Other non-current liabilities		3,052			4,196
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484 and 37,484 shares issued and outstanding, respectively		232,963			232,926
Retained earnings		104,635			216,267
Deferred compensation		332			332
Accumulated other comprehensive income		3,290			4,425
Total shareholders’ equity		341,220			453,950
Total liabilities and shareholders’ equity		$	493,191		$	540,934

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-3

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Years ended December 31,
	2005			2004
Operating activities:
Net cash (used in) provided by operating activities	$	(7,751	)	$	47,502
Investing activities:
Purchase of property and equipment	(9,535		)	(14,754		)
Capitalized software	(638		)	(22		)
Net cash used in investing activities	(10,173		)	(14,776		)
Financing activities:
Repayment of debt	(25		)	(29		)
Proceeds from issuance of stock	—			216
Proceeds from exercise of stock options	—			814
Net cash (used in) provided by financing activities	(25		)	1,001
Effect of exchange rate changes	1			72
Net (decrease) increase in cash and cash equivalents	(17,948		)	33,799
Cash and cash equivalents—beginning of period	196,219			162,420
Cash and cash equivalents—end of period	$	178,271		$	196,219
Supplemental cash flow information:
Cash paid for:
Interest	$	—		$	3
Income taxes	$	162		$	9,609

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-4

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

1.Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

3.Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied.

Q-5

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended December 31,						Years ended December 31,
	2005			2004			2005			2004
Net (loss) income	$	(102,502	)	$	(11,408	)	$	(111,632	)	$	3,742
Add: Stock-based employee compensation expense included in reported net (loss) income	—			—			37			209
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(1,865		)	(626		)	(3,487		)	(3,771		)
Pro forma net loss	$	(104,367	)	$	(12,034	)	$	(115,082	)	$	180
Basic net (loss) income per share:
As reported	$	(2.73	)	$	(0.30	)	$	(2.98	)	$	0.10
Pro forma	$	(2.78	)	$	(0.32	)	$	(3.07	)	$	0.00
Diluted net (loss) income per share:
As reported	$	(2.73	)	$	(0.30	)	$	(2.98	)	$	0.10
Pro forma	$	(2.78	)	$	(0.32	)	$	(3.07	)	$	0.00

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

4. Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

Q-6

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

The following table reflects the weighted average shares outstanding used to compute basic and diluted net (loss) income per share for the three months and years ended December 31, 2005 and 2004:

	For the three months ended December 31,
	2005								2004
	Net Loss			Shares	Per share Amount				Net Loss			Shares	Per share Amount
Basic	$	(102,502	)	37,484		$	(2.73	)	$	(11,408	)	37,484		$	(0.30	)
Effect of dilutive stock	—			—		—			—			—		—
Diluted	$	(102,502	)	37,484		$	(2.73	)	$	(11,408	)	37,484		$	(0.30	)

	Years ended December 31,
	2005								2004
	Net Loss			Shares	Per share Amount				Net Income		Shares	Per share Amount
Basic	$	(111,632	)	37,484		$	(2.98	)	$	3,742	37,451		$	0.10
Effect of dilutive stock	—			—		—			—		185		—
Diluted	$	(111,632	)	37,484		$	(2.98	)	$	3,742	37,636		$	0.10

The computation of diluted net income (loss) per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income (loss) per share. For the three months ended December 31, 2005 and 2004, shares having an anti-dilutive effect on net (loss) income per share and, therefore, excluded from the calculation of diluted (loss) income per share, totaled 3,432 and 4,049 shares, respectively. For the years ended December 31, 2005 and 2004, shares excluded from the calculation of diluted (loss) income per share, totaled 3,432 and 3,619 shares, respectively.

5.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

Q-7

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

In connection with the Quantification, we recorded a reduction in revenues and a corresponding increase in accrued expenses of $133 and $931 in December 2005 and 2004, respectively.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three months and years ended December 31, 2005 and 2004.

	Three months ended December 31,					Years ended December 31,
	2005			2004		2005			2004
Beginning balance	$	11,129		$	9,562	$	9,702		$	8,771
Quantification	—			140		133			931
Customer accommodation	51,939			—		57,678			—
Payments	(16,190		)	—		(20,635		)	—
Ending balance	$	46,878		$	9,702	$	46,878		$	9,702

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-8

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

6.Cost of Investigation and Legal Proceedings

For the three months ended December 31, 2005 and 2004, we recorded a charge of $10,153 and $3,660, respectively, and for the years ended December 31, 2005 and 2004, we recorded a charge of $34,127 and $10,253, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. See Note 5. The following is a summary of the amounts recorded in the accompanying condensed consolidated statements of operations:

	Three months ended December 31,				Years ended December 31,
	2005		2004		2005		2004
Legal fees	$	5,726	$	2,362	$	20,858	$	8,408
Other professional fees	3,678		471		9,789		471
Nightingale and Associates, LLC (Nightingale) services	705		824		3,207		1,371
Other	44		3		273		3
Total	$	10,153	$	3,660	$	34,127	$	10,253

Other professional fees represent accounting and dispute analysis costs and document search and retrieval costs.

7.Restructuring Charges

In the third quarter of 2005, we implemented a restructuring plan (2005 Plan) based on the implementation of a centralized national service delivery model. The plan involved the consolidation of operating facilities and a related reduction in workforce. The table below reflects the financial statement activity related to the 2005 Plan which is included in accrued expenses in the accompanying consolidated balance sheet.

	Total			Non-Cancelable Leases				Severance				Equipment
Initial charge	$	630			$	544			$	86			$	—
Usage	(259		)		(173		)		(86		)		—
Balance as of September 30, 2005	371				371				—				—
Additional charge	2,627				1,790				618				219
Usage	(948		)		(468		)		(261		)		(219		)
Balance as of December 31, 2005	$	2,050			$	1,693			$	357			$	—

Q-9

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

8.Property and Equipment

Property and equipment consisted of the following as of December 31:

	2005			2004
Computer equipment	$	36,640		$	69,206
Communication equipment	11,466			45,355
Software	13,067			11,841
Furniture and office equipment	2,165			3,874
Leasehold improvements	2,760			4,157
Other	—			35
Total property and equipment	66,098			134,468
Less: accumulated depreciation	(42,137		)	(101,271		)
Property and equipment, net	$	23,961		$	33,197

In the fourth quarter of 2005, based upon an inventory of fixed assets, we recorded a write-off of $4,070 (original cost $29,116 less accumulated depreciation $25,046). This expense was allocated between cost of revenues ($3,851) and restructuring charges related to the 2005 Plan ($219). In addition, during 2005 and 2004, $50,832 and $7,942, respectively, in fully depreciated assets no longer in use were written off which had no impact on net (loss) income.

9.Goodwill and Other Intangible Assets

Goodwill

In December 2004, we changed our organization structure from two reporting units (Services and Solutions) to one reporting unit. At that time, we tested the goodwill valuation of each reporting unit for impairment. Accordingly, in December 2004, a goodwill impairment charge of $14,603 was recorded related to the Solutions reporting unit. The impairment charge is included as a separate line item in the accompanying condensed consolidated statements of operations.

The following table reflects the activity and changes in the carrying amount of goodwill for the year ended December 31, 2005 and 2004:

Balance as of December 31, 2003	$	139,042
Foreign currency adjustments	668
Tax adjustment	(281		)
Goodwill impairment	(14,603		)
Balance as of December 31, 2004	124,826
Foreign currency adjustments	(696		)
Tax adjustment	(281		)
Balance as of December 31, 2005	$	123,849

The foreign currency adjustments reflect changes in the period-end currency rates of our foreign subsidiaries. The tax adjustment is due to book/tax differences related to two acquisitions in which tax

Q-10

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

goodwill exceeded the book value of the goodwill, resulting in a permanent favorable difference that reduces goodwill as it is recognized on our tax returns.

Other Intangible Assets

As part of the Lanier acquisition in 2002, we acquired a tradename used on Lanier products. In December 2004, our plans to continue selling this product changed and we determined that the tradename would be disposed of before its previously established useful life. In accordance with FASB Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we compared the carrying value to its fair value. An impairment charge of $475 was recorded in December 2004 representing the excess of carrying value over fair value.

10.Investment in A-Life Medical, Inc. (A-Life)

As of December 31, 2005 and 2004, we had an investment of $5,015 and $4,515, respectively, in A-Life, a privately held entity which provides advanced natural language processing technology for the medical industry. Our investment is recorded under the equity method of accounting since we owned 33.6% of A-Life’s outstanding voting shares as of December 31, 2005 and 2004. Our investment in A-Life is recorded in other assets in the accompanying condensed consolidated balance sheets.

In August 2001, we entered into an Advance Agreement with A-Life (Advance Agreement). The Advance Agreement required a prepayment of $1,000 for $1,600 in services to be provided by A-Life to us. The Advance Agreement had an expiration date of December 31, 2005. Due to significantly lower than expected revenues as well as a determination that services to be provided by A-Life over the remaining life of the contract would not utilize the prepaid balance as of December 31, 2004, we recorded an impairment charge of $706 in the fourth quarter of 2004 in cost of revenues. The Advance Agreement terminated on December 31, 2005.

11.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

12.Income Taxes

In the fourth quarter of 2005, a valuation allowance of $56,808 was established against various domestic deferred tax assets. After consideration of all evidence, both positive and negative, management concluded that it was more likely than not that a majority of the domestic deferred tax assets would not be realized.

Domestic deferred tax assets were recognized to the extent that objective positive evidence existed with respect to their future utilization. The objective positive evidence included the potential to carry back any losses generated by the deferred tax assets in the future as well as income expected to be recognized due to the reversal of deferred tax liabilities as of December 31, 2005. In analyzing deferred tax liabilities as a source for potential income for purposes of recognizing deferred tax assets, the deferred tax liabilities related to excess book basis in goodwill over tax basis in goodwill were not considered a source of future

Q-11

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

income due to their indefinite life and uncertainty of reversal during the same period as the deferred tax assets.

In the fourth quarter of 2004, a valuation allowance of $1,476 was established against deferred tax assets generated in foreign jurisdictions since management felt it was more likely than not that these assets would not be utilized. This valuation allowance was decreased by $245 during 2005.

13.Related Party Transactions

For a description of our various agreements with Philips and our agreement with Nightingale, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $465 and $218 for the three months ended December 31, 2005 and 2004, respectively, and $754 and $650 for the years ended December 31, 2005 and 2004, respectively.

Our condensed consolidated balance sheets as of December 31, 2005 and 2004 reflect other current assets related to Philips of $1,786 and $2,249, respectively, and accrued expenses related to Philips of $987 and $847, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three months and years ended December 31, 2005 and 2004. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended December 31,				Years ended December 31,
	2005		2004		2005		2004
PSRS licensing	$	419	$	—	$	1,216	$	—
PSRS consulting	1		317		162		435
OEM agreement	783		864		1,521		1,851
Dictation equipment	261		221		1,238		720
Insurance	240		174		957		696
PENAC	10		—		54		50
Marketing and management	—		501		248		589
Total	$	1,714	$	2,077	$	5,396	$	4,341

For the three months ended December 31, 2005 and 2004, we incurred charges of $705 and $824, respectively, and for the years ended December 31, 2005 and 2004, we incurred charges of $3,207 and $1,371, respectively, for Nightingale services. As of December 31, 2005 and 2004, accrued expenses included $487 and $529, respectively, for amounts due to Nightingale for services performed.

See Note 10 for a discussion of the agreements with A-Life.

Q-12

MEDQUIST INC. and SUBSIDIARIES
Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2005

Q-13

MedQuist Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited

	Three months ended  September 30,					Nine months ended  September 30,
	2005			2004		2005			2004
Net revenues	$	97,084		$	112,605	$	308,897		$	342,239
Operating costs and expenses:
Cost of revenues	75,353			83,650		238,629			251,231
Selling, general and administrative	13,116			11,834		38,900			32,711
Research and development	2,641			3,223		7,587			7,751
Depreciation	4,341			4,780		13,059			13,913
Amortization of intangible assets	2,031			2,133		6,182			6,796
Cost of investigation and legal proceedings	9,293			2,255		23,974			6,593
Restructuring charges	630			—		630			—
Total operating costs and expenses	107,405			107,875		328,961			318,995
Operating (loss) income	(10,321		)	4,730		(20,064		)	23,244
Equity in income (loss) of affiliated company	137			81		404			(33		)
Interest income, net	1,623			502		4,027			1,039
(Loss) income before income taxes	(8,561		)	5,313		(15,633		)	24,250
Income tax (benefit) provision	(3,839		)	1,863		(6,503		)	9,100
Net (loss) income	$	(4,722	)	$	3,450	$	(9,130	)	$	15,150
Net (loss) income per share:
Basic	$	(0.13	)	$	0.09	$	(0.24	)	$	0.40
Diluted	$	(0.13	)	$	0.09	$	(0.24	)	$	0.40
Weighted average shares outstanding:
Basic	37,484			37,484		37,484			37,466
Diluted	37,484			37,595		37,484			37,643

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-14

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	September 30,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents		$	198,803		$	196,219
Accounts receivable, net of allowance of $4,407 and $4,643, respectively		70,878			77,119
Income tax receivable		16,451			5,682
Deferred income taxes		10,833			12,589
Other current assets		10,302			11,111
Total current assets		307,267			302,720
Property and equipment, net		27,304			33,197
Goodwill		124,221			124,826
Other intangible assets, net		52,805			58,927
Deferred income taxes		11,566			13,915
Other assets		7,088			7,349
Total assets		$	530,251		$	540,934
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	11,327		$	12,395
Accrued expenses		21,356			18,372
Accrued compensation		20,999			20,542
Customer accommodation and quantification		11,129			9,702
Deferred revenue		18,675			21,777
Total current liabilities		83,486			82,788
Other non-current liabilities		3,011			4,196
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484 and 37,484 shares issued and outstanding, respectively		232,962			232,926
Retained earnings		207,138			216,267
Deferred compensation		332			332
Accumulated other comprehensive income		3,322			4,425
Total shareholders’ equity		443,754			453,950
Total liabilities and shareholders’ equity		$	530,251		$	540,934

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-15

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Nine months ended
	September 30,
	2005			2004
Operating activities:
Net cash provided by operating activities	$	9,909		$	39,157
Investing activities:
Purchase of property and equipment	(7,189		)	(10,663		)
Capitalized software	(37		)	—
Net cash used in investing activities	(7,226		)	(10,663		)
Financing activities:
Repayment of debt	(25		)	(29		)
Proceeds from issuance of stock	—			216
Proceeds from exercise of stock options	—			814
Net cash (used in) provided by financing activities	(25		)	1,001
Effect of exchange rate changes	(74		)	(81		)
Net increase in cash and cash equivalents	2,584			29,414
Cash and cash equivalents—beginning of period	196,219			162,420
Cash and cash equivalents—end of period	$	198,803		$	191,834
Supplemental cash flow information:
Cash paid for:
Interest	$	—		$	3
Income taxes	$	596		$	9,466

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-16

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

1.Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

3.Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied.

Q-17

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended						Nine months ended
	September 30,						September 30,
	2005			2004			2005			2004
Net (loss) income	$	(4,722	)	$	3,450		$	(9,130	)	$	15,150
Add: Stock-based employee compensation expense included in reported net (loss) income	—			209			37			209
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(503		)	(896		)	(1,622		)	(3,145		)
Pro forma net (loss) income	$	(5,225	)	$	2,763		$	(10,715	)	$	12,214
Basic net (loss) income per share:
As reported	$	(0.13	)	$	0.09		$	(0.24	)	$	0.40
Pro forma	$	(0.14	)	$	0.07		$	(0.29	)	$	0.33
Diluted net (loss) income per share:
As reported	$	(0.13	)	$	0.09		$	(0.24	)	$	0.40
Pro forma	$	(0.14	)	$	0.07		$	(0.29	)	$	0.32

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

4.Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

Q-18

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

The following table reflects the weighted average shares outstanding used to compute basic and diluted net (loss) income per share for the three and nine months ended September 30, 2005 and 2004:

	For the three months ended September 30,
	2005							2004
	Net Loss			Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	(4,722	)	37,484	$	(0.13	)	$	3,450	37,484	$	0.09
Effect of dilutive stock	—			—	—			—		111	—
Diluted	$	(4,722	)	37,484	$	(0.13	)	$	3,450	37,595	$	0.09

	For the nine months ended September 30,
	2005							2004
	Net Loss			Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	(9,130	)	37,484	$	(0.24	)	$	15,150	37,466	$	0.40
Effect of dilutive stock	—			—	—			—		177	—
Diluted	$	(9,130	)	37,484	$	(0.24	)	$	15,150	37,643	$	0.40

The computation of diluted net income (loss) per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income (loss) per share. For the three months ended September 30, 2005 and 2004, shares having an anti-dilutive effect on net (loss) income per share and, therefore, excluded from the calculation of diluted (loss) income per share, totaled 3,548 and 3,942 shares, respectively. For the nine months ended September 30, 2005 and 2004, shares excluded from the calculation of diluted (loss) income per share, totaled 3,548 and 3,942 shares, respectively.

5.Cost of Investigation and Legal Proceedings

For the three months ended September 30, 2005 and 2004, we recorded a charge of $9,293 and $2,255, respectively, and for the nine months ended September 30, 2005 and 2004, we recorded a charge of $23,974 and $6,593, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. See Note 9. The following is a summary of the amounts recorded in the accompanying condensed consolidated statements of operations:

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
Legal fees		$	5,800		$	1,708		$	15,132		$	6,046
Other professional fees		2,668			—			6,111			—
Nightingale and Associates, LLC (Nightingale) services		762			547			2,502			547
Other		63			—			229			—
Total		$	9,293		$	2,255		$	23,974		$	6,593

Q-19

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

Other professional fees represent accounting and dispute analysis costs and document search and retrieval costs.

6.Restructuring Charges

In the third quarter of 2005, we implemented a restructuring plan (2005 Plan) based on the implementation of a centralized national service delivery model. The plan involved the consolidation of operating facilities and a related reduction in workforce. The table below reflects the financial statement activity related to the 2005 Plan which is included in accrued expenses in the accompanying consolidated balance sheet.

	Non-Cancelable
	Total			Leases			Severance
Initial charge	$	630		$	544			$	86
Usage	(259		)	(173		)		(86		)
Balance as of September 30, 2005	$	371		$	371			$	—

7.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

8.Related Party Transactions

For a description of our various agreements with Philips and our agreement with Nightingale, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $104 and $45 for the three months ended September 30, 2005 and 2004, respectively, and $289 and $432 for the nine months ended September 30, 2005 and 2004, respectively.

Our condensed consolidated balance sheets as of September 30, 2005 and 2004 reflect other current assets related to Philips of $1,204 and $0, respectively, and accrued expenses related to Philips of $514 and $466, respectively.

Q-20

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three and nine months ended September 30, 2005 and 2004. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
PSRS licensing	$	315	$	—	$	797	$	—
PSRS consulting	—		80		161		118
OEM agreement	197		887		738		987
Dictation equipment	209		203		977		499
Insurance	239		174		717		522
PENAC	10		13		44		50
Marketing and management	—		86		248		88
Total	$	970	$	1,443	$	3,682	$	2,264

For the three months ended September 30, 2005 and 2004, we incurred charges of $762 and $547, respectively, and for the nine months ended September 30, 2005 and 2004, we incurred charges of $2,502 and $547, respectively, for Nightingale services. As of September 30, 2005 and 2004, accrued expenses included $741 and $183, respectively, for amounts due to Nightingale for services performed.

In 2001, we entered into an Advance Agreement with A-Life Medical, Inc. (A-Life), a privately held entity that we owned 33.6% of the outstanding voting shares of during 2005 and 2004. The agreement required a prepayment of $1,000 for $1,600 in services to be provided to us by A-Life.

9.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must

Q-21

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three and nine months ended September 30, 2005 and 2004.

	Three months ended September 30,							Nine months ended September 30,
	2005				2004			2005				2004
Beginning balance		$	10,405			$	9,361		$	9,702			$	8,771
Quantification		—				201			133				791
Customer accommodation		4,190				—			5,739				—
Payments		(3,466		)		—			(4,445		)		—
Ending balance		$	11,129			$	9,562		$	11,129			$	9,562

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-22

MEDQUIST INC. and SUBSIDIARIES

Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2005

Q-23

MedQuist Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share amounts)

Unaudited

	Three months ended						Six months ended
	June 30,						June 30,
	2005			2004			2005			2004
Net revenues	$	103,364		$	112,845		$	211,813		$	229,634
Operating costs and expenses:
Cost of revenues	80,473			83,752			163,276			167,581
Selling, general and administrative	12,230			9,555			25,784			20,877
Research and development	2,482			2,122			4,946			4,528
Depreciation	4,354			4,601			8,718			9,133
Amortization of intangible assets	2,049			2,225			4,151			4,663
Cost of investigation and legal proceedings	8,455			3,595			14,681			4,338
Total operating costs and expenses	110,043			105,850			221,556			211,120
Operating (loss) income	(6,679		)	6,995			(9,743		)	18,514
Equity in income (loss) of affiliated company	85			(59		)	267			(114		)
Interest income, net	1,369			284			2,404			537
(Loss) income before income taxes	(5,225		)	7,220			(7,072		)	18,937
Income tax (benefit) provision	(1,977		)	2,759			(2,664		)	7,237
Net (loss) income	$	(3,248	)	$	4,461		$	(4,408	)	$	11,700
Net (loss) income per share:
Basic	$	(0.09	)	$	0.12		$	(0.12	)	$	0.31
Diluted	$	(0.09	)	$	0.12		$	(0.12	)	$	0.31
Weighted average shares outstanding:
Basic	37,484			37,473			37,484			37,515
Diluted	37,484			37,656			37,484			37,675

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-24

MedQuist Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands)

Unaudited

	June 30,		December 31,
	2005		2004
Assets
Current assets:
Cash and cash equivalents	$	198,187		$	196,219
Accounts receivable, net of allowance of $4,302 and $4,643, respectively	73,619			77,119
Income tax receivable	10,877			5,682
Deferred income taxes	11,419			12,589
Other current assets	12,340			11,111
Total current assets	306,442			302,720
Property and equipment, net	29,146			33,197
Goodwill	124,309			124,826
Other intangible assets, net	54,791			58,927
Deferred income taxes	12,663			13,915
Other assets	6,935			7,349
Total assets	$	534,286		$	540,934
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	11,000		$	12,395
Accrued expenses	20,881			18,372
Accrued compensation	20,431			20,542
Customer accommodation and quantification	10,405			9,702
Deferred revenue	19,767			21,777
Total current liabilities	82,484			82,788
Other long-term liabilities	3,109			4,196
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484 and 37,484 shares issued and outstanding, respectively	232,962			232,926
Retained earnings	211,858			216,267
Deferred compensation	332			332
Accumulated other comprehensive income	3,541			4,425
Total shareholders’ equity	448,693			453,950
Total liabilities and shareholders’ equity	$	534,286		$	540,934

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-25

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Six months ended June 30,
	2005			2004
Operating activities:
Net cash provided by operating activities	$	6,677		$	26,457
Investing activities:
Net cash used in investing activities	(4,676		)	(6,440		)
Financing activities:
Repayment of debt	(25		)	(28		)
Proceeds from issuance of stock	—			216
Proceeds from exercise of stock options	—			814
Net cash (used in) provided by financing activities	(25		)	1,002
Effect of exchange rate changes	(8		)	65
Net increase in cash and cash equivalents	1,968			21,084
Cash and cash equivalents—beginning of period	196,219			162,420
Cash and cash equivalents—end of period	$	198,187		$	183,504
Supplemental cash flow information:
Cash paid for:
Interest	$	—		$	3
Income taxes	$	448		$	8,636

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-26

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2005 and 2004
(In thousands, except per share amounts)

1. Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2. Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

3. Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied. Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Q-27

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2005 and 2004
(In thousands, except per share amounts)

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended						Six months ended
	June 30,						June 30,
	2005			2004			2005			2004
Net (loss) income	$	(3,248	)	$	4,461		$	(4,408	)	$	11,700
Add: Stock-based employee compensation expense included in reported net (loss) income	—			—			37			—
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(486		)	(794		)	(1,119		)	(2,249		)
Pro forma net (loss) income	$	(3,734	)	$	3,667		$	(5,490	)	$	9,451
Basic net (loss) income per share:
As reported	$	(0.09	)	$	0.12		$	(0.12	)	$	0.31
Pro forma	$	(0.10	)	$	0.10		$	(0.15	)	$	0.25
Diluted net (loss) income per share:
As reported	$	(0.09	)	$	0.12		$	(0.12	)	$	0.31
Pro forma	$	(0.10	)	$	0.10		$	(0.15	)	$	0.25

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

4. Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

The following table reflects the weighted average shares outstanding used to compute basic and diluted net (loss) income per share for the three and six months ended June 30, 2005 and 2004:

	For the three months ended June 30,
	2005								2004
	Net Loss			Shares	Per share Amount				Net Income		Shares	Per share Amount
Basic	$	(3,248	)	37,484		$	(0.09	)	$	4,461	37,473		$	0.12
Effect of dilutive stock	—			—		—			—		183		—
Diluted	$	(3,248	)	37,484		$	(0.09	)	$	4,461	37,656		$	0.12

Q-28

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2005 and 2004
(In thousands, except per share amounts)

	For the six months ended June 30,
	2005								2004
	Net Loss			Shares	Per share Amount				Net Income		Shares	Per share Amount
Basic	$	(4,408	)	37,484		$	(0.12	)	$	11,700	37,515		$	0.31
Effect of dilutive stock	—			—		—			—		160		—
Diluted	$	(4,408	)	37,484		$	(0.12	)	$	11,700	37,675		$	0.31

The computation of diluted net income (loss) per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income (loss) per share. For the three months ended June 30, 2005 and 2004, shares having an anti-dilutive effect on net (loss) income per share and, therefore, excluded from the calculation of diluted (loss) income per share, totaled 3,710 and 4,127 shares, respectively. For the six months ended June 30, 2005 and 2004, shares excluded from the calculation of diluted (loss) income per share, totaled 3,710 and 3,802 shares, respectively.

5. Cost of Investigation and Legal Proceedings

For the three months ended June 30, 2005 and 2004, we recorded a charge of $8,455 and $3,595, respectively, and for the six months ended June 30, 2005 and 2004, we recorded a charge of $14,681 and $4,338, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. See Note 8. The following is a summary of the amounts recorded in the accompanying condensed consolidated statements of operations:

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
Legal fees		$	4,888		$	3,595		$	9,332		$	4,338
Other professional fees		2,618			—			3,443			—
Nightingale and Associates, LLC (Nightingale) services		848			—			1,740			—
Other		101			—			166			—
Total		$	8,455		$	3,595		$	14,681		$	4,338

Other professional fees represent accounting and dispute analysis costs and document search and retrieval costs.

6.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

7.Related Party Transactions

For a description of our various agreements with Philips and our agreement with Nightingale, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

Q-29

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2005 and 2004
(In thousands, except per share amounts)

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $155 and $9 for the three months ended June 30, 2005 and 2004, respectively, and $185 and $387 for the six months ended June 30, 2005 and 2004, respectively.

Our condensed consolidated balance sheets as of June 30, 2005 and 2004 reflect other current assets related to Philips of $1,520 and $0, respectively, and accrued expenses related to Philips of $412 and $176, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements mentioned above for the three and six months ended June 30, 2005 and 2004. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
PSRS licensing		$	301		$	—		$	482		$	—
PSRS consulting		—			38			161			38
OEM agreement		472			100			541			100
Dictation equipment		405			97			768			296
Insurance		239			174			478			348
PENAC		10			13			34			37
Marketing and management		96			—			248			2
Total		$	1,523		$	422		$	2,712		$	821

For the three and six months ended June 30, 2005, we incurred charges of $848 and $1,740, respectively, for Nightingale services. As of June 30, 2005, accrued expenses included $725 for amounts due to Nightingale for services performed.

In 2001, we entered into an Advance Agreement with A-Life Medical, Inc. (A-Life), a privately held entity that we owned 33.6% of the outstanding voting shares of during 2005 and 2004. The agreement required a prepayment of $1,000 for $1,600 in services to be provided to us by A-Life.

8.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

Q-30

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2005 and 2004
(In thousands, except per share amounts)

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three and six months ended June, 30, 2005 and 2004.

	Three months ended June 30,							Six months ended June 30,
	2005				2004			2005				2004
Beginning balance		$	9,807			$	9,116		$	9,702			$	8,771
Quantification		28				245			133				590
Customer accommodation		1,549				—			1,549				—
Payments		(979		)		—			(979		)		—
Ending balance		$	10,405			$	9,361		$	10,405			$	9,361

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-31

MEDQUIST INC. and SUBSIDIARIES
Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2005

Q-32

MedQuist Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited

	Three months ended
	March 31,
	2005			2004
Net revenues	$	108,449		$	116,789
Operating costs and expenses:
Cost of revenues	82,803			83,829
Selling, general and administrative	13,554			11,322
Research and development	2,464			2,406
Depreciation	4,364			4,532
Amortization of intangible assets	2,102			2,438
Cost of investigation and legal proceedings	6,226			743
Total operating costs and expenses	111,513			105,270
Operating (loss) income	(3,064		)	11,519
Equity in income (loss) of affiliated company	182			(55		)
Interest income, net	1,035			253
(Loss) income before income taxes	(1,847		)	11,717
Income tax (benefit) provision	(687		)	4,478
Net (loss) income	$	(1,160	)	$	7,239
Net (loss) income per share:
Basic	$	(0.03	)	$	0.19
Diluted	$	(0.03	)	$	0.19
Weighted average shares outstanding:
Basic	37,484			37,387
Diluted	37,484			37,709

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-33

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	March 31,		December 31,
	2005		2004
Assets
Current assets:
Cash and cash equivalents	$	198,711		$	196,219
Accounts receivable, net of allowance of $4,984 and $4,643, respectively	73,805			77,119
Income tax receivable	7,463			5,682
Deferred income taxes	11,933			12,589
Other current assets	11,806			11,111
Total current assets	303,718			302,720
Property and equipment, net	31,659			33,197
Goodwill	124,672			124,826
Other intangible assets, net	56,833			58,927
Deferred income taxes	13,523			13,915
Other assets	6,875			7,349
Total assets	$	537,280		$	540,934
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	11,094		$	12,395
Accrued expenses	18,736			18,372
Accrued compensation	20,343			20,542
Customer accommodation and quantification	9,807			9,702
Deferred revenue	21,221			21,777
Total current liabilities	81,201			82,788
Other non-current liabilities	3,513			4,196
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares;
37,484 and 37,484 shares issued and outstanding, respectively	232,962			232,926
Retained earnings	215,108			216,267
Deferred compensation	332			332
Accumulated other comprehensive income	4,164			4,425
Total shareholders’ equity	452,566			453,950
Total liabilities and shareholders’ equity	$	537,280		$	540,934

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-34

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Three months ended
	March 31,
	2005			2004
Operating activities:
Net cash provided by operating activities	$	5,325		$	19,850
Investing activities:
Net cash used in investing activities	(2,829		)	(3,072		)
Financing activities:
Repayment of debt	—			(2		)
Proceeds from issuance of stock	—			216
Proceeds from exercise of stock options	—			691
Net cash provided by financing activities	—			905
Effect of exchange rate changes	(4		)	32
Net increase in cash and cash equivalents	2,492			17,715
Cash and cash equivalents—beginning of period	196,219			162,420
Cash and cash equivalents—end of period	$	198,711		$	180,135
Supplemental cash flow information:
Cash paid for:
Income taxes	$	147		$	1,302

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-35

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

1. Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2. Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

3. Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied.

Q-36

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended
	March 31,
	2005			2004
Net (loss) income	$	(1,160	)	$	7,239
Add: Stock-based employee compensation expense included in reported net (loss) income	37			—
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(633		)	(1,455		)
Pro forma net (loss) income	$	(1,756	)	$	5,784
Basic net (loss) income per share:
As reported	$	(0.03	)	$	0.19
Pro forma	$	(0.05	)	$	0.15
Diluted net (loss) income per share:
As reported	$	(0.03	)	$	0.19
Pro forma	$	(0.05	)	$	0.15

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

4. Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

Q-37

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

The following table reflects the weighted average shares outstanding used to compute basic and diluted net (loss) income per share for the three months ended March 31, 2005 and 2004:

	For the three months ended March 31,
	2005								2004
	Net Loss			Shares	Per share Amount				Net Income		Shares	Per share Amount
Basic	$	(1,160	)	37,484		$	(0.03	)	$	7,239	37,387		$	0.19
Effect of dilutive stock	—			—		—			—		322		—
Diluted	$	(1,160	)	37,484		$	(0.03	)	$	7,239	37,709		$	0.19

The computation of diluted net income (loss) per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income (loss) per share. For the three months ended March 31, 2005 and 2004, shares having an anti-dilutive effect on net (loss) income per share and, therefore, excluded from the calculation of diluted (loss) income per share, totaled 3,901 and 3,951 shares, respectively.

5. Cost of Investigation and Legal Proceedings

For the three months ended March 31, 2005 and 2004, we recorded a charge of $6,226 and $743, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. See Note 8. The following is a summary of the amounts recorded in the accompanying condensed consolidated statements of operations:

	Three months ended March 31,
	2005		2004
Legal fees	$	4,444	$	743
Other professional fees	825		—
Nightingale and Associates, LLC (Nightingale) services	892		—
Other	65		—
Total	$	6,226	$	743

Other professional fees represent accounting and dispute analysis costs and document search and retrieval costs.

6. Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

Q-38

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

7. Related Party Transactions

For a description of our various agreements with Philips and our agreement with Nightingale, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $30 and $379 for the three months ended March 31, 2005 and 2004, respectively.

Our condensed consolidated balance sheets as of March 31, 2005 and 2004 reflect other current assets related to Philips of $2,031 and $0, respectively, and accrued expenses related to Philips of $913 and $248, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three months ended March 31, 2005 and 2004. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended March 31,
	2005		2004
PSRS licensing	$	181	$	—
PSRS consulting	161		—
OEM agreement	69		—
Dictation equipment	363		199
Insurance	239		174
PENAC	24		24
Marketing and management	152		2
Total	$	1,189	$	399

For the three months ended March 31, 2005, we incurred a charge of $892 for Nightingale services. As of March 31, 2005 accrued expenses included $275 for amounts due to Nightingale for services performed.

In 2001, we entered into an Advance Agreement with A-Life Medical, Inc. (A-Life), a privately held entity that we owned 33.6% of the outstanding voting shares of during 2005 and 2004. The agreement required a prepayment of $1,000 for $1,600 in services to be provided to us by A-Life.

8. Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers.

Q-39

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2005 and 2004
(In thousands, except per share amounts)
Unaudited

Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three months ended March, 31, 2005 and 2004.

	Three months ended March 31,
	2005		2004
Beginning balance	$	9,702	$	8,771
Quantification	105		345
Ending balance	$	9,807	$	9,116

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-40

MEDQUIST INC. and SUBSIDIARIES

Condensed Consolidated Financial Statements

For the Three Months and Year ended December 31, 2004

Q-41

MedQuist Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Unaudited

	Three months ended						Years ended
	December 31,						December 31,
	2004			2003			2004		2003
Net revenues	$	109,655		$	117,594		$	451,894	$	484,762
Operating costs and expenses:
Cost of revenues	85,001			86,799			336,232		348,428
Selling, general and administrative	13,725			10,996			46,436		43,738
Research and development	2,788			3,495			10,539		10,228
Depreciation	4,608			4,449			18,521		18,658
Amortization of intangible assets	2,092			3,323			8,888		9,754
Cost of investigation and legal proceedings	3,660			—			10,253		—
Impairment charges	15,078			—			15,078		—
Restructuring credits	—			(54		)	—		(277		)
Total operating costs and expenses	126,952			109,008			445,947		430,529
Operating (loss) income	(17,297		)	8,586			5,947		54,233
Equity in income (loss) of affiliated company	221			(84		)	188		(513		)
Interest income, net	801			377			1,840		1,073
(Loss) income before income taxes	(16,275		)	8,879			7,975		54,793
Income tax (benefit) provision	(4,867		)	2,168			4,233		19,226
Net (loss) income	$	(11,408	)	$	6,711		$	3,742	$	35,567
Net (loss) income per share:
Basic	$	(0.30	)	$	0.18		$	0.10	$	0.96
Diluted	$	(0.30	)	$	0.18		$	0.10	$	0.94
Weighted average shares outstanding:
Basic	37,484			37,218			37,451		37,172
Diluted	37,484			37,656			37,636		37,715

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-42

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	December 31,			December 31,
	2004			2003
Assets
Current assets:
Cash and cash equivalents		$	196,219		$	162,420
Accounts receivable, net of allowance of $4,643 and $5,254, respectively		77,119			78,815
Income tax receivable		5,682			2,704
Deferred income taxes		12,589			11,267
Other current assets		11,111			8,288
Total current assets		302,720			263,494
Property and equipment, net		33,197			35,614
Goodwill		124,826			139,042
Other intangible assets, net		58,927			68,191
Deferred income taxes		13,915			12,689
Other assets		7,349			7,438
Total assets		$	540,934		$	526,468
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	12,395		$	13,461
Accrued expenses		18,372			12,476
Accrued compensation		20,542			19,821
Customer accommodation and quantification		9,702			8,771
Deferred revenue		21,777			21,108
Total current liabilities		82,788			75,637
Other non-current liabilities		4,196			3,339
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484 and 37,259 shares issued and outstanding, respectively		232,926			231,368
Retained earnings		216,267			212,525
Deferred compensation		332			278
Accumulated other comprehensive income		4,425			3,321
Total shareholders’ equity		453,950			447,492
Total liabilities and shareholders’ equity		$	540,934		$	526,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-43

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Years ended
	December 31,
	2004			2003
Operating activities:
Net cash provided by operating activities	$	47,502		$	77,831
Investing activities:
Purchase of property and equipment	(14,754		)	(16,892		)
Capitalized software	(22		)	(547		)
Proceeds from sale of property	—			814
Acquisitions, net of cash acquired	—			(3,568		)
Net cash used in investing activities	(14,776		)	(20,193		)
Financing activities:
Repayment of debt	(29		)	(30		)
Proceeds from issuance of stock	216			459
Proceeds from exercise of stock options	814			931
Net cash provided by financing activities	1,001			1,360
Effect of exchange rate changes	72			30
Net increase in cash and cash equivalents	33,799			59,028
Cash and cash equivalents—beginning of period	162,420			103,392
Cash and cash equivalents—end of period	$	196,219		$	162,420
Supplemental cash flow information:
Cash paid for:
Interest	$	3		$	5
Income taxes	$	9,609		$	20,823

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-44

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

1.   Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

3.Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied.

Q-45

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended December 31,						Years ended December 31,
	2004			2003			2004			2003
Net (loss) income	$	(11,408	)	$	6,711		$	3,742		$	35,567
Add: Stock-based employee compensation expense included in reported net (loss) income	—			159			209			159
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(626		)	(1,494		)	(3,771		)	(6,188		)
Pro forma net (loss) income	$	(12,034	)	$	(5,376	)	$	180		$	29,538
Basic net (loss) income per share
As reported	$	(0.30	)	$	0.18		$	0.10		$	0.96
Pro forma	$	(0.32	)	$	0.14		$	—		$	0.79
Diluted net (loss) income per share:
As reported	$	(0.30	)	$	0.18		$	0.10		$	0.94
Pro forma	$	(0.32	)	$	0.14		$	—		$	0.78

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

4.Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

Q-46

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

The following table reflects the weighted average shares outstanding used to compute basic and diluted net (loss) income per share for the three months and years ended December 31, 2004 and 2003:

	For the three months ended December 31,
	2004								2003
	Net Loss			Shares	Per share Amount				Net Income		Shares	Per share Amount
Basic	$	(11,408	)	37,484		$	(0.30	)	$	6,711	37,218		$	0.18
Effect of dilutive stock	—			—		—			—		438		—
Diluted	$	(11,408	)	37,484		$	(0.30	)	$	6,711	37,656		$	0.18

	Years ended December 31,
	2004						2003
	Net Income		Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	3,742	37,451		$	0.10	$	35,567	37,172		$	0.96
Effect of dilutive stock	—		185		—		—		543		(0.02		)
Diluted	$	3,742	37,636		$	0.10	$	35,567	37,715		$	0.94

The computation of diluted net income (loss) per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income (loss) per share. For the three months ended December 31, 2004 and 2003, shares having an anti-dilutive effect on net (loss) income per share and, therefore, excluded from the calculation of diluted (loss) income per share, totaled 4,049 and 4,050 shares, respectively. For the years ended December 31, 2004 and 2003, shares excluded from the calculation of diluted (loss) income per share, totaled 3,619 and 3,362 shares, respectively.

5.Cost of Investigation and Legal Proceedings

For the three months and year ended December 31, 2004, we recorded a charge of $3,660 and $10,253, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. See Note 10. We did not record a charge in 2003. The following is a summary of the amounts recorded in the accompanying condensed consolidated statements of operations:

	Three months ended			Year ended
	December 31, 2004			December 31, 2004
Legal fees		$	2,362		$	8,408
Other professional fees		471			471
Nightingale and Associates, LLC (Nightingale) services		824			1,371
Other		3			3
Total		$	3,660		$	10,253

Other professional fees represent accounting and dispute analysis costs and document search and retrieval costs.

Q-47

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

6.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

7.Related Party Transactions

For a description of our various agreements with Philips and our agreement with Nightingale, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $218 and $508 for the three months ended December 31, 2004 and 2003, respectively, and $650 and $523 for the years ended December 31, 2004 and 2003, respectively.

Our condensed consolidated balance sheets as of December 31, 2004 and 2003 reflect other current assets related to Philips of $2,249 and $0, respectively, and accrued expenses related to Philips of $847 and $219, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three months and years ended December 31, 2004 and 2003. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended December 31,					Years ended December 31,
	2004		2003			2004		2003
PSRS licensing	$	—	$	934		$	—	$	1,724
PSRS consulting	317		(19		)	435		443
OEM agreement	864		—			1,851		—
Dictation equipment	221		344			720		1,061
Insurance	174		131			696		522
PENAC	—		14			50		65
Marketing and management	501		—			589		8
Total	$	2,077	$	1,404		$	4,341	$	3,823

For the three months and year ended December 31, 2004, we incurred charges of $824 and $1,371, respectively, for Nightingale services. As of December 31, 2004 accrued expenses included $529 for amounts due to Nightingale for services performed.

See Note 9 for a discussion of the agreements with A-Life.

Q-48

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

8.Goodwill and Other Intangible Assets

Goodwill

In December 2004, we changed our organization structure from two reporting units (Services and Solutions) to one reporting unit. At that time, we tested the goodwill valuation of each reporting unit for impairment. Accordingly, in December 2004, a goodwill impairment charge of $14,603 was recorded related to the Solutions reporting unit. The impairment charge is included as a separate line item in the accompanying condensed consolidated statements of operations.

The following table reflects the activity and changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003:

Balance as of December 31, 2002	$	136,127
Foreign currency adjustments	1,925
Tax adjustment	(95		)
Adjustment to contingent purchase price	1,085
Balance as of December 31, 2003	139,042
Foreign currency adjustments	668
Tax adjustment	(281		)
Goodwill impairment	(14,603		)
Balance as of December 31, 2004	$	124,826

The foreign currency adjustments reflect changes in the year-end currency rates of our foreign subsidiaries. The tax adjustment is due to book/tax differences related to two acquisitions in which tax goodwill exceeded the book value of the goodwill, resulting in a permanent favorable difference that reduces goodwill as it is recognized on our tax returns.

Other Intangible Assets

As part of the Lanier acquisition in 2002, we acquired a tradename used on Lanier products. In December 2004, our plans to continue selling this product changed and we determined that the tradename would be disposed of before its previously established useful life. In accordance with FASB Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we compared the carrying value to its fair value. An impairment charge of $475 was recorded in December 2004 representing the excess of carrying value over fair value.

9.Investment in A-Life Medical, Inc. (A-Life)

As of December 31, 2004 and 2003, we had an investment of $4,515 and $4,327, respectively, in A-Life, a privately held entity which provides advanced natural language processing technology for the medical industry. Our investment is recorded under the equity method of accounting since we owned 33.6% of A-Life’s outstanding voting shares as of December 31, 2004 and 2003. Our investment in A-Life is recorded in other assets in the accompanying condensed consolidated balance sheets.

Q-49

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

In August 2001, we entered into an Advance Agreement with A-Life (Advance Agreement). The Advance Agreement required a prepayment of $1,000 for $1,600 in services to be provided by A-Life to us. The Advance Agreement had an expiration date of December 31, 2005. Due to significantly lower than expected revenues as well as a determination that services to be provided by A-Life over the remaining life of the contract would not utilize the prepaid balance as of December 31, 2004, we recorded an impairment charge of $706 in the fourth quarter of 2004 in cost of revenues. The Advance Agreement terminated on December 31, 2005.

10.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

Q-50

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
December 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three months and years ended December 31, 2004 and 2003.

	Three months ended December 31,				Years ended December 31,
	2004		2003		2004		2003
Beginning balance	$	9,562	$	8,334	$	8,771	$	6,629
Quantification	140		437		931		2,142
Ending balance	$	9,702	$	8,771	$	9,702	$	8,771

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-51

MEDQUIST INC. and SUBSIDIARIES
Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2004

Q-52

MedQuist Inc. and Subsidiaries
Consolidated Income Statements
(In thousands, except per share amounts)
Unaudited

	Three months ended  September 30,						Nine months ended  September 30,
	2004		As restated  2003				2004			As restated  2003
Net revenues	$	112,605		$	120,501		$	342,239			$	367,168
Operating costs and expenses:
Cost of revenues	83,650			87,160			251,231				261,629
Selling, general and administrative	11,834			11,369			32,711				32,742
Research and development	3,223			2,379			7,751				6,733
Depreciation	4,780			4,828			13,913				14,209
Amortization of intangible assets	2,133			2,219			6,796				6,431
Cost of investigation and legal proceedings	2,255			—			6,593				—
Restructuring credits	—			(223		)	—				(223		)
Total operating costs and expenses	107,875			107,732			318,995				321,521
Operating income	4,730			12,769			23,244				45,647
Equity in income (loss) of affiliated company	81			(113		)	(33		)		(429		)
Interest income, net	502			222			1,039				696
Income before income taxes	5,313			12,878			24,250				45,914
Income tax provision	1,863			4,339			9,100				17,058
Net income	$	3,450		$	8,539		$	15,150			$	28,856
Net income per share:
Basic	$	0.09		$	0.23		$	0.40			$	0.78
Diluted	$	0.09		$	0.23		$	0.40			$	0.76
Weighted average shares outstanding:
Basic	37,484			37,192			37,466				37,152
Diluted	37,595			37,827			37,643				37,745

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-53

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	September 30,			December 31,
	2004			2003
Assets
Current assets:
Cash and cash equivalents		$	191,834		$	162,420
Accounts receivable, net of allowance of $4,659 and $5,254, respectively		72,509			78,815
Income tax receivable		5,403			2,704
Deferred income taxes		10,890			11,267
Other current assets		9,982			8,288
Total current assets		290,618			263,494
Property and equipment, net		32,251			35,614
Goodwill		138,832			139,042
Other intangible assets, net		61,433			68,191
Deferred income taxes		11,364			12,689
Other assets		7,645			7,438
Total assets		$	542,143		$	526,468
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	10,605		$	13,461
Accrued expenses		14,164			12,476
Accrued compensation		21,463			19,821
Customer accommodation and quantification		9,562			8,771
Deferred revenue		18,731			21,108
Total current liabilities		74,525			75,637
Other non-current liabilities		3,565			3,339
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484 and 37,259 shares issued and outstanding, respectively		232,904			231,368
Retained earnings		227,676			212,525
Deferred compensation		278			278
Accumulated other comprehensive income		3,195			3,321
Total shareholders’ equity		464,053			447,492
Total liabilities and shareholders’ equity		$	542,143		$	526,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-54

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Nine months ended  September 30,
	2004			2003
Operating activities:
Net cash provided by operating activities	$	39,157		$	56,188
Investing activities:
Purchase of property and equipment	(10,663		)	(14,014		)
Proceeds from sale of property	—			814
Acquisitions, net of cash acquired	—			(3,568		)
Net cash used in investing activities	(10,663		)	(16,768		)
Financing activities:
Repayment of debt	(29		)	(29		)
Proceeds from issuance of stock	216			459
Proceeds from exercise of stock options	814			548
Net cash provided by financing activities	1,001			978
Effect of exchange rate changes	(81		)	76
Net increase in cash and cash equivalents	29,414			40,474
Cash and cash equivalents—beginning of period	162,420			103,392
Cash and cash equivalents—end of period	$	191,834		$	143,866
Supplemental cash flow information:
Cash paid for:
Interest	$	3		$	5
Income taxes	$	9,466		$	17,369

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-55

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

1.Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Restatement and Reclassification of Financial Statements

We recorded certain reclassifications and adjustments to our previously filed Form 10-Q for the quarterly period ended September 30, 2003 as set forth below:

Notes to our restated, unaudited condensed consolidated income statements for the three and nine months ended September 30, 2003:

(a)“As reported” represents our unaudited condensed consolidated income statement derived from our Form 10-Q for the quarterly period ended September 30, 2003 filed with the SEC on November 12, 2003.

(b)Represents the impact of the Quantification adjustment as more fully described in Note 9 below.

(c)Certain costs previously classified as cost of revenues that were no longer directly related to customer support activities have been reclassified as selling, general and administrative expenses and research and development expenses. In addition, certain volume rebates amounting to $150 and $399 were reclassified from cost of revenues to net revenues for the three and nine months ended September 30, respectively. These reclassifications had no effect on our previously reported operating income, net income or income per share.

(d)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(e)Represents an income tax benefit related to the adjustments noted in (b) and (d) above.

Q-56

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

	Three months ended September 30, 2003
Condensed Consolidated Income Statement	As restated				Reclassifications				Adjustments				As reported (a)
Net revenues		$	120,501			$	(150	)(c)		$	(515	)(b)		$	121,166
Operating costs and expenses:
Cost of revenues		87,160				(4,287		)(c)		—				91,447
Selling, general and administrative		11,369				3,434		(c)		—				7,935
Research and development		2,379				703		(c)		—				1,676
Depreciation		4,828				—				—				4,828
Amortization of intangible assets		2,219				—				234		(d)		1,985
Restructuring credits		(223		)		—				—				(223		)
Total operating costs and expenses		107,732				(150		)		234				107,648
Operating income		12,769				—				(749		)		13,518
Equity in loss of affiliated company		(113		)		—				—				(113		)
Interest income		222				—				—				222
Income before income taxes		12,878				—				(749		)		13,627
Income tax provision		4,339				—				(289		)(e)		4,628
Net income		$	8,539			$	—			$	(460	)		$	8,999
Net income per share:
Basic		$	0.23							$	(0.01	)		$	0.24
Diluted		$	0.23							$	(0.01	)		$	0.24
Weighted average shares outstanding:
Basic		37,192												37,192
Diluted		37,827												37,827

Q-57

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

	Nine months ended September 30, 2003
Condensed Consolidated Income Statement	As restated				Reclassifications				Adjustments				As reported (a)
Net revenues		$	367,168			$	(399	)(c)		$	(1,705	)(b)		$	369,272
Operating costs and expenses:
Cost of revenues		261,629				(12,937		)(c)		—				274,566
Selling, general and administrative		32,742				9,413		(c)		—				23,329
Research and development		6,733				2,310		(c)		—				4,423
Depreciation		14,209				—				—				14,209
Amortization of intangible assets		6,431				1		(c)		702		(d)		5,728
Restructuring credits		(223		)		—				—				(223		)
Gain on disposal of assets		—				814		(c)		—				(814		)
Total operating costs and expenses		321,521				(399		)		702				321,218
Operating income		45,647				—				(2,407		)		48,054
Equity in loss of affiliated company		(429		)		—				—				(429		)
Interest income		696				—				—				696
Income before income taxes		45,914				—				(2,407		)		48,321
Income tax provision		17,058				—				(927		)(e)		17,985
Net income		$	28,856			$	—			$	(1,480	)		$	30,336
Net income per share:
Basic		$	0.78							$	(0.04	)		$	0.82
Diluted		$	0.76							$	(0.04	)		$	0.80
Weighted average shares outstanding:
Basic		37,152												37,152
Diluted		37,745												37,745

Notes to our restated, unaudited condensed consolidated balance sheet as of September 30, 2003:

(a)“As reported” represents our unaudited condensed consolidated balance sheet derived from our Form 10-Q for the quarterly period ended September 30, 2003 filed with the SEC on November 12, 2003.

(b)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(c)Represents the 2003 impact related to the reduction in the estimated useful life of certain intangible assets noted in (b) above.

(d)Represents the tax effect of adjustments more fully described in the notes to our restated, unaudited condensed consolidated income statements noted above.

(e)Represents the impact of the Quantification adjustment as more fully described in Note 9 below.

Q-58

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

(f)Accrued compensation has been classified as a separate line item in current liabilities. In addition, deferred compensation related to non-employee members of our board of directors has been reclassified as a component of shareholders’ equity. Inventory and notes payable have been reclassified as a component of other current assets and accounts payable, respectively.

	September 30, 2003
Condensed Consolidated Balance Sheet	As restated			Reclassifications				Prior to 2003				Adjustments				As reported (a)
Assets
Current assets:
Cash and cash equivalents		$	143,866		$	—			$	—			$	—			$	143,866
Accounts receivable, net		78,824			—				—				—				78,824
Inventory, net		—			(5,554		)(f)		—				—				5,554
Deferred income taxes		6,238			—				—				—				6,238
Other current assets		7,279			5,554		(f)		—				—				1,725
Total current assets		236,207			—				—				—				236,207
Property and equipment, net		37,667			—				—				—				37,667
Goodwill		137,039			—				—				—				137,039
Other intangible assets, net		69,984			—				(468		)(b)		(702		)(c)		71,154
Deferred income taxes		16,652			—				2,839		(d)		—				13,813
Other assets		7,638			—				—				—				7,638
Total assets		$	505,187		$	—			$	2,371			$	(702	)		$	503,518
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	8,626		$	30	(f)		$	—			$	—			$	8,596
Notes payable		—			(30		)(f)		—				—				30
Accrued expenses		11,961			(18,718		)(f)		—				(927		)(d)		31,605
Accrued compensation		18,493			18,493		(f)		—				—				—
Customer accommodation and quantification		8,334			—				6,629		(e)		1,705		(e)		—
Deferred revenue		18,020			1		(f)		—				—				18,019
Total current liabilities		65,434			(224		)		6,629				778				58,250
Other non-current liabilities		2,070			—				—				—				2,070
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,211 shares issued and outstanding		230,653			—				—				—				230,653
Retained earnings		205,813			—				(4,258		)		(1,480		)		211,552
Deferred compensation		224			224		(f)		—				—				—
Accumulated other comprehensive income		993			—				—				—				993
Total shareholders’ equity		437,683			224				(4,258		)		(1,480		)		443,198
Total liabilities and shareholders’ equity		$	505,187		$	—			$	2,371			$	(702	)		$	503,518

Q-59

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

Notes to our restated, unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2003:

(a)“As reported” represents our unaudited condensed consolidated statements of cash flows derived from our Form 10-Q for the quarterly period ended September 30, 2003 filed with the SEC on November 12, 2003. The adjustments described in (b)—(e) below were made to certain captions included within operating activities in the accompanying consolidated statements of cash flows for the nine months ended September 30, 2003. Operating activities in the accompanying condensed consolidated statements of cash flows are presented such that only the net cash provided by operating activities is presented.

(b)Represents the cumulative adjustment to net income resulting from the adjustments described in items (c) - - (e) below.

(c)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(d)Represents the impact of the Quantification adjustment as more fully described in Note 9.

(e)Represents an adjustment for the tax consequences of the adjustments noted in (c) and (d) above.

The following reflects the impact to previously reported amounts contained in the consolidated statement of cash flows if a non-condensed format had been presented:

	September 30, 2003
	As restated				Adjustments				As reported (a)
Cash flows from operating activities:
Net income		$	28,856			$	(1,480	)(b)		$	30,336
Depreciation and amortization		$	20,639			$	702	(c)		$	19,937
Customer accommodation and quantification		$	1,705			$	1,705	(d)		$	—
Accrued expenses		$	(952	)		$	(927	)(e)		$	(25	)

3.Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Q-60

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

4.Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied. Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

Q-61

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Net income	$	3,450		$	8,539		$	15,150		$	28,856
Add: Stock-based employee compensation expense included in reported net income	209			—			209			—
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(896		)	(1,435		)	(3,145		)	(4,694		)
Pro forma net income	$	2,763		$	7,104		$	12,214		$	24,162
Basic net income per share:
As reported	$	0.09		$	0.23		$	0.40		$	0.78
Pro forma	$	0.07		$	0.19		$	0.33		$	0.65
Diluted net income per share:
As reported	$	0.09		$	0.23		$	0.40		$	0.76
Pro forma	$	0.07		$	0.19		$	0.32		$	0.64

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

5.Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

Q-62

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

The following table reflects the weighted average shares outstanding used to compute basic and diluted net income per share for the three and nine months ended September 30, 2004 and 2003:

	For the three months ended September 30,
	2004						2003
	Net Income		Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	3,450	37,484		$	0.09	$	8,539	37,192		$	0.23
Effect of dilutive stock	—		111		—		—		627		—
Diluted	$	3,450	37,595		$	0.09	$	8,539	37,819		$	0.23

	For the nine months ended September 30,
	2004						2003
	Net Income		Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	15,150	37,466		$	0.40	$	28,856	37,152		$	0.78
Effect of dilutive stock	—		177		—		—		581		(0.02		)
Diluted	$	15,150	37,643		$	0.40	$	28,856	37,733		$	0.76

The computation of diluted net income per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income per share. For the three months ended September 30, 2004 and 2003, shares having an anti-dilutive effect on net income per share and, therefore, excluded from the calculation of diluted income per share, totaled 3,942 and 3,407 shares, respectively. For the nine months ended September 30, 2004 and 2003, shares excluded from the calculation of diluted income per share, totaled 3,942 and 3,401 shares, respectively.

6.Cost of Investigation and Legal Proceedings

For the three and nine months ended September 30, 2004, we recorded a charge of $2,255 and $6,593, respectively, for costs associated with the Review, Management’s Billing Assessment as well as defense and other costs associated with the governmental investigations and civil litigation. See Note 9. We did not record a charge in 2003. The following is a summary of the amounts recorded in the accompanying condensed consolidated income statements:

	Three months ended September 30, 2004			Nine months ended September 30, 2004
Legal fees		$	1,708		$	6,046
Nightingale and Associates, LLC (Nightingale) services		547			547
Total		$	2,255		$	6,593

7.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

Q-63

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

8.Related Party Transactions

For a description of our various agreements with Philips and our agreement with Nightingale, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $45 and $13 for the three months ended September 30, 2004 and 2003, respectively, and $432 and $16 for the nine months ended September 30, 2004 and 2003, respectively.

Our condensed consolidated balance sheets as of September 30, 2004 and 2003 reflect accrued expenses related to Philips of $466 and $504, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three and nine months ended September 30, 2004 and 2003. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
PSRS licensing	$	—	$	168	$	—	$	788
PSRS consulting	80		182		118		462
OEM agreement	887		—		987		—
Dictation equipment	203		152		499		717
Insurance	174		130		522		391
PENAC	13		13		50		51
Marketing and management	86		—		88		8
Total	$	1,443	$	645	$	2,264	$	2,417

For the three months ended September 30, 2004, we incurred a charge of $547 for Nightingale services. As of September 30, 2004, accrued expenses included $183 for amounts due to Nightingale for services performed.

In 2001, we entered into an Advance Agreement with A-Life Medical, Inc. (A-Life), a privately held entity that we owned 33.6% of the outstanding voting shares of during 2005 and 2004. The agreement required a prepayment of $1,000 for $1,600 in services to be provided to us by A-Life.

9.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as

Q-64

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three and nine months ended September 30, 2004 and 2003.

	Three months ended September 30,				Nine months ended September 30,
	2004		2003		2004		2003
Beginning balance	$	9,361	$	7,819	$	8,771	$	6,629
Quantification	201		515		791		1,705
Ending balance	$	9,562	$	8,334	$	9,562	$	8,334

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-65

MEDQUIST INC. and SUBSIDIARIES

Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2004

Q-66

MedQuist Inc. and Subsidiaries
Consolidated Income Statements
(In thousands, except per share amounts)
Unaudited

	Three months ended							Six months ended
	June 30,							June 30,
	2004			As restated 2003				2004			As restated 2003
Net revenues	$	112,845			$	122,757		$	229,634			$	246,667
Operating costs and expenses:
Cost of revenues	83,752				86,107			167,581				174,469
Selling, general and administrative	9,555				10,922			20,877				21,373
Research and development	2,122				2,116			4,528				4,354
Depreciation	4,601				4,745			9,133				9,381
Amortization of intangible assets	2,225				2,219			4,663				4,212
Cost of investigation and legal proceedings	3,595				—			4,338				—
Total operating costs and expenses	105,850				106,109			211,120				213,789
Operating income	6,995				16,648			18,514				32,878
Equity in loss of affiliated company	(59		)		(132		)	(114		)		(316		)
Interest income, net	284				254			537				474
Income before income taxes	7,220				16,770			18,937				33,036
Income tax provision	2,759				6,456			7,237				12,719
Net income	$	4,461			$	10,314		$	11,700			$	20,317
Net income per share:
Basic	$	0.12			$	0.28		$	0.31			$	0.55
Diluted	$	0.12			$	0.27		$	0.31			$	0.54
Weighted average shares outstanding:
Basic	37,473				37,120			37,515				37,103
Diluted	37,656				37,768			37,675				37,699

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-67

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	June 30,		December 31,
	2004		2003
Assets
Current assets:
Cash and cash equivalents	$	183,504		$	162,420
Accounts receivable, net of allowance of $4,384 and $5,254, respectively	73,575			78,815
Income tax receivable	5,940			2,704
Deferred income taxes	10,970			11,267
Other current assets	9,680			8,288
Total current assets	283,669			263,494
Property and equipment, net	32,897			35,614
Goodwill	139,017			139,042
Other intangible assets, net	63,560			68,191
Deferred income taxes	11,856			12,689
Other assets	7,562			7,438
Total assets	$	538,561		$	526,468
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	11,995		$	13,461
Accrued expenses	13,417			12,476
Accrued compensation	21,236			19,821
Customer accommodation and quantification	9,361			8,771
Deferred revenue	18,474			21,108
Total current liabilities	74,483			75,637
Other non-current liabilities	3,422			3,339
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,484 and 37,259 shares issued and outstanding, respectively	232,695			231,368
Retained earnings	224,226			212,525
Deferred compensation	278			278
Accumulated other comprehensive income	3,457			3,321
Total shareholders’ equity	460,656			447,492
Total liabilities and shareholders’ equity	$	538,561		$	526,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-68

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Six months ended
	June 30,
	2004			2003
Operating activities:
Net cash provided by operating activities	$	26,457		$	39,271
Investing activities:
Purchase of property and equipment	(6,440		)	(8,669		)
Proceeds from sale of property	—			814
Acquisitions, net of cash acquired	—			(2,848		)
Net cash used in investing activities	(6,440		)	(10,703		)
Financing activities:
Repayment of debt	(28		)	(28		)
Proceeds from issuance of stock	216			228
Proceeds from exercise of stock options	814			446
Net cash provided by financing activities	1,002			646
Effect of exchange rate changes	65			124
Net increase in cash and cash equivalents	21,084			29,338
Cash and cash equivalents—beginning of period	162,420			103,392
Cash and cash equivalents—end of period	$	183,504		$	132,730
Supplemental cash flow information:
Cash paid for:
Interest	$	3		$	5
Income taxes	$	8,636		$	13,258

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-69

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

1.Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Restatement and Reclassification of Financial Statements

We recorded certain reclassifications and adjustments to our previously filed Form 10-Q for the quarterly period ended June 30, 2003 as set forth below:

Notes to our restated, unaudited condensed consolidated income statements for the three and six months ended June 30, 2003:

(a)“As reported” represents our unaudited condensed consolidated income statement derived from our Form 10-Q for the quarterly period ended June 30, 2003 filed with the SEC on August 12, 2003.

(b)Represents the impact of the Quantification adjustment as more fully described in Note 9 below.

(c)Certain costs previously classified as cost of revenues that were no longer directly related to customer support activities have been reclassified as selling, general and administrative expenses and research and development expenses. In addition, certain volume rebates amounting to $112 and $249 were reclassified from cost of revenues to net revenues for the three and six months ended June 30, 2003, respectively. These reclassifications had no effect on our previously reported operating income, net income or income per share.

(d)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(e)Represents an income tax benefit related to the adjustments noted in (b) and (d) above.

Q-70

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

	Three months ended June 30, 2003
Condensed Consolidated Income Statement	As restated			Reclassifications				Adjustments				As reported(a)
Net revenues		$	122,757		$	(112	)(c)		$	(575	)(b)		$	123,444
Operating costs and expenses:
Cost of revenues		86,107			(4,209		)(c)		—				90,316
Selling, general and administrative		10,922			3,371		(c)		—				7,551
Research and development		2,116			726		(c)		—				1,390
Depreciation		4,745			—				—				4,745
Amortization of intangible assets		2,219			—				234		(d)		1,985
Total operating costs and expenses		106,109			(112)				234				105,987
Operating income		16,648			—				(809		)		17,457
Equity in loss of affiliated company		(132)			—				—				(132)
Interest income		254			—				—				254
Income before income taxes		16,770			—				(809		)		17,579
Income tax provision		6,456			—				(311		)(e)		6,767
Net income		$	10,314		$	—			$	(498	)		$	10,812
Net income per share:
Basic		$	0.28						$	(0.01	)		$	0.29
Diluted		$	0.27						$	(0.01	)		$	0.29
Weighted average shares outstanding:
Basic		37,120											37,120
Diluted		37,768											37,768

Q-71

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

	Six months ended June 30, 2003
Condensed Consolidated Income Statement	As restated				Reclassifications				Adjustments				As reported(a)
Net revenues		$	246,667			$	(249	)(c)		$	(1,190	)(b)		$	248,106
Operating costs and expenses:
Cost of revenues		174,469				(8,649		)(c)		—				183,118
Selling, general and administrative		21,373				5,979		(c)		—				15,394
Research and development		4,354				1,607		(c)		—				2,747
Depreciation		9,381				—				—				9,381
Amortization of intangible assets		4,212				—				468		(d)		3,744
Gain on disposal of assets		—				814		(c)		—				(814		)
Total operating costs and expenses		213,789				(249		)		468				213,570
Operating income		32,878				—				(1,658		)		34,536
Equity in loss of affiliated company		(316		)		—				—				(316		)
Interest income		474				—				—				474
Income before income taxes		33,036				—				(1,658		)		34,694
Income tax provision		12,719				—				(638		)(e)		13,357
Net income		$	20,317			$	—			$	(1,020	)		$	21,337
Net income per share:
Basic		$	0.55							$	(0.03	)		$	0.58
Diluted		$	0.54							$	(0.03	)		$	0.57
Weighted average shares outstanding:
Basic		37,103												37,103
Diluted		37,699												37,699

Notes to our restated, unaudited condensed consolidated balance sheet as of June 30, 2003:

(a)“As reported” represents our unaudited condensed consolidated balance sheet derived from our Form 10-Q for the quarterly period ended June 30, 2003 filed with the SEC on August 12, 2003.

(b)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(c)Represents the 2003 impact related to the reduction in the estimated useful life of certain intangible assets noted in (b) above.

(d)Represents the tax effect of adjustments more fully described in the notes to our restated, unaudited condensed consolidated income statements noted above.

(e)Represents the impact of the Quantification adjustment as more fully described in Note 9 below.

Q-72

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

(f)Accrued compensation has been classified as a separate line item in current liabilities. In addition, deferred compensation related to non-employee members of our board of directors has been reclassified as a component of shareholders’ equity. Inventory and notes payable have been reclassified as a component of other current assets and accounts payable, respectively.

	June 30, 2003
Condensed Consolidated Balance Sheet	As restated			Reclassifications				Prior to 2003				Adjustments				As reported(a)
Assets
Current assets:
Cash and cash equivalents		$	132,730		$	—			$	—			$	—			$	132,730
Accounts receivable, net		77,505			—				—				—				77,505
Inventory, net		—			(5,332		)(f)		—				—				5,332
Deferred income taxes		6,238			—				—				—				6,238
Other current assets		8,383			5,332		(f)		—				—				3,051
Total current assets		224,856			—				—				—				224,856
Property and equipment, net		37,150			—				—				—				37,150
Goodwill		136,376			—				—				—				136,376
Other intangible assets, net		72,199			—				(468		)(b)		(468		)(c)		73,135
Deferred income taxes		16,819			—				2,839		(d)		—				13,980
Other assets		8,096			—				—				—				8,096
Total assets		$	495,496		$	—			$	2,371			$	(468	)		$	493,593
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	9,322		$	31	(f)		$	—			$	—			$	9,291
Notes payable		—			(31		)(f)		—				—				31
Accrued expenses		11,044			(18,416		)(f)		—				(638		)(d)		30,098
Accrued compensation		18,191			18,191		(f)		—				—				—
Customer accommodation and quantification		7,819			—				6,629		(e)		1,190		(e)		—
Deferred revenue		18,414			1		(f)		—				—				18,413
Total current liabilities		64,790			(224		)		6,629				552				57,833
Other non-current liabilities		1,930			—				—				—				1,930
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,183 shares issued and outstanding		230,251			—				—				—				230,251
Retained earnings		197,275			—				(4,258		)		(1,020		)		202,553
Deferred compensation		224			224		(f)		—				—				—
Accumulated other comprehensive income		1,026			—				—				—				1,026
Total shareholders’ equity		428,776			224				(4,258		)		(1,020		)		433,830
Total liabilities and shareholders’ equity		$	495,496		$	—			$	2,371			$	(468	)		$	493,593

Q-73

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

Notes to our restated, unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2003:

(a)“As reported” represents our unaudited condensed consolidated statements of cash flows derived from our Form 10-Q for the quarterly period ended June 30, 2003 filed with the SEC on August 12, 2003. The adjustments described in (b)—(e) below were made to certain captions included within operating activities in the accompanying consolidated statements of cash flows for the six months ended June 30, 2003. Operating activities in the accompanying condensed consolidated statements of cash flows are presented such that only the net cash provided by operating activities is presented.

(b)Represents the cumulative adjustment to net income resulting from the adjustments described in items (c) - (e) below.

(c)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(d)Represents the impact of the Quantification adjustment as more fully described in Note 9.

(e)Represents an adjustment for the tax consequences of the adjustments noted in (c) and (d) above.

The following reflects the impact to previously reported amounts contained in the consolidated statement of cash flows if a non-condensed format had been presented:

	June 30, 2003
	As restated				Adjustments				As reported(a)
Cash flows from operating activities:
Net income		$	20,317			$	(1,020	)(b)		$	21,337
Depreciation and amortization		$	13,593			$	468	(c)		$	13,125
Customer accommodation and quantification		$	1,190			$	1,190	(d)		$	—
Accrued expenses		$	(2,334	)		$	(638	)(e)		$	(1,696	)

3.Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Q-74

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

4.Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied. Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

Q-75

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income	$	4,461		$	10,314		$	11,700		$	20,317
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(794		)	(1,638		)	(2,249		)	(3,259		)
Pro forma net income	$	3,667		$	8,676		$	9,451		$	17,058
Basic net income per share:
As reported	$	0.12		$	0.28		$	0.31		$	0.55
Pro forma	$	0.10		$	0.23		$	0.25		$	0.46
Diluted net income per share:
As reported	$	0.12		$	0.27		$	0.31		$	0.54
Pro forma	$	0.10		$	0.23		$	0.25		$	0.45

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

5.   Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

The following table reflects the weighted average shares outstanding used to compute basic and diluted net income per share for the three and six months ended June 30, 2004 and 2003:

	For the three months ended June 30,
	2004						2003
	Net Income		Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	4,461	37,473		$	0.12	$	10,314	37,145		$	0.28
Effect of dilutive stock	—		183		—		—		610		(0.01		)
Diluted	$	4,461	37,656		$	0.12	$	10,314	37,755		$	0.27

	For the six months ended June 30,
	2004						2003
	Net Income		Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	11,700	37,515		$	0.31	$	20,317	37,130		$	0.55
Effect of dilutive stock	—		160		—		—		557		(0.01		)
Diluted	$	11,700	37,675		$	0.31	$	20,317	37,687		$	0.54

Q-76

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

The computation of diluted net income per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income per share. For the three months ended June 30, 2004 and 2003, shares having an anti-dilutive effect on net income per share and, therefore, excluded from the calculation of diluted income per share, totaled 4,127 and 3,611 shares, respectively. For the six months ended June 30, 2004 and 2003, shares excluded from the calculation of diluted income per share, totaled 3,802 and 3,609 shares, respectively.

6.Cost of Investigation and Legal Proceedings

For the three and six months ended June 30, 2004, we recorded a charge for legal fees of $3,595 and $4,338, respectively, for costs associated with the Review. See Note 9. We did not record a charge in 2003.

7.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

8.Related Party Transactions

For a description of our various agreements with Philips, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $9 and $1 for the three months ended June 30, 2004 and 2003, respectively, and $387 and $2 for the six months ended June 30, 2004 and 2003, respectively.

Our condensed consolidated balance sheets as of June 30, 2004 and 2003 reflect accrued expenses related to Philips of $176 and $906, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three and six months ended June 30, 2004 and 2003. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
PSRS licensing		$	—		$	200		$	—		$	620
PSRS consulting		38			206			38			280
OEM agreement		100			—			100			—
Dictation equipment		97			145			296			565
Insurance		174			131			348			261
PENAC		13			24			37			38
Marketing and management		—			3			2			8
Total		$	422		$	709		$	821		$	1,772

Q-77

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

In 2001, we entered into an Advance Agreement with A-Life Medical, Inc. (A-Life), a privately held entity that we owned 33.6% of the outstanding voting shares of during 2005 and 2004. The agreement required a prepayment of $1,000 for $1,600 in services to be provided to us by A-Life.

9.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three and six months ended June 30, 2004 and 2003.

	Three months ended June 30,						Six months ended June 30,
	2004			2003			2004			2003
Beginning balance		$	9,116		$	7,244		$	8,771		$	6,629
Quantification		245			575			590			1,190
Ending balance		$	9,361		$	7,819		$	9,361		$	7,819

Q-78

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2004 and 2003
(In thousands, except per share amounts)
Unaudited

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-79

MEDQUIST INC. and SUBSIDIARIES
Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2004

Q-80

MedQuist Inc. and Subsidiaries
Consolidated Income Statements
(In thousands, except per share amounts)
Unaudited

	Three months ended
	March 31,			As restated
	2004			2003
Net revenues	$	116,789			$	123,910
Operating costs and expenses:
Cost of revenues	83,829				88,362
Selling, general and administrative	11,322				10,451
Research and development	2,406				2,238
Depreciation	4,532				4,636
Amortization of intangible assets	2,438				1,993
Cost of investigation and legal proceedings	743				—
Total operating costs and expenses	105,270				107,680
Operating income	11,519				16,230
Equity in loss of affiliated company	(55		)		(184		)
Interest income, net	253				220
Income before income taxes	11,717				16,266
Income tax provision	4,478				6,263
Net income	$	7,239			$	10,003
Net income per share:
Basic	$	0.19			$	0.27
Diluted	$	0.19			$	0.27
Weighted average shares outstanding:
Basic	37,387				37,110
Diluted	37,709				37,630

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-81

MedQuist Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
Unaudited

	March 31,		December 31,
	2004		2003
Assets
Current assets:
Cash and cash equivalents	$	180,135		$	162,420
Accounts receivable, net of allowance of $5,541 and $5,254, respectively	72,620			78,815
Income tax receivable	671			2,704
Deferred income taxes	11,109			11,267
Other current assets	8,401			8,288
Total current assets	272,936			263,494
Property and equipment, net	34,134			35,614
Goodwill	139,190			139,042
Other intangible assets, net	65,780			68,191
Deferred income taxes	12,255			12,689
Other assets	7,597			7,438
Total assets	$	531,892		$	526,468
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	9,651		$	13,461
Accrued expenses	12,977			12,476
Accrued compensation	20,161			19,821
Customer accommodation and quantification	9,116			8,771
Deferred revenue	20,255			21,108
Total current liabilities	72,160			75,637
Other non-current liabilities	3,530			3,339
Commitments and contingencies
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,460 and 37,259 shares issued and outstanding, respectively	232,489			231,368
Retained earnings	219,765			212,525
Deferred compensation	278			278
Accumulated other comprehensive income	3,670			3,321
Total shareholders’ equity	456,202			447,492
Total liabilities and shareholders’ equity	$	531,892		$	526,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-82

MedQuist Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Unaudited

	Three months ended
	March 31,
	2004			2003
Operating activities:
Net cash provided by operating activities	$	19,850		$	26,910
Investing activities:
Purchase of property and equipment	(3,072		)	(4,373		)
Proceeds from sale of property	—			814
Acquisitions, net of cash acquired	—			(2,235		)
Net cash used in investing activities	(3,072		)	(5,794		)
Financing activities:
Repayment of debt	(2		)	—
Proceeds from issuance of stock	216			228
Proceeds from exercise of stock options	691			94
Net cash provided by financing activities	905			322
Effect of exchange rate changes	32			8
Net increase in cash and cash equivalents	17,715			21,446
Cash and cash equivalents—beginning of period	162,420			103,392
Cash and cash equivalents—end of period	$	180,135		$	124,838
Supplemental cash flow information:
Cash paid for:
Income taxes	$	1,302		$	1,300

The accompanying notes are an integral part of these condensed consolidated financial statements.

Q-83

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)

Unaudited

1.Description of Business

We are a provider of medical transcription technology and services, which are integral to the clinical documentation workflow. We service health systems, hospitals and large group medical practices throughout the U.S. In the clinical documentation workflow, we provide, in addition to medical transcription technology and services, digital dictation, speech recognition, electronic signature and medical coding technology and services. We are a member of the Philips Group of Companies and collaborate with Philips Medical Systems in marketing and product development.

2.Restatement and Reclassification of Financial Statements

We recorded certain reclassifications and adjustments to our previously filed Form 10-Q for the quarterly period ended March 31, 2003 as set forth below:

Notes to our restated, unaudited condensed consolidated income statements for the three months ended March 31, 2003:

(a)“As reported” represents our unaudited condensed consolidated income statement derived from our Form 10-Q for the quarterly period ended March 31, 2003 filed with the SEC on May 13, 2003.

(b)Represents the impact of the Quantification adjustment as more fully described in Note 9 below.

(c)Certain costs previously classified as cost of revenues that were no longer directly related to customer support activities have been reclassified as selling, general and administrative expenses and research and development expenses. In addition, certain volume rebates amounting to $137. Were reclassified from cost of revenues to net revenues for the three months ended March 31, 2003. These reclassifications had no effect on our previously reported operating income, net income or income per share.

(d)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(e)Represents an income tax benefit related to the adjustments noted in (b) and (d) above.

Q-84

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

	Three months ended March 31, 2003
Condensed Consolidated Income Statement	As restated				Reclassifications				Adjustments				As reported(a)
Net revenues		$	123,910			$	(137	)(c)		$	(615	)(b)		$	124,662
Operating costs and expenses:
Cost of revenues		88,362				(4,440		)(c)		—				92,802
Selling, general and administrative		10,451				2,608		(c)		—				7,843
Research and development		2,238				881		(c)		—				1,357
Depreciation		4,636				—				—				4,636
Amortization of intangible assets		1,993				—				234		(d)		1,759
Gain on disposal		—				814		(c)		—				(814		)
Total operating costs and expenses		107,680				(137		)		234				107,583
Operating income		16,230				—				(849		)		17,079
Equity in loss of affiliated company		(184		)		—				—				(184		)
Interest income		220				—				—				220
Income before income taxes		16,266				—				(849		)		17,115
Income tax provision		6,263				—				(327		)(e)		6,590
Net income		$	10,003			$	—			$	(522	)		$	10,525
Net income per share:
Basic		$	0.27							$	(0.01	)		$	0.28
Diluted		$	0.27							$	(0.01	)		$	0.28
Weighted average shares outstanding:
Basic		37,110												37,110
Diluted		37,630												37,630

Notes to our restated, unaudited condensed consolidated balance sheet as of March 31, 2003:

(a)“As reported” represents our unaudited condensed consolidated balance sheet derived from our Form 10-Q for the quarterly period ended March 31, 2003 filed with the SEC on May 13, 2003.

(b)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(c)Represents the 2003 impact related to the reduction in the estimated useful life of certain intangible assets noted in (b) above.

(d)Represents the tax effect of adjustments more fully described in the notes to our restated, unaudited condensed consolidated income statement noted above.

(e)Represents the impact of the Quantification adjustment as more fully described in Note 9 below.

Q-85

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

(f)Accrued compensation has been classified as a separate line item in current liabilities. In addition, deferred compensation related to non-employee members of our board of directors has been reclassified as a component of shareholders’ equity. Inventory and notes payable have been reclassified as a component of other current assets and accounts payable, respectively.

	March 31, 2003
Condensed Consolidated Balance Sheet	As restated			Reclassifications				Prior to 2003				Adjustments				As reported(a)
Assets
Current assets:
Cash and cash equivalents		$	124,838		$	—			$	—			$	—			$	124,838
Accounts receivable, net		79,299			—				—				—				79,299
Inventory, net		—			(5,675		)(f)		—				—				5,675
Deferred income taxes		6,238			—				—				—				6,238
Other current assets		8,483			5,675		(f)		—				—				2,808
Total current assets		218,858			—				—				—				218,858
Property and equipment, net		37,580			—				—				—				37,580
Goodwill		135,883			—				—				—				135,883
Other intangible assets, net		74,386			—				(468		)(b)		(234		)(c)		75,088
Deferred income taxes		18,254			—				2,839		(d)		—				15,415
Other assets		7,275			—				—				—				7,275
Total assets		$	492,236		$	—			$	2,371			$	(234	)		$	490,099
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	8,289		$	30	(f)		$	—			$	—			$	8,259
Notes payable		—			(30		)(f)		—				—				30
Accrued expenses		19,629			(18,441		)(f)		—				(327		)(d)		38,397
Accrued compensation		18,217			18,217		(f)		—				—				—
Customer accommodation and quantification		7,244			—				6,629		(e)		615		(e)		—
Deferred revenue		19,772			—				—				—				19,772
Total current liabilities		73,151			(224		)		6,629				288				66,458
Other non-current liabilities		1,751			—				—				—				1,751
Shareholders’ equity:
Common stock—no par value; authorized 60,000 shares; 37,120 shares issued and outstanding		229,542			—				—				—				229,542
Retained earnings		186,961			—				(4,258		)		(522		)		191,741
Deferred compensation		224			224		(f)		—				—				—
Accumulated other comprehensive income		607			—				—				—				607
Total shareholders’ equity		417,334			224				(4,258		)		(522		)		421,890
Total liabilities and shareholders’ equity		$	492,236		$	—			$	2,371			$	(234	)		$	490,099

Q-86

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

Notes to our restated, unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2003:

(a)“As reported” represents our unaudited condensed consolidated statements of cash flows derived from our Form 10-Q for the quarterly period ended March 31, 2003 filed with the SEC on May 13, 2003. The adjustments described in (b)-(e) below were made to certain captions included within operating activities in the accompanying consolidated statements of cash flows for the three months ended March 31, 2003. Operating activities in the accompanying condensed consolidated statements of cash flows are presented such that only the net cash provided by operating activities is presented.

(b)Represents the cumulative adjustment to net income resulting from the adjustments described in items (c)-(e) below.

(c)Represents a reduction in the estimated useful life of certain intangible assets acquired in the Lanier acquisition in July 2002 from 25 years to 10 years. This reduction was recorded retroactively to the time of the acquisition and resulted in $234 of additional amortization expense per quarter.

(d)Represents the impact of the Quantification adjustment as more fully described in Note 9.

(e)Represents an adjustment for the tax consequences of the adjustments noted in (c) and (d) above.

The following reflects the impact to previously reported amounts contained in the consolidated statement of cash flows if a non-condensed format had been presented:

	March 31, 2003
	As restated			Adjustments				As reported(a)
Cash flows from operating activities:
Net income		$	10,003		$	(522	)(b)		$	10,525
Depreciation and amortization		$	6,629		$	234	(c)		$	6,395
Customer accommodation and quantification		$	615		$	615	(d)		$	—
Accrued expenses		$	4,478		$	(327	)(e)		$	4,805

3.Basis of Presentation

The condensed consolidated interim financial statements included herein are unaudited and have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. The condensed consolidated interim financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Q-87

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

These statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for the fair presentation of the information contained herein. These condensed consolidated interim financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K and the audited consolidated financial statements and notes thereto included elsewhere in this Form 10-K. As permitted under generally accepted accounting principles, interim accounting for certain expenses, including income taxes are based upon full year assumptions. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

4.Stock-Based Compensation

In December 2002, FASB Statement 148, Accounting for Stock-Based Compensation—Transition and Disclosure (Statement 148), was issued. Statement 148 amended FASB Statement 123, Accounting for Stock-Based Compensation (Statement 123), to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 related to the disclosure about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Statement 123, as amended by Statement 148, permits companies to (i) recognize as expense the fair value of stock-based awards, or (ii) continue to apply the provisions of Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations, and provide pro forma net income (loss) and net income (loss) per share disclosures for stock-based compensation as if the fair-value based method defined in Statement 123 had been applied. Through 2005, we have applied the provisions of APB 25 and provide the pro forma disclosures for our stock option plans in accordance with the provisions of Statement 123 and Statement 148, as shown below.

Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)), which became effective on January 1, 2006, requires us to calculate the fair value of share-based awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest will be recognized as compensation to employees over the period the requisite services are performed. We adopted Statement 123(R) on January 1, 2006.

Q-88

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

The following table illustrates the pro forma effect on net (loss) income and per share amounts if we had applied the fair-value recognition provisions of Statement 123 to stock-based employee compensation.

	Three months ended
	March 31,
	2004			2003
Net income	$	7,239		$	10,003
Deduct: Total stock-based employee compensation expense determined under fair-value based method for all awards, net of tax	(1,455		)	(1,621		)
Pro forma net income	$	5,784		$	8,382
Basic net income per share:
As reported	$	0.19		$	0.27
Pro forma	$	0.15		$	0.23
Diluted net income per share:
As reported	$	0.19		$	0.27
Pro forma	$	0.15		$	0.22

The fair value of the options granted is estimated using the Black-Scholes option-pricing model.

5.Net Income per Share

Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist only of stock options, using the treasury stock method.

The following table reflects the weighted average shares outstanding used to compute basic and diluted net income per share for the three months ended March 31, 2004 and 2003:

	For the three months ended March 31,
	2004						2003
	Net Income		Shares	Per share Amount			Net Income		Shares	Per share Amount
Basic	$	7,239	37,387		$	0.19	$	10,003	37,110		$	0.27
Effect of dilutive stock	—		322		—		—		520		—
Diluted	$	7,239	37,709		$	0.19	$	10,003	37,630		$	0.27

The computation of diluted net income per share does not assume conversion, exercise or issuance of shares that would have an anti-dilutive effect on diluted net income per share. For the three months ended March 31, 2004 and 2003, shares having an anti-dilutive effect on net income per share and, therefore, excluded from the calculation of diluted income per share, totaled 3,951 and 4,193 shares, respectively.

6.Cost of Investigation and Legal Proceedings

For the three months ended March 31, 2004, we recorded a charge for legal fees of $743, for costs associated with the Review. See Note 9. We did not record a charge in 2003.

Q-89

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

7.Commitments and Contingencies

For a complete discussion of our December 31, 2005 commitments and contingencies, please refer to Note 14 to our audited consolidated financial statements included elsewhere in this Form 10-K.

8.Related Party Transactions

For a description of our various agreements with Philips, please refer to Note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.

From time to time, we enter into other miscellaneous transactions with Philips including Philips purchasing certain products and implementation services from us. We recorded net revenues from sales to Philips of $379 and $1 for the three months ended March 31, 2004 and 2003.

Our condensed consolidated balance sheets as of March 31, 2004 and 2003 reflect accrued expenses related to Philips of $248 and $883, respectively.

Listed below is a summary of the expenses incurred by us in connection with the various Philips agreements noted above for the three months ended March 31, 2004 and 2003. Charges related to these agreements are included in cost of revenues and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

	Three months ended March 31,
	2004			2003
PSRS licensing		$	—		$	420
PSRS consulting		—			74
OEM agreement		—			—
Dictation equipment		199			420
Insurance		174			130
PENAC		24			14
Marketing and management		2			5
Total		$	399		$	1,063

In 2001, we entered into an Advance Agreement with A-Life Medical, Inc. (A-Life), a privately held entity that we owned 33.6% of the outstanding voting shares of during 2005 and 2004. The agreement required a prepayment of $1,000 for $1,600 in services to be provided to us by A-Life.

9.Customer Accommodation and Quantification

In connection with our decision to offer financial accommodations to our AAMT Customers, we analyzed our historical billing information and the available report-level data to develop individualized accommodation offers to be made to our AAMT Customers (Accommodation Analysis). This analysis took approximately one year to complete. The methodology utilized to develop the individual accommodation offers was designed to generate positive accommodation outcomes for our AAMT

Q-90

MedQuist Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2004 and 2003
(In thousands, except share and per share amounts)
Unaudited

Customers. As such, the methodology was not a calculation of potential over billing nor was it intended as a measure of damages or a reflection of any admission of liability due and owed to our AAMT Customers. Instead, the Accommodation Analysis was a methodology that was developed to arrive at commercially reasonable and fair accommodation offers that would be acceptable to our AAMT Customers without negotiation.

In the fourth quarter of 2005, based on the Accommodation Analysis, our board of directors authorized management to make cash accommodation offers to AAMT Customers in the aggregate amount of $65,413. In 2006, this amount was adjusted by a net additional amount of $1,157 resulting in an adjusted aggregate amount of $66,570. By accepting our accommodation offer, an AAMT Customer must agree, among other things, to release us from any and all claims and liability regarding AAMT line and other billing related issues.

As part of this process, we also conducted an analysis in an attempt to quantify the economic consequences of potentially unauthorized adjustments to AAMT Customers’ ratios and formulae within the transcription platform setups (Quantification). This Quantification was calculated to be $9,835.

Of the authorized cash accommodation amount of $65,413, $57,678 was treated as consideration given by a vendor to a customer and accordingly recorded as a reduction in revenues in 2005. The balance of $7,735 plus an additional $2,100 has been accounted for as a billing error associated with the Quantification resulting in a reduction of revenues in various reporting periods from 1999 to 2005 as noted below.

The table below reflects the activity associated with the Accommodation Analysis and the Quantification for the three months ended March 31, 2004 and 2003.

	Three months ended March 31,
	2004			2003
Beginning balance		$	8,771		$	6,629
Quantification		345			615
Ending balance		$	9,116		$	7,244

The goal of our accommodation program was to reach a settlement with our AAMT Customers. However, the Accommodation Analysis for certain AAMT Customers did not result in positive accommodation outcomes. For certain other customers, the Accommodation Analysis resulted in calculated cash accommodation offers that we believed were insufficient as a percentage of their historical AAMT line billing to motivate such customers to resolve their billing disputes with us. Therefore, in 2006 we modified our accommodation program to enable us to offer this group of AAMT Customers credits for the purchase of future products and/or services from us over a defined period of time. On July 21, 2006, our board of directors authorized management to make credit accommodation offers up to an additional $8,700 beyond the previously authorized amount.

Q-91

EX-3.1

Exhibit 3.1

CERTIFICATE OF AMENDMENT
AND RESTATEMENT TO
CERTIFICATE OF INCORPORATION
OF
SUMMIT HEALTH GROUP, INC.

TO:Secretary of State
State of New Jersey

This Certificate of Amendment and Restatement is executed pursuant to the provisions of N.J.S. 14A:9-5(5).

FIRST: The name of the Corporation is Summit Health Group, Inc. Pursuant to the Amendment and Restatement the name of the Corporation shall be Medquist, Inc.

SECOND: The restated and amended Certificate of Incorporation was adopted by the Board of Directors on January 17, 1992 at a meeting duly called and held, and by the Shareholders on January 27, 1992 at a meeting duly called and held.

THIRD: At the time of the adoption of the Amended and Restated Certificate of Incorporation the number of shares outstanding was 978,345:

	Number of Shares Voted
Total Number of Shares Entitled to Vote	For	Against
978,345	889,600	- 0 -

FOURTH: The Amendment and Restatement of the Certificate of Incorporation is to become effective upon filing.

IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of January, 1992.

Attest:	SUMMIT HEALTH GROUP, INC.
/s/ Michael J. Handline	/s/ Richard J. Censits
Michael J. Handline Secretary	Richard J. Censits President

Filed by:	Suzanne Maria Kourlesis
	Parker, McCay & Criscuolo
	Three Greentree Centre, Suite 401
	Rt. 73 and Greentree Road
	Marlton, New Jersey 08053

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SUMMIT HEALTH GROUP, INC.

To:The Secretary of State
State of New Jersey

Pursuant to the provisions of Section 14A:9-5 of the New Jersey Business Corporation Act, the undersigned corporation hereby executes the following Amended and Restated Certificate of Incorporation:

ARTICLE FIRST
NAME

The name of the corporation is MedQuist Inc.

ARTICLE SECOND
REGISTERED OFFICE

The location of the corporation’s current registered office in this State is 20 East Clementon Road, Suite 102 South, Gibbsboro, New Jersey 08026.

ARTICLE THIRD
REGISTERED AGENT

The name of the current registered agent for the corporation is Michael Handline.

ARTICLE FOURTH
PURPOSE

The purposes for which the corporation is formed are: to engage, without limitation, in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act and any amendments thereto.

ARTICLE FIFTH
CAPITAL STOCK

The aggregate number of shares which the corporation shall have authority to issue is 25,000,000 shares of which 20,000,000 shares shall be common stock, and 5,000,000 shares shall be preferred stock.

The designation, relative rights, preferences and liabilities of each class of stock, itemized by class, shall be as follows:

(a)   Preferred.   The corporation’s board of directors (hereafter called “Board of Directors” or “Board”) is authorised to adopt at any time, or from time to time, amendments to the Certificate of Incorporation in respect to any unissued and/or treasury shares of preferred stock, and thereby to fix or change the division of shares of the preferred stock into classes and/or into series within any class or classes, and to fix or change the determination of the relative rights, preferences and limitations of the shares of any class or series. The authority of the Board with respect to each class or series of preferred stock shall include, but not be limited to, determination of the following:

(i) The number of shares constituting that class or series and the distinctive designation of that class or series;

(ii) The dividend rate on the shares of that class or series, whether dividends shall be cumulative, and, if so, from which date or dates;

(iii) Whether that class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights;

(iv) Whether that class or series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;

(v) Whether or not shares of that class or series shall be redeemable and whether or not the corporation or the holder (or both) may exercise the redemption right, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions;

(vi) The rights of the shares of that class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation; and

(vii) Any other relative rights, preferences and limitations of that class or series as may be permitted or required by law.

(b)  Common.   Each share of common stock shall be entitled to one vote on all matters submitted to a vote of shareholders, except as the right to exercise such vote may be limited by the provisions of this Certificate of Incorporation. The holders of common stock shall be entitled to such dividends as may be declared by the Board of Directors from time to time, provided

2

that required dividends, if any, on the preferred stock have been paid or provided for. In the event of the liquidation, dissolution, or winding up, whether voluntary or involuntary, of the corporation, the assets and funds of the corporation available for distribution to shareholders, and remaining after the payment to holders of preferred stock of the amounts to which they are entitled, shall be divided and paid to the holders of the common stock according to their respective shares.

ARTICLE SIXTH
DIRECTOR NUMBER; CLASSIFICATION; REMOVAL

(a)   The number of directors which shall constitute the whole Board of Directors shall be not less than five nor more than twenty. Subject to any rights of holders of preferred stock, the exact number of directors within such maximum and minimum shall be determined by resolution duly adopted by the Board of Directors by a majority vote of the entire Board of Directors. No decrease in the number of directors shall shorten the term of any incumbent directors.

(b)  The Board of Directors shall be divided into three classes, which shall be as nearly equal in number as possible. Directors of each class shall serve for a term of three years, and until their successors shall have been elected and qualified. Upon the adoption of this Article SIXTH and the filing of the Amended and Restated Certificate of Incorporation with the New Jersey Secretary of State, the existing Board of Directors shall automatically be reclassified such that some of the director’s terms will be automatically extended as a result thereof. Each director of the reclassified Board of Directors shall be placed in one of three classes, and the initial term of office of each such class shall (except in the event of his earlier resignation or removal) expire at the annual shareholders’ meeting taking place in the year set forth opposite such director’s name (or, if later, upon the election and qualification of his successor), as follows:

Name	Class	Term Expires
Richard J. Censits William T. Carson, Jr. James F. Conway	III	1995
Frederick S. Fox, III Robert D. Mintz, Esq. A. Fred Ruttenberg, Esq.	II	1994
Joseph F. Centrone, M.D. Barry D. Brown Kyle W. Will Richard G. Mohrfeld	I	1993

3

At each annual shareholders’ meeting following such initial reclassification and election, the number of directors equal to the number of directors in the class whose term expires at the time of such meeting shall be elected to hold office until the third succeeding annual meeting of shareholders following such meeting. Each director so elected shall hold office until his term expires and his successor is elected and qualified, or until his earlier resignation or removal.

(c)   Newly elected directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of all votes entitled to be cast by the entire Board of Directors.

(d)  Any directors elected pursuant to any special voting rights of one or more series of Preferred Stock shall be excluded from, and for no purpose be counted in, the scope and operation of the foregoing provisions of this Article SIXTH.

ARTICLE SEVENTH
VOTING POWERS OF DIRECTORS GENERALLY

Every director of the corporation shall be entitled to one (1) vote on all matters upon which the Board of Directors is entitled to vote. The number of directors constituting the current Board of Directors of the corporation is ten. The names and addresses of the directors are presently as follows:

Name	Address
Barry D. Brown	West Jersey Health System Mt. Ephraim & Atlantic Aves. Camden, NJ 08104
William T. Carson, Jr.	The Covenant Bank for Savings 18 Kings Highway, West Haddonfield, NJ 08033

Name	Address
Richard J. Censits	Summit Health Group, Inc. 20 E. Clementon Road Suite 102 South Gibbsboro, NJ 08026
Joseph F. Centrone, M.D.	South Jersey Radiology Executive Office 100 Carnie Blvd., Suite B-9 Voorhees, NJ 08043

4

James F. Conway	Mister Softee, Inc. 901 Clements Bridge Road P.O. Box 313 Runnemede, NJ 08078
Frederick S. Fox, III	Fox & Lazo 30 Washington Avenue Haddonfield, NJ 08033
Robert D. Mintz, Esq.	Freeman, Mintz, Hagner & Deiches, P.A. 34 Tanner Street Haddonfield, NJ 08033
Richard G. Mohrfeld	Mohrfeld, Inc. 24 Lees Avenue Collingswood, NJ 08108
A. Fred Ruttenberg, Esq.	Blank, Rome, Comisky & McCauley Woodland Falls Corporate Park 210 Lake Drive East, Suite 200 Cherry Hill, NJ 08002
Kyle W. Will	Delaware Valley/Liebert, Inc. Keystone Industrial Park 200 Rittenhouse Circle - 1 East Bristol, PA 19007

ARTICLE EIGHTH
DURATION

The duration of the corporation is perpetual.

ARTICLE NINTH
LIMITATION ON DIRECTOR LIABILITY

A director of the corporation shall not be personally liable to the corporation or to the shareholders of the corporation for damages for breach of any duty owed to the corporation or to the shareholders of the corporation except that this Article NINTH shall not relieve a director of the corporation from personal liability to the corporation and to the shareholders of the corporation for damages for any breach of duty based upon an act or omission (a) in breach of such director’s duty of loyalty to the corporation or to the shareholders of the corporation, or (b) not in good faith or involving a knowing violation of laws, or (c) resulting in the receipt by such director of an improper personal benefit.

5

ARTICLE TENTH
SEVERABILITY

In the event that all, some or any part of any provision contained in this Amended and Restated Certificate of Incorporation shall be found by any court of competent jurisdiction to be illegal, invalid or unenforceable (as against public policy or otherwise), such provision shall be enforced to the fullest extent permitted by law and shall be construed as if it had been narrowed only to the extent necessary so as not to be invalid, illegal or unenforceable; the validity, legality and enforceability of the remaining provisions of this Amended and Restated Certificate of Incorporation shall continue in full force and effect and shall not be affected or impaired by such illegality, invalidity or unenforceability or any other provision (or any part or parts thereof) of the Amended and Restated Certificate of Incorporation. If and to the extent that any provision contained in this Amended and Restated Certificate of Incorporation violates any rule of a securities exchange or automated quotation system on which securities of the corporation are traded, the Board of Directors is authorized, in its sole discretion, to suspend or terminate such provision for such time or periods of time and subject to such conditions as the Board of Directors shall determine in its sole discretion.

ARTICLE ELEVENTH
HEADINGS

Article headings and the ordering of paragraphs are for convenience of reference only and shall not be construed to alter, amend or otherwise affect the meaning, intent or effect of the provisions of this Amended and Restated Certificate of Incorporation.

IN WITNESS WHEREOF, the corporation has executed this document on the 27th day of January , 1992.

SUMMIT HEALTH GROUP, INC.
By:	/s/ Richard J. Censits
	Richard J. Censits, President

6

CERTIFICATE OF CORRECTION
OF
MedQuist Inc.
(TO BE USED BY DOMESTIC AND FOREIGN CORPORATIONS

TO:Secretary of State
State of New Jersey

The Undersigned, hereby submits for filing, a Certificate of Correction, executed in behalf of the above named Corporation, pursuant to the provisions of Section 14A:1-6 (5) Corporations, General, of the New Jersey Statutes.

1.	The Certificate to be corrected is: Certificate of Amendment and Restatement to Certificate of Incorporation	1/31/92
	(Type of Certificate)	(Date Filed)

2.The inaccuracy in the Certificate is: In Article First, there was a comma placed between MedQuist and Inc., e.g. MedQuist, Inc. There is no comma between the name and the corporate designation.

(Indicate the inaccuracy or defect)

3.The Certificate of Correction hereby reads as follows:

First: The name of the Corporation is Summit Health Group, Inc. Pursuant to the Amendment and Restatement the name of the Corporation shall be MedQuist Inc.

Dated this 8th day of June 1992.

	MedQuist Inc.
	(Corporate Name)
By:	/s/ Michael J. Handline
	(Signature)
	Michael J. Handline, Vice President
	(Type or Print Name and Title)

*May be executed by the Chairman of the Board, or the President or the Vice-president.

STATE OF NEW JERSEY
OFFICE OF THE
SECRETARY OF STATE

In compliance with the requirements of Section 14A:7-2 of the New Jersey Business Corporation Act (Ch. 94 L ‘88 eff. 12-1-88), the undersigned corporation, desiring to file in the Office of the Secretary of State an amendment to its Restated Certificate of Incorporation with respect to shares to be issued by the corporation, certifies as follows:

1.The name of the corporation is MEDQUIST INC.

2.Attached hereto as Annex 1 is a true and correct copy of the resolutions adopted by the board of directors of the corporation pertaining to the amendment of the Restated Certificate of Incorporation as authorized by Section 14A: 7-2(3).

3.The resolution of the board of directors was duly adopted on December 10, 1992.

4.The Restated Certificate of Incorporation is amended so that the designation and number of shares of each class and series acted upon in the attached resolution and the relative rights, preferences and limitations of each such class and series, are as stated in the resolution.

IN TESTIMONY WHEREOF, the undersigned corporation has caused this Statement to be signed by a duly authorized officer of the corporation.

MEDQUIST INC.
By:	/s/ Paul Wetzel
	Vice President and Treasurer

ANNEX 1

FURTHER RESOLVED, that pursuant to the authority vested in the Board of Directors by law and the Restated Certificate of Incorporation, the Board of Directors hereby adopts an amendment to its Restated Certificate of Incorporation designating two classes of Preferred Stock, no par value, to be designated “Class A Preferred Stock” and “Class B Preferred Stock” having the respective relative voting, dividend, liquidation, and other rights, preferences and limitations set forth on the attached “Certificate of Designation of Preferred Stock” (the “Certificate”);

Certificate of Designation of Preferred Stock

Shares of the Corporation’s Preferred Stock, no par value, shall be designated as follows: (i) 577,361 shares of Class A Preferred Stock (the “Class A Preferred”) and (ii) 422,639 shares of the Class B Preferred Stock (the “Class B Preferred”). The Class A Preferred and the Class B Preferred are herein collectively referred to as the “A/B Preferred.”

Part I.Terms Applicable to Both the Class A Preferred and the Class B Preferred.

Section 1.   Voting Rights.   Except as provided herein and as otherwise required by law, the A/B Preferred shall have no voting rights.

Section 2.   Dividends.   The holder of each share of A/B Preferred shall be entitled to receive, when and as declared by the Corporation’s Board of Directors, (a) the payment of an amount in cash equal to the amount such holder would receive as a holder of Common Stock if such holder’s shares of A/B Preferred were converted into shares of Common Stock as of the record date of the declaration of such dividend, and (b) a distribution (in other than cash) equivalent to the distribution (in other than cash) such holder would receive as a holder of Common Stock if such holder’s shares of A/B Preferred were converted into shares of Common Stock prior to the date established by the Corporation’s Board of Directors as the record date for the purpose of such distribution; provided that if the distribution consists of voting securities of the Corporation, the Corporation shall make available to a holder of shares of A/B Preferred, upon such holder’s request, non-voting securities which are otherwise identical to such voting securities and which are convertible into such voting securities on the same terms as the A/B Preferred is convertible into Common Stock.

3.   Liquidation, Dissolution and Winding up.   Upon any liquidation, dissolution or winding up of the Corporation, (a) the holders of A/B Preferred will be entitled to be paid, before any distribution or payment is made upon any other class of the Corporation’s equity securities, an amount in cash equal to the aggregate Liquidation Value (as defined below) (plus any unpaid dividends thereon which have accrued pursuant to Section 2 above) of all shares of A/B Preferred outstanding, and (b) after the payment to the holders of A/B Preferred set forth in subsection 3(a) and after the holders of Common Stock have received with respect to each share of Common Stock an amount equal to the amount paid to the holders of A/B Preferred pursuant to subsection 3(a) above with respect to each share of A/B Preferred, the holders of the shares of A/B Preferred will be entitled to be paid out of the assets of the Corporation

available for distribution to the holders of Common Stock after such distributions an additional amount equal to the amount such holders would receive as a holder of Common Stock if such holder’s shares of A/B Preferred were converted into shares of Common Stock immediately prior to the time of such liquidation, dissolution or winding up of the Corporation. If upon any such liquidation, dissolution or winding up of the Corporation, the Corporation’s assets to be distributed among the holders of shares of A/B Preferred pursuant to subsection 3(a) above are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid pursuant to subsection 3(a), the entire assets available for distribution will be distributed ratably among such holders based upon the aggregate Liquidation Value (plus any unpaid dividends thereon which have accrued pursuant to Section 2 above) of all shares of A/B Preferred held by such holder. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 60 days prior to the payment dated stated therein, to each record holder of A/B Preferred. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 3. For purposes of this Section 3, “Liquidation Value” of any share of A/B Preferred shall be equal to $7.50.

Section 4.   Conversion Rights.

(a)   General.   Subject to Section 1 of Part II below, at any time and from time to time, each record holder of A/B Preferred will be entitled to convert any and all of the shares of such holder’s A/B Preferred into the same number of shares of Common Stock at such holder’s election. Without limiting the generality of the foregoing, each holder of A/B Preferred shall only be entitled to convert any share or shares of A/B Preferred to the extent that after giving effect to such conversion such holder or its affiliates shall not directly or indirectly own, control or have power to vote a greater quantity of securities of any kind issued by the Corporation then such holder and its affiliates are permitted to own, control or have power to vote under any law or under any regulation, rule or other requirement of any governmental authority at any time applicable to such holder and its affiliates. Shares of A/B Preferred which are converted into shares of Common Stock as provided herein shall not be reissued.

(b)   Mechanics of Conversion.   Each conversion of shares of A/B Preferred into shares of Common Stock will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation

2

(or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of the A/B Preferred) at any time during normal business hours, together with a written notice by the holder of such A/B Preferred stating that such holder desires to convert the shares, or a stated number of the shares, of A/B Preferred represented by such certificate or certificates into Common Stock and that upon such conversion such holder and its affiliates will not directly or indirectly own, control or have the power to vote a greater quantity of securities of any kind issued by the Corporation than such holders and its affiliates are permitted to own, control or have the power to vote under any applicable law, regulation, rule or other governmental requirement (and such statement will obligate the Corporation to issue such Common Stock). Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received, and at such time the rights of the holder of the converted A/B Preferred as such holder will cease and the person or persons in whose name or names the certificate or certificates for shares of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby.

(c)   Issuance of New Certificates.   Promptly after such surrender and the receipt of such written notice, the Corporation will issue and deliver in accordance with the surrendering holder’s instructions (i) the certificate or certificates for the Common Stock issuable upon such conversion and (ii) a certificate representing any A/B Preferred which was represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which was not converted.

(d)   Subdivisions and Combinations.   If the Corporation in any manner subdivides or combines the outstanding shares of one class of either Common Stock or A/B Preferred, the outstanding shares of the other classes will be proportionately subdivided or combined.

(e)   Reorganizations, Etc.   In the case of, and as a condition to, any capital reorganization of, or any reclassification of the capital stock of, the Sorporation (other than a subdivision or combination of shares of Common Stock or A/B Preferred into a greater or lesser number of shares (whether with or without par value) or a change in the par value of Common Stock or A/B Preferred or from par value to no par value, or from no par value to par value) or in the case of, and as a condition to, the consolidation or merger of the Corporation with or into another corporation (other than a merger in which the Corporation is the continuing corporation and which does not result in any

3

reclassification of outstanding shares of Common Stock or A/B Preferred), each share of A/B Preferred shall be convertible into the number of shares of stock or other securities or property receivable upon such reorganization, reclassification, consolidation or merger by a holder of the number of shares of Common Stock of the Corporation into which such share of A/B Preferred was convertible immediately prior to such reorganization, reclassification, consolidation or merger; and, in any such case, appropriate adjustment shall be made in the application of the provisions set forth in this Section 4 with respect to the rights and interests thereafter of the holders of A/B Preferred to the end that the provisions set forth in this Section 4 (including provisions with respect to the conversion rate) shall thereafter be applicable, as nearly as they reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of the shares of A/B Preferred.

(f)   Reservation of Common Stock.   The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Common Stock or its treasury shares, solely for the purpose of issue upon the conversion of the A/B Preferred as provided in this Section 4, such number of shares of Common Stock as shall then be issuable upon the conversion of all then outstanding shares of A/B Preferred (assuming that all such shares of A/B Preferred are held by persons entitled to convert such shares into Common Stock).

(h)   Payment of Taxes; Transfer.   The issuance of certificates for Common Stock upon the conversion of A/B Preferred will be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of Common Stock. The Corporation will not close its books against the transfer of A/B Preferred or of Common Stock issued or issuable upon the conversion of A/B Preferred in any manner which would interfere with the timely conversion of A/B Preferred.

Part II.   Terms Applicable to Class B Preferred Only.

Section 1.   Limitations on Conversion Rights.   Notwithstanding anything to the contrary, the conversion rights set forth in Section 4 of Part I shall be exercisable by a record holder of Class B Preferred only: (a) in connection with a transaction which results in the Corporation’s Common Stock no longer being subject to the requirements of the National Association of Securities Dealers, Inc. pertaining to the requirements for continued designation and inclusion in the

4

National Association of Securities Dealers Automated Quotation System - National Market System (or any other rules, regulations and requirements of any national securities exchange to which the Corporation’s Common Stock is subject), (b) at any time after the Corporation is no longer subject to the reporting requirements of Section 12 or Section 15(d) of the Securities Exchange Act of 1934, as amended, and (c) at any time after the Corporation’s shareholders approve such actions as are required pursuant to Section 5(i)(1)(c)(ii) of Schedule D of the Bylaws of the National Association of Securities Dealers, Inc. to eliminate the restrictions set forth in this Section 1.

Part III.   Amendment and Waiver.   No amendment, modification or waiver of Part I, II or this Part III shall be binding or effective (a) with respect to any provision of Part I or this subsection (a) without the prior written consent of the holders of at least a majority of the A/B Preferred outstanding at the time such action is taken (voting as a single class and not separately) and (b) with respect to any provision of Part II or this subsection (b) without the prior written consent of the holders of at least a majority of the class B Preferred outstanding at the time such action is taken.

5

STATE OF NEW JERSEY
OFFICE OF THE
SECRETARY OF STATE

In compliance with the requirements of Section 14A: 7-2 of the New Jersey Business Corporation Act (Ch. 94 L ‘88 off. 12-1-88), the undersigned corporation, desiring to file in the Office of the Secretary of State an amendment to its Restated Certificate of Incorporation with respect to shares to be issued by the corporation, certifies as follows:

1.    The name of the corporation is MEDQUIST INC.

2.    Attached hereto as Annex 1 is a true and correct copy of the resolutions adopted by the board of directors of the corporation pertaining to the amendment of the Restated Certificate of Incorporation as authorized by Section 14A: 7- 2(3).

3.    The resolution of the board of directors was duly adopted on July 26, 1994.

4.    The Restated Certificate of Incorporation is amended so that the designation and number of shares of each class and series acted upon in the attached resolution and the relative rights, preferences and limitations of each such class and series, are as stated in the resolution.

IN TESTIMONY WHEREOF, the undersigned corporation has caused this Statement to be signed by a duly authorized officer of the corporation.

MEDQUIST INC.
By:	/s/ John M. Suender
	John M. Suender
	Vice President, General
	Counsel & Secretary

RESOLUTIONS ADOPTING
AMENDMENT
TO
CERTIFICATE OF DESIGNATION
OF
CLASS A/B PREFERRED STOCK

RESOLVED, that the President, any Vice President, the Treasurer and the Secretary of the Company (or any of them) are hereby authorized and directed, in the name and on behalf of the Company, to take all actions necessary or appropriate in order to amend the Certificate of Designation of Preferred Stock filed with the New Jersey Secretary of State on December 14, 1992 (the “Original Certificate of Designation”) to increase the number of Class A Preferred Stock available for issuance thereunder to 649,530 shares and to decrease the number of Class B Preferred Stock available for issuance thereunder to 400,470 shares;

RESOLVED, that, pursuant to the foregoing, the first sentence of the introductory paragraph of the Original Certificate of Designation is hereby deleted in its entirety and replaced with the following:

Shares of the Corporation’s Preferred Stock, no par value, shall be designated as follows: (i) 649,530 shares of Class A Preferred Stock (the “Class A Preferred”) and (ii) 400,470 shares of the Class B Preferred Stock (the “Class B Preferred”).

CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MEDQUIST INC.

Pursuant to N.J.S.A. 14A:7-2 and 14A:7-18

Dated: August 8, 1997

The undersigned, the President of MedQuist Inc., hereby certifies as follows:

1.The name of the corporation is MedQuist Inc.

2.The Company has canceled 595,512 shares of Class A Preferred Stock and 367,163 shares of Class B Preferred Stock as a result of the conversion of all such shares into common stock. The terms of a Certificate of Designation designating the relative rights, preferences and liabilities of the Corporation’s Class A Preferred Stock and Class B Preferred Stock was adopted by the Board of Directors on December 14, 1992.

3.Section 4 of said Certificate of Designation provides that any shares of such preferred stock which are converted into common stock shall not be reissued.

4.As of August 8, 1997, the Board of Directors duly adopted the attached resolution decreasing to zero the number of shares of the Corporation’s Class A Preferred Stock and Class B Preferred Stock available for issuance.

5.The aggregate number of authorized shares, itemized by class and series, after giving effect to such cancellation and decrease is as follows:

Class or Series	Number Authorized
Common Stock	20,000,000
Preferred Stock	4,037,325
Class A Preferred Stock	0
Class B Preferred Stock	0

6.The Amended and Restated Certificate of Incorporation is hereby amended (i) by reducing the authorized shares of preferred stock by 962,675 as a result of the conversion of the Class A Preferred Stock and Class B Preferred Stock into Common Stock and (ii) so that the number of shares of Class A Preferred Stock and Class B Preferred Stock are decreased to zero as stated in the attached resolution.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed on its behalf by its President as of the date first above written.

MedQuist Inc.
By:	/s/ David A. Cohen
	David A. Cohen, President,
	Chief Executive Officer and
	Chairman of the Board of Directors

2

CANCELLATION OF A/B PREFERRED STOCK

WHEREAS, on December 14, 1992 the Board of Directors executed with the New Jersey Secretary of State a Certificate of Designation designating the terms of the Company’s Class A Preferred Stock and Class B Preferred Stock (together, the “A/B Preferred Stock”);

WHEREAS, on May 30, 1996, the holder of the A/B Preferred Stock converted all of the outstanding shares (962,675) of said A/B Preferred Stock into Common Stock in accordance with the terms of the Certificate of Designation;

WHEREAS, pursuant to the terms of the Certificate of Designation, the shares of A/B Preferred Stock that were converted into Common Stock may not be re-issued and the total number of authorized shares of preferred stock of the Company must be reduced by the number of shares so converted (962,675) by filing an amendment to the Company’s Amended and Restated Certificate of Incorporation;

WHEREAS, the Board of Directors designated 1,050,000 shares of A/B Preferred Stock but the Company has only issued and canceled 962,675 shares of A/B Preferred Stock;

WHEREAS, since the purpose for designating the A/B Preferred Stock no longer exists and there are zero shares of A/B Preferred Stock outstanding, the Board of Directors desires to decrease to zero the number of shares of A/B Preferred Stock available for issuance and, pursuant to Section 14A7:2 of the New Jersey Business Corporation Act, such shares shall become preferred stock with the relative rights, preferences and limitations as they had before the Board filed the Certificate of Designation;

NOW THEREFORE, BE IT:

RESOLVED, that the actions contemplated by the foregoing recitals are hereby approved and the Certificate of Amendment (“Amendment”) to the Company’s Amended and Restated Certificate of Incorporation attached hereto as Exhibit A is hereby adopted

and approved in all respects; and be it further

RESOLVED, that the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, the Vice President and Chief Financial Officer and the Vice President and General Counsel (collectively, the “Officers”), or any of them, are hereby authorized and directed to take any actions necessary and appropriate in order to effect the intent of the foregoing, including, without limitation, executing and filing the Amendment with the New Jersey Secretary of State:

CERTIFICATE OF AMENDMENT TO

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

MEDQUIST INC.

Pursuant to N.J.S.A. 14A:7-15.1(3)

Dated: August 11, 1997

The undersigned, the President of MedQuist Inc., hereby certifies as follows:

1.The name of the corporation is MedQuist Inc.

2.On August 8, 1997, the Board of Directors adopted a resolution approving a division of all outstanding shares of capital stock of the Corporation consistent with the terms of this Certificate of Amendment.

3.Such share division will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series and will not result in the percentage of authorized shares that remains unissued after the share division exceeding the percentage of authorized shares that was unissued before the share division.

4.All of the common stock and preferred stock of the Corporation shall be subject to said share division such that each share of common stock and preferred stock shall be divided into one and one-half (1.5) shares.

5.The first sentence of “Article Fifth Capital Stock” of the Amended and Restated Certificate of Incorporation is hereby amended to read as follows:

The aggregate number of shares which the Corporation shall have authority to issue is 36,055,987.50 of which 30,000,000 shares shall be common stock and 6,055,987.50 shares shall be preferred stock.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed on its behalf by its President as of the date first above written.

MedQuist Inc.
By:	/s/ David A. Cohen
David A. Cohen, President,
Chief Executive Officer and
Chairman of the Board of Directors

2

3-FOR-2 STOCK SPLIT

WHEREAS, the Board of Directors deems it to be in the best interests of the Company and its shareholders to declare a 3-for-2 stock split;

NOW THEREFORE, BE IT:

RESOLVED, that the Board of Directors hereby declares a 3-for-2 stock split pursuant to the terms of the Certificate of Amendment (“Stock Split Amendment”) to the Amended and Restated Certificate of Incorporation attached hereto as Exhibit B; and be it further

RESOLVED, that the record date of said stock split shall be August 25, 1997 and the effective date shall be September 9, 1997 or such other date as the Officers (as defined below) shall deem appropriate under the circumstances, but in no event shall the record date be later than September 30, 1997; and be it further

RESOLVED, that the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, the Vice President and Chief Financial Officer and the Vice President and General Counsel (collectively, the “Officers”), or any of them, are hereby authorized and directed to take all actions necessary and appropriate in order to effect said 3-for-2 stock split, including, without limitation, executing and filing the Stock

Split Amendment with the New Jersey Secretary of State;

IN WITNESS WHEREOF, the undersigned have executed this Unanimous Consent effective as of August 8th, 1997.

4

CERTIFICATE OF AMENDMENT TO

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

MEDQUIST INC.

Pursuant to N.J.S.A. 14A:7-15.1(3)

Dated:  May 11, 1998

The undersigned, the President of MedQuist Inc., hereby certifies as follows:

The name of the corporation is MedQuist Inc.

On May 8, 1998, the Board of Directors adopted a resolution approving a division of all outstanding shares of capital stock of the Corporation consistent with the terms of this Certificate of Amendment.

Such share division will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series and will not result in the percentage of authorized shares that remains unissued after the share division exceeding the percentage of authorized shares that was unissued before the share division.

All of the common stock and preferred stock of the Corporation shall be subject to said share division such that each share of common stock and preferred stock shall be divided into two (2) shares.

The first sentence of “Article Fifth Capital Stock” of the Amended and Restated Certificate of Incorporation is hereby amended to read as follows:

The aggregate number of shares which the Corporation shall have authority to issue is 72,111,975 of which 60,000,000 shares shall be common stock and 12,111,975 shares shall be preferred stock.

IN WITNESS THEREOF, the Corporation has caused this Certificate to be executed on its behalf by its President as of the date first above written.

MedQuist Inc.
By:	/s/ David A. Cohen
David A. Cohen, President,
Chief Executive Officer and Chairman of the Board of Directors

MEDQUIST INC.

ACTION OF DIRECTORS BY UNANIMOUS WRITTEN CONSENT

The undersigned, being all of the directors of MEDQUIST INC., a New Jersey corporation (the “Company”), under and pursuant to Section 14A:6-7.1 of the New Jersey Business Corporation Act, do hereby propose, adopt and consent to the following action, which consent shall have the same effect as action duly taken by the unanimous vote of the Board of Directors at a duly called meeting:

2-FOR-1 SPLIT

WHEREAS, the Board of Directors deems it to be in the best interests of the Company and its shareholders to declare a 2-for-1 split of the Company’s common stock, no par value;

NOW THEREFORE, BE IT:

RESOLVED, that the Board of Directors hereby declares a 2-for-1 split (the “Stock Split”) of the Company’s common stock, no par value, pursuant to the terms of the Certificate of Amendment (“Stock Split Amendment”) to the Amended and Restated Certificate of Incorporation attached hereto as Exhibit A and subject to the other provisions of this Unanimous Consent; and be it further

RESOLVED, that the Officers (as defined below) shall have the authority in their reasonable judgment and with the advice of the Company’s investment bankers and counsel, to determine the record date and effective date of the Stock Split; provided, however, if such determinations are not made on or before the next regular meeting of the Board of Directors (scheduled July 22, 1998) then the authority of the Officers to so act shall be deemed revoked and the Stock Split may not be effected without further action of the Board of Directors;

RESOLVED, that the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, the Vice President and Chief Financial Officer and the Vice President and General Counsel (collectively, the “Officers”), or any of them, are hereby authorized and directed to take all actions necessary and appropriate in order to effect the intent of the foregoing, including, without limitation, executing and filing the

Stock Split Amendment with the New Jersey Secretary of State;

IN WITNESS WHEREOF, the undersigned have executed this Unanimous Consent effective as of May 11, 1998.

CERTIFICATE OF AMENDMENT TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MEDQUIST INC.

To:The Department of the Treasury
State of New Jersey

Pursuant to the provisions of Section 14A:9-1 of the New Jersey Business Corporation Act, the undersigned corporation executes the following Certificate of Amendment to its Amended and Restated Certificate of Incorporation:

1.The name of this corporation is MedQuist Inc.

2.The following amendment to the Amended and Restated Certificate of Incorporation was duly adopted by the majority shareholder of the corporation as of the 12th day of April, 2001:

RESOLVED, that Article Sixth of the Amended and Restated Certificate of Incorporation be amended to read as follows:

ARTICLE SIXTH
DIRECTORS

The number of directors, which shall constitute the whole Board of Directors, shall be not less than five (5) nor more than twenty (20). Subject to any rights of holders of preferred stock, the exact number of directors within such maximum and minimum shall be determined by resolution duly adopted by the Board of Directors by a majority vote of the entire Board of Directors. No decrease in the number of directors shall shorten the term of any incumbent directors.

FURTHER RESOLVED, that Article Seventh of the Amended and Restated Certificate of Incorporation be amended to read as follows:

ARTICLE SEVENTH
VOTING POWERS OF DIRECTORS GENERALLY

Every director of the corporation shall be entitled to one (1) vote on all matters upon which the Board of Directors is entitled to vote. The number of directors constituting the current Board of Directors of the corporation is eleven (11) and the names and addresses of such directors are listed on Exhibit A attached hereto.

3.The number of shares entited to vote upon the amendment was 36,804,820.

4.That in lieu of a meeting and vote of the majority shareholder and in accordance with the provisions of Section 14A:5-6, the amendment was adopted by the majority shareholder without a meeting pursuant to the written consent of the majority shareholder and the number of shares represented by such consent is 25,825,086 shares.

5.The effective date of this amendment shall be May 21, 2001.

IN WITNESS WHEREOF, the undersigned corporation has caused this Certificate to be signed by a duly authorized officer of the corporation.

	MedQuist Inc.
By:	/s/ John M. Snender
	John M. Snender
	Senior Vice President

EX-3.2

Exhibit 3.2

BY-LAWS OF MEDQUIST INC.

ARTICLE I

OFFICES

Section 1.  The registered office of MedQuist Inc. (the “Corporation”) shall be located at 20 East Clementon Road, Suite 102 South, Gibbsboro, New Jersey 08026 unless otherwise established by a vote of a majority of the votes entitled to be cast by the Board of Directors in office and a statement of change is filed in the manner provided by statute.

Section 2.  The Corporation may also have offices at such other places both within and without the State of New Jersey as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

ANNUAL MEETING OF SHAREHOLDERS

Section 1.  The annual meeting of shareholders for the election of directors shall be held at the registered office of the Corporation or at such other place within or without the State of New Jersey as shall be stated in the notice of meeting or in a duly executed waiver of notice thereof.

Section 2.  Annual meetings of shareholders shall be held at such time, at such place and on such business day during the year as shall be fixed from time to time by the Board of Directors and stated in the notice of meeting, at which annual meeting the shareholders shall elect by a plurality vote those positions on the Board of Directors expiring in such year and transact such other business as may properly be brought before the meeting.

Section 3.  Written notice of the annual meeting stating the time, place, and purpose or purposes of the meeting shall be given not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at such meeting.

ARTICLE III

SPECIAL MEETINGS OF SHAREHOLDERS

Section 1.  Special meetings of shareholders for any purpose may be held at such time and place within or without the State of New Jersey as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

Section 2.  Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board, the President, or the Board of Directors.

Section 3.  Written notice of a special meeting stating the time and place of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting.

ARTICLE IV

QUORUM AND VOTING OF STOCK

Section 1.  The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation.  If, however, such quorum shall not be present or represented at any

2

meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.  At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called.

Section 2.  If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting shall be the act of the shareholders unless the vote of a greater number of shares of stock is required by law or the Certificate of Incorporation.

Section 3.  (a)       Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, unless otherwise provided in the Certificate of Incorporation.  A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his agent.

(b)           Except as otherwise provided in the Certificate of Incorporation, in all elections for directors every shareholder entitled to vote shall have the right to vote, in person or by proxy, the number of shares of stock owned by him, for as many persons as there are directors to be elected and for whose election he has a right to vote.

ARTICLE V

DIRECTORS

Section 1.  (a)       The number of directors which shall constitute the whole Board of Directors shall be not less than five nor more than fifteen.

(b)           The Board of Directors shall be divided into three classes as provided in the Certificate of Incorporation.

3

At each annual shareholders’ meeting following the January 1992 meeting of shareholders, the number of directors equal to the number of directors in the class whose term expires at the time of such meeting shall be elected to hold office until the third succeeding annual meeting of shareholders following such meeting.  Each director so elected shall hold office until his term expires and his successor is elected and qualified, or until his earlier resignation or removal.

(c)           Directors need not be residents of the State of New Jersey nor shareholders of the Corporation.

Section 2.  Any director or member of a committee may resign at any time.  Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time be specified, at the time of its receipt by the chairman of the Board, the President or the Secretary.  The acceptance of a resignation shall not be necessary to make it effective.

Section 3.  Newly created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of all votes entitled to be cast by the entire Board, and directors so chosen shall hold office for a term expiring at the annual meeting of shareholders at which the term of the class to which they had been elected expires.

Section 4.  The business affairs of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these by-laws directed or required to be exercised or done by the shareholders.

4

Section 5.  The directors may keep the books and records of the Corporation, except such as are required by law to be kept within the state, outside of the State of New Jersey, at such place or places as they may from time to time determine.

Section 6.  The Board of Directors, by the affirmative vote of a majority of all votes entitled to be cast by the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise.

ARTICLE VI

MEETINGS OF THE BOARD OF DIRECTORS

Section 1.  Meetings of the Board of Directors, regular or special, may be held either within or without the State of New Jersey.

Section 2.  The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be fixed by the consent in writing of all the directors.

Section 3.  Regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as shall from tine to tine be determined by the Board.

Section 4.  Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the President, and special meetings shall be called by the Chairman of the Board, the President or the Secretary on the written request of two directors.  Notice of each such meeting shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone) or 48 hours (in the case of notice by telegram) or five days (in

5

the case of notice by mail) before the time at which the meeting is to be held.  Each such notice shall state the time and place of the meeting to be so held.  Notice need not be given to any director who signs a waiver of notice, whether before or after the meeting.

Section 5.  Any or all directors may participate in a meeting of the Board or a committee of the Board by means of conference telephone or any means of communication by which all persons participating in the meeting are able to hear each other.

Section 6.  (a)       Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

(b)           Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Section 7.  (a)       The presence, in person or by proxy, of a majority of the votes entitled to be cast by the entire Board, or of any committee thereof, shall constitute a quorum for the transaction of business unless a greater or lesser number is required by statute or by the Certificate of Incorporation, except that when the entire Board or a committee thereof consists of one director, then one director shall constitute a quorum.  The act of directors entitled to cast a majority of the votes entitled to be cast by all directors present at any meeting at which a quorum is present shall be the act of the Board of Directors or of the committee, unless the act of a greater or lesser number is required by statute or by the Certificate of Incorporation.

(b)           If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

6

Section 8.  Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at a meeting of the Board, or any committee thereof, shall be deemed the action of the Board of Directors or of a committee thereof, if all directors or committee members, as the case may be, execute either before or after the action is taken, a written consent thereto, and the consent is filed with the records of the Corporation.

ARTICLE VII

COMMITTEE OF THE BOARD

Section 1.  (a)       The Board of Directors may, by resolution adopted by a majority of the votes entitled to be cast by the entire Board, alter or eliminate the committees of the Board described in Section 2 below or designate one or more other committees, each committee to consist of one or more directors.  Any such committee, to the extent provided in such resolution or these by-laws, shall have and exercise all of the authority of the Board of Directors in the management of the Corporation, except as otherwise required by law.  Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.  The Board of Directors may, by resolution adopted by a majority of the votes entitled to be cast by the entire Board, fill any vacancy in any such committee, appoint one or more directors to serve as alternate members of any such committee, to act in the absence or disability of members of any such committee with all the powers of such absent or disabled members, abolish any such committee at its pleasure, and remove any director from membership on such committee at any time, with or without cause.

(b)           Each committee of the Board of Directors formed pursuant to this section shall keep regular minutes of its meetings and actions taken at a meeting of any such committees shall be reported to the Board at its next meeting following such committee meeting; except that,

7

when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting; be made to the Board at its second meeting following such committee meeting unless otherwise required by law to be earlier reported.

Section 2.  The present standing committees of the Board are as follows:

Audit Committee.  The Audit Committee shall be composed of at least two members of the Board as may from time to time be chosen by the Board of Directors, none of whom shall be an employee of the Corporation.  The Audit Committee shall have the authority and responsibility to (a) hire one or more firms of independent public accountants to audit the Corporation’s books, records and financial statements and to review the Corporation’s systems of accounting (including its system of internal controls); (b) discuss with such independent public accountants the results of such audit and review; (c) periodically conduct independent reviews of the Corporation’s systems of accounting (including its system of internal control); and (d) periodically make reports to the Board with respect to its findings.

Nominating Committee.  The Nominating Committee shall be composed of three members of the Board as may from time to time be chosen by the Board of Directors.  The Nominating Committee shall (a) make recommendations to the Board with respect to management nominees to the Board, (b) review such shareholder nominees to the Board as may be submitted to the Corporation, and (c) periodically report to the Board with respect to its findings.

Compensation Committee.  The Compensation Committee shall be composed of three members of the Board as may from time to time be chosen by the Board of Directors.  The Compensation Committee shall (a) make recommendations to the Board with respect to the compensation of the President, (b) review with the President and make recommendations to the

8

Board with respect to the compensation of senior officers of the Corporation, and (c) review with the President and make recommendations to the board with respect to other compensation matters such as stock option plans, bonus arrangements or other similar matters.  The Compensation Committee shall serve as the committee designated by the Board to act with respect to any stock option plans adopted by the Corporation.

ARTICLE VIII

NOTICES

Section 1.  Whenever, under the provisions of any statute or of the Certificate of Incorporation or of these by-laws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail.  Notice to directors may also be given in accordance with Section 4 of Article VI hereof.

Section 2.  Whenever any notice whatsoever is required to be given under the provisions of any statute or under the provisions of the Certificate of Incorporation or these by-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

ARTICLE IX

OFFICERS

Section 1.  The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, a Secretary and a Treasurer.  The Board of

9

Directors may also choose one or more Vice-Presidents and one or more Assistant Secretaries and Assistant Treasurers.

Section 2.  The Board of Directors at its first meeting after each annual meeting of shareholders shall choose a Chairman of the Board, a President, a Secretary and a Treasurer, none of whom need be a member of the Board except for the Chairman of the Board.

Section 3.  The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.

Section 4.  The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.

Section 5.  Each officer of the Corporation shall hold office until his successor is chosen and qualifies, except in the event of his death, resignation or removal.  Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the votes entitled to be cast by the Board of Directors.  Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.  Any two or more offices, other than those of President and Secretary, may be held by the same person.

THE CHAIRMAN OF THE BOARD

Section 6.  The Chairman of the Board shall preside at all meetings of the Board of Directors if present thereat, may appoint between meetings of the Board ad hoc committees to the Board, which appointments shall be subject to the approval of the Board at its next meeting, may make recommendations to the Board with respect to the membership of the committees to the Board, and shall exercise such other powers and perform such other duties as shall be assigned to him from time to time by the Board.

10

THE PRESIDENT

Section 7.  (a)       The President shall, unless otherwise provided by the Board of Directors, be the Chief Executive Officer of the Corporation and he shall preside at all meetings of shareholders.  In the absence of the Chairman of the Board, he shall preside at all meetings of the Board of Directors if present thereat.  As Chief Executive Officer, he shall have general supervision over the affairs of the Corporation, subject to the policies and directives of the Board of Directors, and shall supervise and direct all officers and employees of the Corporation, but may delegate in his discretion any of his powers to any officer or such other executives as he may designate.  The President shall also be the Chief Operating Officer of the Corporation and shall have general supervision over and control of the operations and activities of the Corporation, subject to the supervision and control of the Board of Directors and the Chief Executive Officer, and shall have general supervision and direction of all operating officers and employees of the Corporation, but may delegate in his discretion any of his powers as Chief Operating Officer to any Vice President or such other executives as he may designate.  The President shall have such other duties as from time to time may be assigned to him by the Board of Directors.

(b)           Notwithstanding the foregoing, the Board of Directors may appoint a Vice President of the Corporation as the Corporation’s Chief Operating Officer, in which event such Vice President shall have the power, authority and responsibilities prescribed for the Chief Operating Officer in this Section 7.

Section 8.  Either the Chairman of the Board or the President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing

11

and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

THE VICE-PRESIDENTS

Section 9.  The Vice President, or if there shall be more than one, the Vice-Presidents in the order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board or the President may from time to time prescribe.

THE SECRETARY AND ASSISTANT SECRETARIES

Section 10.  The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required.  He shall give, or cause to be given, notice of all, meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board or the President, under whose several supervision he shall be.  He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary.  The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.

Section 11.  The Assistant Secretary, or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform

12

such other duties and have such other powers as the Board of Directors may from time to time prescribe.

THE TREASURER AND ASSISTANT TREASURERS

Section 12.  The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.

Section 13.  He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation.

Section 14.  If required by the Board of Directors, he shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.

Section 15.  The Assistant Treasurer, or, if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the power of the Treasurer and shall perform such other duties and have such other power, as the Board of Directors may from time to time prescribe.

13

ARTICLE X

INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS

Section 1.  Mandatory Indemnification of Directors and Officers.  The Corporation shall, to the fullest extent permitted by applicable law, indemnify its directors and officers who were, or are a party or are threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether or not such action, suit or proceeding arises or arose by or in the right of the Corporation or other entity) by reason of the fact that such director or officer is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, general partner, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to employee benefit plans), against expenses (including, but not limited to, attorneys’ fees and costs), judgments, fines (including excise taxes assessed on a person with respect to any employee benefit plan) and amounts paid in settlement actually and reasonably incurred by such director or officer in accordance with such action, suit or proceeding, except as otherwise provided in Section 3 of Article X hereof.  Persons who were directors or officers of the Corporation prior to the date this Article X is approved by shareholders of the Corporation, but who do not hold such office on or after such date, shall not be covered by this Section 1 of Article X.  A director or officer of the Corporation entitled to indemnification under this Section 1 of Article X is hereafter called a “person covered by Section 1 hereof.”

EXPENSES

Section 2.  Expenses incurred by a person covered by Section 1 hereof in defending a threatened, pending or completed civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of

14

an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation, except as otherwise provided in Section 3 of Article X.

EXCEPTIONS

Section 3.  No indemnification under Section 2 of Article X or advancement or reimbursement of expenses under Section 2 of Article X shall be provided to a person covered by Section 1 hereof (a) with respect to expenses or the payment of profits arising from the purchase or sale of securities of the Corporation in violation of Section 16(b) of the Securities Exchange Act of 1934; (b) if a judgment or other final adjudication adverse to such director or officer establishes that his acts or omissions (i) were in breach of his duty of loyalty to the Corporation or its shareholders, (ii) were not in good faith or involved a knowing violation of law, or (iii) resulted in the receipt by such director or officer of an improper personal benefit; (c) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, and amounts paid in settlement) which have been paid to, or for the benefit of, such person by an insurance carrier under a policy of liability insurance the premiums for which are paid by the corporation or an individual or entity other than such director or officer; and (d) for amounts paid in settlement of any threatened, pending or completed action, suit or proceeding without the written consent of the Corporation, which written consent shall not be unreasonably withheld.  The Board of Directors of the Corporation is hereby authorized, at any time by resolution, to add to the above list of exceptions from the right of indemnification under Section 1 of Article X or advancement or reimbursement of expenses under Section 2 of Article X, but any such additional exception shall not apply with respect to any act or omission which has occurred prior to the date that the Board of Directors in fact adopted such resolution.  Any such additional exception may,

15

at any time after its adoption, be amended, supplemented, waived, or terminated by further resolution of the Board of Directors of the Corporation.

CONTINUATION OF RIGHTS

Section 4.  The indemnification and advancement or reimbursement of expenses provided by, or granted pursuant to, this Article X shall continue as to a person who has ceased to be a director or officer of the Corporation, and shall inure to the benefit of the heirs, executors and administrators of such person,

GENERAL PROVISIONS

Section 5.  (a)       The term “to the fullest extent permitted by applicable law,” as used in this Article X, shall mean the maximum extent permitted by public policy, common law or statute.  Any person covered by Section 1 hereof may, to the fullest extent permitted by applicable law, elect to have the right to indemnification or to advancement or reimbursement of expenses, interpreted, at such person’s option, (i) on the basis of the applicable law on the date this Article X was approved by shareholders, or (ii) on the basis of the applicable law in effect at the time of the occurrence of the act or omission or acts or omissions giving rise to the action, suit or proceeding, or (iii) on the basis of the applicable law in effect at the time indemnification is sought.

(b)           The right of a person covered by Section 1 hereof to be indemnified or to receive an advancement or reimbursement of expenses pursuant to Section 2 of Article X (i) may also be enforced as a contract right pursuant to which the person entitled thereto may bring suit as if the provisions hereof were set forth in a separate written contract between the Corporation and such person, (ii) to the fullest extent permitted by applicable law, is intended to be retroactive and shall be available with respect to acts or omissions occurring prior to the adoption hereof, and (iii) shall continue to exist after the rescission or restrictive modification (as

16

determined by such person) of this Article X with respect to acts or omissions occurring before such rescission or restrictive modification is adopted.

(c)           If a request for indemnification or for the advancement or reimbursement of expenses pursuant hereto is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation together with all supporting information reasonably requested by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim (plus interest at the prime rate announced from time to time by the Corporation’s primary banker) and, if successful in whole or in part, the claimant shall be entitled also to be paid the expenses (including, but not limited to, attorney’s fees and costs) of prosecuting such claim.  Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or the advancement or reimbursement of expenses to the claimant is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses, shall be a defense to the action or create a presumption that the claimant is not so entitled.

(d)           The indemnification and advancement or reimbursement of expenses provided by, or granted pursuant to, this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement or reimbursement of expenses may be entitled under the Certificate of Incorporation or any by-law, agreement, vote of shareholders or directors or otherwise, both as to action in such director’s or officer’s official capacity and as to action in another capacity while holding that office.

17

(e)           Nothing contained in this Article X shall be construed to limit the rights and powers the Corporation possesses under Section 14A:3-5 of the New Jersey Business Corporation Act (as amended from time to time) or otherwise, including, but not limited to, the powers to purchase and maintain insurance, create funds to secure or insure its indemnification obligations, and any other rights or powers the Corporation may otherwise have under applicable law.

(f)            The provisions of this Article X may, at any time (and whether before or after there is any basis for a claim for indemnification or for the advancement or reimbursement of expenses pursuant thereto), be amended, supplemented, waived, or terminated, in whole or in part, with respect to any person covered by Section 1 hereof by a written agreement signed by the Corporation and such person.

(g)           The Corporation shall have the right to appoint the attorney for a person covered by Section 1 hereof, provided such appointment is not unreasonable under the circumstances.

OPTIONAL INDEMNIFICATION

Section 6.  The Corporation may, to the fullest extent permitted by applicable law, indemnify, and advance or reimburse expenses for, all persons (whether or not directors or officers) in all situations in which such indemnification, advancement or reimbursement of expenses is not made mandatory under Section 1 or Section 2 of Article X hereof, respectively.

PRIOR BY-LAWS

Section 7.  Any by-law provisions which are amended, replaced or repealed by this Article X shall continue to apply to any breach of performance of duty or any failure of performance of duty by any director or officer to which this Article X, for any reason, does not apply.

18

ARTICLE XI

CERTIFICATES FOR SHARES

Section 1.  (a)       The shares of the Corporation shall be represented by certificates signed by the Chairman of the Board, the President or a Vice-President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof.

(b)           When the Corporation is authorized to issue shares of more than one class there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, if the Corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series.

SIGNATURES

Section 2.  The signatures of the officers of the corporation upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

LOST CERTIFICATES

Section 3.  The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed. 

19

When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such bonds or indemnities as it deems adequate, to protect the Corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed.

TRANSFER OF SHARES

Section 4.  Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate canceled and the transaction recorded upon the books of the Corporation.

RECORD DATES FOR DETERMINING SHAREHOLDERS

Section 5.  For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or entitled to receive payment of any dividend or allotment of any right, or in order to make a determination of shareholders for any other proper purpose, the Board shall choose in advance a date as the record date for such determination of shareholders.  Any such record date shall in any case be not more than sixty days nor less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken.  If no record date is fixed, the record date for a shareholders’ meeting shall be the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day next preceding the day on which the meeting is held; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the Board relating thereto is adopted.  When a determination of shareholders’ meeting has been made as provided in this section, such

20

determination shall apply to any adjournment thereof unless the Board fixes a new record date forth adjourned meeting.

REGISTERED SHAREHOLDERS

Section 6.  The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote such as owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of New Jersey.

LIST OF SHAREHOLDERS

Section 7.  The officer or agent having charge of the transfer books for shares shall make and certify a complete list of the shareholders entitled to vote at a shareholders’ meeting, or adjournment thereof, arranged in alphabetical order within each class, series, or group of shareholders maintained by the Corporation for convenience of reference, with the address of and the number of shares held by each shareholder, which list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting.  Such list shall be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting of the shareholders.

ARTICLE XII

DIVIDENDS

Section 1.  Subject to the provisions of the Certificate of Incorporation relating thereto, if any, dividends may be declared by the Board of Directors at any regular or special meeting pursuant to law.  Dividends may be paid in cash, in its bonds, in its own shares or other property

21

including the shares or bonds of other corporations subject to any provisions of law and of the Certificate of Incorporation.

Section 2.  Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

CHECKS

Section 3.  All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

FISCAL YEAR

Section 4.  The fiscal year of the Corporation shall end on the last day of December in each year, unless otherwise fixed by resolution of the Board of Directors.

SEAL

Section 5.  The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, New Jersey.”  The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.

ARTICLE XIII

AMENDMENTS

Section 1.  These by-laws may be altered, amended or repealed or new by-laws be adopted by the affirmative vote of a majority of the votes entitled to be cast by the Board of Directors at any regular or special meeting of the Board.

22

RESOLUTIONS ADOPTED AT THE

OCTOBER 27, 1993 REGULAR MEETING OF THE

BOARD OF DIRECTORS

OF

MEDQUIST INC.

1.             Amendment to Bylaws; Shareholder Nominees to Board.

WHEREAS, the Board of Directors deems it to be in the best interest of the Company to adopt a written procedure for considering nominations for members of the Board of directors submitted by shareholders;

NOW THEREFORE, BE IT

RESOLVED, that Article V of the Company’s By-Laws are hereby amended by adding the following as Section 7:

Section 7.              Nominees for election to the Board of Directors shall be selected by the Board of Directors or a committee of the Board of Directors having been delegated the authority to do so.  The Board of Directors or such committee shall consider written recommendations of nominees from shareholders so long as any such recommendation is received by the Secretary of the Company, in the case of an annual meeting, not later than the date specified in the most recent proxy statement of the Company and, provided further, that any such recommendation is accompanied by (i) such information regarding each nominee as would be required to be included in a proxy statement filed pursuant to the Securities Exchange Act of 1934, as amended, (ii) a description of any arrangements or understandings among the recommending shareholders and each nominee and any other person or entity with respect to such nomination and (iii) the consent of each nominee to serve as a director of the Company if so elected.  Only persons duly nominated for election to the Board of directors in accordance with this Section 7 and persons for whom proxies have been solicited pursuant to a proxy statement filed pursuant to the Exchange Act shall be eligible for election to the Board of Directors.

EX-4.1

Exhibit 4.1

NUMBER		MedQuist Inc.	SHARES See reverse for Certain Definitions
	INCORPORATED UNDER THE LAWS OF THE STATE OF NEW JERSY
THIS CERTIFIES THAT			CUSIP 584949 10 1
IS THE OWNER OF

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF

MedQuist Inc.

(hereinafter called the “Corporation” ) transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corporation and the amendments time to time made thereto, copies of which are or will be on file at the principal office of the Corporation to all of which the holder by acceptance hereof assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

Dated:

	[SEAL]
SECRETARY		PRESIDENT

COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y)	TRANSFER AGENT
	AND REGISTRAR

BY

AUTHORIZED SIGNATURE

MedQuist Inc.

The Company will furnish to any shareholder upon request and without charge a full statement of the designation, relative rights, preferences and limitations of the shares of each class authorized to be issued and the designation, relative rights, preferences and limitations of each series of preferred shares which the Company is authorized to issue so far as the same have been fixed, and the authority of the Board of Directors of the Company to designate and fix the relative rights, preferences and limitations of other series.

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM	—	as tenants in common	UNIF GIFT MIN ACT—	Custodian
TEN ENT	—	as tenants by the entireties		(Cust)	(Minor)
JT TEN	—	as joint tenants with right of survivorship and not as tenants in common		under Uniform Gifts to Minors Act (State)

Additional abbreviations may also be used though not in the above list.

For value received                          hereby sell assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
    IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

shares

of the capital stock represented by the within Certificates and do hereby irrevocably constitute and appoint

Attorneyto transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated                                  

NOTICE:  THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER

EX-10.1

Exhibit 10.1

THE MRC GROUP, INC.
AMENDED AND RESTATED
1992 EMPLOYEE STOCK OPTION PLAN

1.Purpose. The purpose of this plan (the “Plan”) is to secure for The MRC Group, Inc. (the “Company”), and its shareholders the benefits arising from capital stock ownership by certain key advisors, consultants, employees and members of the Board of Directors (“Directors”) of the Company and its subsidiary (as defined in Section 17 hereof), if any, who are expected to contribute to the Company’s future growth and success.

2.Types of Awards and Administration.

a.Types of Awards. Options granted pursuant to the Plan shall be as specified herein and authorized by action of the Board of Directors of the Company (or a Committee designated by the Board of Directors) and may be either incentive stock options (“Incentive Stock Options”) meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or non-qualified stock options which are not intended to meet the requirements of Section 422.

b.Administration. The Plan will be administered by the Board of Directors of the Company, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The Board of Directors may in its sole discretion, subject to the terms of this Plan, grant options to purchase shares of the Company’s Common Stock and issue shares upon exercise of such options, as provided in the Plan. The Board shall have authority, subject to the express provisions of the Plan and all applicable securities laws, rules and regulations, to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements (which need not be identical), to advance the lapse of any waiting or installment periods and exercise dates, and to make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director shall be liable for any action or determination made in good faith. The Board of Directors may, to the full extent permitted by law, delegate any or all of its powers under the Plan to a committee (the “Committee”) appointed by the Board of Directors, and if the Committee is so appointed all references to the Board of Directors in the Plan shall mean and relate to such Committee.

c.Indemnification. In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, members of the Board of Directors and of the Committee shall be indemnified by the Company against reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any option (and/or related right) granted thereunder, and against all amounts paid by them in

settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company), or paid by them in satisfaction of a judgment of any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for negligence or misconduct in his duties; provided that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer the Company, in writing, the opportunity at its own expense, to handle and defend the same.

3.Eligibility. Incentive Stock options shall be granted only to persons who are, at the time of grant, full-time employees of the Company or Subsidiary, if any. No person shall be granted an Incentive Stock Option under the Plan who, at the time such option is granted, owns, directly or indirectly, Common Stock of the Company possessing more than 10% of the total combined voting power of all classes of stock of the Company or Subsidiary, unless the requirements of paragraph (b) of Section 11 are satisfied. Non-qualified options may be granted to officers, full-time employees, Directors and consultants to the Company or any subsidiary. A person who has been granted an option under the Plan (“Optionee”) may, if he or she is otherwise eligible, be granted additional options if the Board of Directors shall so determine.

4.Stock Subject to Plan. Subject to adjustment as provided in Section 13 and 14 below, the maximum number of shares of Common Stock of the Company which may be issued and sold under the Plan is 5,714,286 shares. Such shares may be authorized and unissued shares or may be shares issued and thereafter acquired by the Company. If an option granted under the Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available for subsequent option grants under the Plan. Stock issuable upon exercise of an option granted under the Plan may be subject to such restrictions on transfer, repurchase rights or other restrictions as shall be determined by the Board of Directors.

5.Forms of Options. As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement, in such form not inconsistent with the Plan as shall be specified by the Board of Directors at the time such option is granted.

6.Purchase Price.

a.General. The purchase price per share of stock deliverable upon the exercise of an option shall be determined by the Board of Directors, provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the fair market value of such stock on the date of grant of such option, or less than 110% of such fair market value in the case of options described in paragraph (b) of Section 11. In the case of a Non-Qualified stock option, the exercise price shall be determined by the Board of Directors in their discretion on the date of grant of such option. As used herein, “fair market value” on a given date shall mean the average of the highest and lowest selling price per share on the principal securities exchange (or the Nasdaq National Market) if the Common Stock is so traded; or if not so traded, “fair market value” shall mean the average of closing “bid” and “ask” prices for one share of the Common Stock of the Company as quoted on Nasdaq or a successor quotation system, or on such other public market system as the Common Stock of the Company is then listed, or in the event such

2

quotations are not available, “fair market value” shall be determined in the good faith discretion of the Board of Directors.

b.Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price by delivery of (i) cash, (ii) a check to the order of the Company in an amount equal to the exercise price of such options, (iii) shares of Common Stock of the Company already owned by the Optionee for at least six (6) months prior to the date the Optionee tenders such shares, having a fair market value equal in amount to the exercise price of the options being exercised, or (iv) by any combination of such methods of payment, as permitted by applicable law. The fair market value of any shares of the Company’s Common Stock which may be delivered upon exercise of an option shall be determined in the manner specified above.

7.Option Period. Each option and all rights thereunder shall be expressed to expire on such date as the Board of Directors shall determine, but in no event after the expiration of ten (10) years from the day on which the option is granted (subject to the special limitations set forth in paragraph (b) of Section 11), and shall be subject to earlier termination as provided in the Plan.

8.Exercise of Options. Each option may be exercisable, in part or in full, at any time and from time-to-time, and subject to such conditions and restrictions as determined by the Board of Directors and as set forth herein or in the agreement evidencing such option, during a ten (10) year period following the date of grant thereof (subject to the special limitations set forth in paragraph (b) of Section 11). To the extent that an option to purchase shares is not exercised by an Optionee when it becomes initially exercisable, it shall not expire but shall be carried forward and shall be exercisable, on a cumulative basis, until the expiration of the exercise period.

9.Nontransferability of Options. No option granted under the Plan shall be assignable or transferable by the person to whom it is granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder; provided, however, that if so provided in the instrument evidencing the option, the Board of Directors, or the Committee, as the case may be, may permit any Optionee to transfer the option during his lifetime to one or more members of his family, to one or more trusts for the benefit of one or more members of his family or to one or more entities owned solely by family members, provided that no consideration is paid for the transfer and that such transfer would not result in the loss of any exemption under Rule l6b-3 promulgated under the Securities Act of 1933, as amended, for any option that the Board of Directors or the Committee, as the case may be, does not permit to be so transferred. The transferee of an option shall be subject to all restrictions, terms, and conditions applicable to the option prior to its transfer, except that the option shall not be further transferable inter vivos by the transferee. The Board of Directors or the Committee, as the case may be, may impose on any transferable option and on the Common Stock to be issued upon the exercise of the option such limitations and conditions as the Board of Directors or the Committee, as the case may be, deems appropriate.

10.Effect of Termination of Employment. For all purposes of the Plan and any option or purchase right granted hereunder, “employment” shall be defined in accordance with the

3

provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulations). No option may be exercised unless, at the time of such exercise, the Optionee is, and has been continuously since the date of grant of his or her option, employed by the Company or a subsidiary, except that if and to the extent the option agreement so provides:

a.The option may be exercised within the period of three months after the date the Optionee ceases to be an employee of any of the foregoing entities (or within such shorter or longer period as may be specified or provided for in the option agreement; provided, however, that the exercise of the option shall not be less than thirty (30) days after the termination of employment of the Optionee); provided, however, that in no event may an option be exercised after the expiration date of the option.

b.If the Optionee dies while in the employ of the Company, a Parent Corporation or a Subsidiary or within three months after the Optionee ceases to be such an employee, the option may be exercised by the person to whom it is transferred by will or the laws of descent and distribution within the period of one year after the date of death (or within such shorter or longer period as may be specified or provided for in the option agreement or instrument, but in no event shall the period be less than six (6) months after the date of death); provided, however, that in no event may an option be exercised after the expiration date of the option.

c.If the Optionee becomes “disabled” while in the employ of the Company, a Parent Corporation or a Subsidiary, the option may be exercised within the period of one year after the date the Optionee ceases to be an employee of any of the foregoing entities because of such disability (or within such shorter or longer period as may be specified or provided for in the option agreement or instrument but in no event shall the period be less than six (6) months after the date the Optionee ceases to be an employee because of such disability); provided, however, that in no event may any option be exercised after the expiration date of the option. For purposes of this Plan, the Optionee shall be considered “disabled” if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months.

11.Incentive Stock Options. Options granted under the Plan which are intended to be Incentive Stock Options shall be specifically designated as Incentive Stock Options and shall be subject to the following additional terms and conditions:

a.Limitation. The aggregate fair market value (determined as of the respective date or dates of grant) of the Common Stock which may be made the subject of Incentive Stock Options granted under the Plan (and under any other stock option plans of the Company, and any Parent Corporation and Subsidiary) to any employee, which first become exercisable in any one calendar year shall not exceed the sum of $100,000 or such greater amount as may be permitted under subsequent amendments to the Code.

b.10% Shareholder. If an employee to whom an Incentive Stock Option is to be granted under the Plan is at the time of the grant of such option the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent corporation or any Subsidiary, then the purchase price per share of the Common

4

Stock subject to such Incentive Stock Option shall not be less than one hundred ten percent (110%) of the fair market value of one share of Common Stock of the Company at the time of grant and the Incentive Stock Option shall have a maximum term of five years.

c.Maximum Grant. No individual may be granted options in any calendar year, whether an Incentive Stock Option or a non-qualified stock option, to purchase more than 714,286 shares of Common Stock.

Except as modified by the preceding provisions of this Section 11, all the provisions of the Plan shall be applicable to Incentive Stock Options granted hereunder.

12.Rights as a Shareholder. The holder of an option shall have no rights as a shareholder with respect to any shares covered by the option until the date of issue of a stock certificate to him or her for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.

13.Recapitalization. In the event that the outstanding shares of Common Stock of the Company are changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any recapitalization, reclassification, stock split, stock dividend, combination or subdivision, appropriate adjustment shall be made in the number and kind of shares available under the Plan and under any options granted under the Plan. Such adjustment to outstanding options shall be made without change in the total price applicable to the unexercised portion of such options, and a corresponding adjustment in the applicable option price per share shall be made. No such adjustment shall be made which would, within the meaning of any applicable provisions of the Code, constitute a modification, extension or renewal of any option or a grant of additional benefits to the holder of an option.

14.Reorganization. In case the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or in case the acquiring corporation is not assuming the obligations of the Company with respect to its outstanding options, or in the case all or substantially all of the assets or more than fifty percent (50%) of the outstanding voting stock of the Company is acquired by another corporation (unless all voting stock acquired by said corporation is acquired directly from the Company), or in the case of a reorganization or liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company, shall, as to outstanding options, either (i) make appropriate provision for the protection of any such outstanding options by the substitution on an equitable basis of appropriate stock of the Company, or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect to the shares of Common Stock of the Company, provided that no additional benefits shall be conferred upon Optionees or offerees as a result of such substitution, and the excess of the aggregate fair market value of the shares subject to the options immediately after such substitution over the purchase price thereof is not more than the excess of the aggregate fair market value of the shares subject to such options immediately before such substitution over the purchase price thereof, or (ii) upon written notice to the Optionees or offerees, provide that all unexercised non-expired options granted under the Plan shall immediately accelerate the Exercisability Date(s) to the date of written notice and further all said options must be exercised within a specified number of days

5

(which shall not be less than thirty) of the date of such notice or they will be terminated. In any such case, the Board of Directors may, in its discretion, accelerate the Exercisability Date(s) of outstanding options.

15.No Special Employment Rights. Nothing contained in the Plan or in any option granted under the Plan shall confer upon any option holder any right with respect to the continuation of his or her employment by the Company (or any Parent Corporation or Subsidiary) or interfere in any way with the right of the Company (or any Parent Corporation or Subsidiary), subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the option holder from the rate in existence at the time of the grant of an option. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Board of Directors at the time.

16.Other Employee Benefits. The amount of any compensation deemed to be received by an employee as a result of the exercise of an option, or the sale of shares received upon such exercise will not constitute “earnings” with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.

17.Definition of Subsidiary. The term “Subsidiary” as used in the Plan shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

18.Amendment of the Plan. The Board of Directors may at any time and from time-to-time modify or amend the Plan in any respect, except that without the approval of the shareholders of the Company, the Board of Directors may not (a) materially increase the benefits accruing to individuals who participate in the Plan, (b) materially increase the maximum number of shares which may be issued under the Plan (except for permissible adjustments provided in the Plan), (c) materially modify the requirements as to eligibility for participation in the Plan or (d) modify or amend the Plan if shareholder approval is required under Section 162(m) of the Code in order for any compensation related to options granted under the Plan to not be subject to the limitation on deductibility of Section 162 (m). The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionee affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan to the extent necessary to qualify any or all such options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code.

19.Withholding. The Company’s obligation to deliver shares upon the exercise of any option granted under the Plan shall be subject to the option holder’s satisfaction of all applicable federal, state and local income and employment tax withholding requirements.

6

20.Effective Date and Duration of the Plan.

a.Effective Date. The Plan shall become effective when adopted by the Board of Directors, but no Incentive Stock Option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company’s shareholders. If such shareholder approval is not obtained within twelve months after the date of the Board’s adoption of the Plan, any Incentive Stock Options previously granted under the Plan shall terminate and no further Incentive Stock Options shall be granted. Subject to this limitation, options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan.

b.Termination. Unless sooner terminated in accordance with Section 13, the Plan shall terminate upon the earlier of (i) the close of business on the day next preceding the tenth anniversary of the date of adoption by the Board of Directors of this Amended and Restated 1992 Stock Option Plan, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise or cancellation of options granted under the Plan. If the date of termination is determined under (i) above, then options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options.

7

EX-10.2

Exhibit 10.2

SUMMIT HEALTH GROUP, INC.

STOCK OPTION PLAN

1.Purpose of Plan

The purpose of the Stock Option Plan (the “Plan”) contained herein is to provide additional incentive to officers and by employees of Summit Health Group, Inc., a New Jersey corporation (the “Corporation”), and each present or future parent or subsidiary corporation of the Corporation, excluding all directors who are not employees of the Corporation, by encouraging them to invest in shares of the Corporation’s common stock, no par value per share (the “Common Stock”), and thereby acquire a proprietary interest in the Corporation along with an increased personal interest in the Corporation’s continued success and progress, to the mutual benefit of directors, employees and shareholders.

2.Aggregate Number of Shares

350,000 shares of Common Stock shall be the aggregate number of shares which may be issued under this Plan.  Notwithstanding the foregoing, in the event of any change in the outstanding shares of common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee, as defined in Section 4 below, deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under this Plan shall be appropriately adjusted in a manner determined in the sole discretion of the committee.  Reacquired shares of Common Stock, as well as unissued shares, may be used for the purpose of this Plan.  Common Stock subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Plan.

3.C1ass of Persona Eligible to Receive Options

All officers and key employees of the Corporation, excluding all directors who are not employees of the Corporation, and of any present or future percent or subsidiary corporation of the Corporation are eligible to receive en option or options under this plan.  The individuals who shall, in fact, receive an option c options shall be selected by the Committee, as defined in section 4 below, in its sole discretion, except as otherwise specified in Section 4 of this Plan.

4.Administration of Plan

(a)This Plan shall be administered by a Committee appointed by the Board of Directors (the “Committee”).  The Committee shall consist of a minimum of two and a maximum of ten members of the Board of Directors, each of whom shall be a “disinterested person” as defined in Rule 16b-3(c) (2) (i) under the Securities Exchange Act of 1934, as amended (the “1934 Act”), promulgated by the Securities and Exchange Commission (hereafter the “SEC”) or any future corresponding rule.  The Committee shall, in addition to its other authority and subject to the provisions of this Plan, determine which individuals shall in fact be

granted an option or options, whether the option shall be an incentive stock option or a non-qualified stock option, the number of shares to be subject to each of the options, the time or times at which the options shall be granted, the rate of option exercisability (provided, however, that no option shall be exercisable within one (1) year from the date of its grant), and, subject to Section 5 of this Plan, the price at which each of the options is exercisable and the duration of the option.

(b)The Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable.  A majority of the members of the Committee shall constitute a quorum for all purposes.  The vote or written consent of a majority of the members of the Committee on a particular matter shall constitute the act of the Committee on such matter.  The Committee shall have the right to construe the Plan and the options issued pursuant to it, to correct defects and omissions and to reconcile inconsistencies to the extent necessary to effectuate the Plan and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned.  No member of the Committee or the Board of Directors shall be liable for an act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of any authority or discretion granted in connection with the Plan to the Committee or the Board of Directors, of for the acts or omissions of any other member(s) of the Committee or the Board of Directors.  Subject to the numerical limitations on Committee membership set forth in Section 4(a) hereof, the Board of Directors may at any time appoint additional members of the Committee and may at any time remove any member of the Committee with or without cause.  Vacancies on the Committee, however caused, may be filled by the Board of Directors, if it so desires.

5.Incentive Stock Options and Non-Qualified Stock Options

(a)Options issued pursuant to this Plan may be either Incentive Stock Options granted pursuant to Section 5(b) of this Plan or Non-Qualified Stock Options granted pursuant to Section 5(c) of this Plan, as determined by the Committee.  An “Incentive Stock Option” is an option which satisfies all of the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations thereunder, and a Non-Qualified Stock Option is an option which either does not satisfy all of these requirements or an option by its terms specifies at the time of grant that, will not be treated as an Incentive Stock option.  The Committee may grant both an Incentive Stock option and a Non-Qualified Stock Option to the same person, or more than one of each type of option to the same person.  The option price for Incentive Stock Options issued under this Plan shall be equal to at least the “fair market value” of the Common stock on the date of the grant of the option.  The “fair market value” of the common Stock on any particular date shall mean the last reported sale price of a share of the Common Stock on the NASDAQ National Market System, as reported by NASDAQ, or on any stock exchange on which such stock is then listed or admitted to trading, on such date, or if no sale took place on such day, the last such date on which a sale took place, or if the Common Stock is not then quoted on the NASDAQ National Market System or listed or admitted to trading on any stock exchange, the average of the bid and asked prices in the over-the-counter market on such date, or if none of the foregoing, a price determined by the committee.  If an optionee is an owner of stock (as determined under Section 424(d) of the Code) that possesses more than 10% of the total combined voting power of all classes of stock of the Corporation or a parent or subsidiary corporation of the corporation, the option price per share in the case of an Incentive Stock Option shall not be less than 110% of the fair market value of a share of

2

Common Stock on the date of the option grant.  The option price for Non-Qualified Stock Options shall be determined by the Committees as of the date of grant, but, in no event shall the price b less than $1.00 per share.

(b)Subject to the authority of the Committee set forth in Section 4(a) c this Plan, Incentive Stock Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix “I” attached to this Plan, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein.  Incentive Stock Options shall be exercisable for a period determined by the Committee, but not to exceed the expiration of t years from the date such options are granted, unless terminated earlier under the terms of the Option.  To the extent that the aggregate fair market value (determined as of the respective date or dates of grant) of shares with respect to which options that would otherwise be Incentive Stock Options are exercisable for the first time by any individual during any calendar year under the Plan (or any other plan of the corporation, a parent or subsidiary corporation of the Corporation or predecessor thereof) exceeds the sun of $100,000, such. options shall he treated as Non-Qualified stock Options.  Such options shall be taken into account in the order in which they were granted.  At the time of the grant of an incentive Stock Option hereunder, the Committee may, in its discretion, modify or amend any or the option terms contained in Appendix “I” for any particular optionee, provided that the option as modified * or amended satisfies the requirements of Section 422 of the Code and the regulations thereunder.  Each of the options granted pursuant to this Section 5(b) is intended, if possible, to be an “Incentive Stock Option” as that term is defined in Section 422 of the Code and the regulations thereunder.  In the event this Plan or any option granted pursuant to this Section 5(b) is in any way inconsistent with the applicable legal requirements of the Code or the regulations thereunder for an Incentive Stock Option, this Plan and such option shall be deemed automatically amended as of the date hereof to conform to such legal requirement, if such conformity may be achieved by amendment.

(c)Subject to the authority of the Committee set forth in Section 4(a) of this Plan, Non-Qualified Stock Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix “IX” attached to this Plan, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein.  Non-Qualified Stock Options shall expire as determined by the Committee but such period shall not exceed ten years after the date they are granted, unless terminated earlier under the option terms.  At the time of granting a Non-Qualified Stock Option hereunder, the Committee may, in its discretion, modify or amend any of the option terms contained in Appendix “XX” for any particular optionee, provided that the option as modified or amended does not expire more than ten years from the date of its grant.

(d)Neither the Corporation nor any of its current or future parents, subsidiaries or affiliates, nor their officers, directors, shareholders, stock option plan committees, employees or agents shall have any liability to any optionee in the event (i) an option granted pursuant to Section 5(b) of this Plan does not qualify as an “Incentive Stock Option” as that term is used in Section 422 of the Code and the regulations thereunder: (ii) any optionee does not obtain the tax benefits of such an incentive Stock Option; or (iii any option granted pursuant to Section 5(c) of this Plan is an “Incentive Stock Option.”

3

6.Modification, Amendment, Suspension and Termination

Options shall not be granted pursuant to this Plan after the expiration of ten years from the date the Plan is adopted by the Board of Directors of the Corporation.  The Board of Directors reserves the right at any time, and from time to time, to modify or amend this Plan in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors; provided, however, that such action shall not affect actions granted under the Plan prior to the actual date on which such action occurred; and provided further, that the Board of Directors shall not, without the approval of the shareholders of the corporation, amend this Plan to (i) increase the benefits accruing to optionees under the Plan, (ii) increase the number of shares which may be issued or the Plan, or (iii) modify the eligibility requirements for awards granted under the Plan.  If a modification or amendment of this Plan is required by the Code or the regulations thereunder to be approved by the shareholders of the corporation in order to permit the granting of “Incentive Stock options” (as that term is defined in Section 422 of the Code and regulations thereunder) pursuant to the modified or amended Plan, such modification or amendment shall also be approved by the shareholders of the Corporation in such manner as is prescribed by the Code and the regulations thereunder.  If the Board of Directors voluntarily submits a proposed modification, amendment, suspension or termination for shareholder approval, such submission shall not require any future modifications, amendments (whether or not relating to the same provision or subject matter), suspensions or terminations to be similarly submitted for shareholder approval.

7.Effectiveness of Plea

This Plan shall become effective en the date of its adoption by the corporation’s Board of Directors, subject however to approval by the shareholders of the Corporation in the manner as prescribed in the Code and the regulations thereunder and Rule 16b-3 under the 1934 Act.  Options nay be granted under this Plan prior to obtaining shareholder approval, provided such options shall not be exercisable until shareholder approval is obtained.

8.General Conditions

(a)Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon my employee the right to continue in the employ of the Corporation or any affiliated or subsidiary corporation or interferer in any way with the rights of the corporation or any affiliated or subsidiary corporation of the Corporation to terminate his or her employment in any way.

(b)Action by the Corporation constituting an offer of stock for sale to any employee under the terms of the options to be granted hereunder shall be deemed complete as of the data when the Committee authorizes the grant of the option to the employee, regardless of when the option is actually delivered to the employee or acknowledged or agreed to by him.

(c)The term “parent corporation” and “subsidiary corporation” as used throughout this Plan, and options granted pursuant , this Plan, shall (except as otherwise provided in the option form) have the meaning that is ascribed to that term-when contained in

4

Section 422(b) of the Code and the regulations thereunder, and the Corporation shall be deemed to be the grantor corporation for purposes of applying such meaning.

(d)References in this Plan to the Code shall be deemed to also refer to the corresponding provision of any future United States revenue law.

(e)The use of the masculine pronoun shall include the feminine gender whenever appropriate.

5

EX-10.3

Exhibit 10.3

SUMMIT HEALTH GROUP, INC.
NONSTATUTORY STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS

1.             Purpose of Plan. The purpose of the Summit Health Group, Inc. Nonstatutory Stock Option Plan for Non-Employee Directors (the “Plan”) contained herein is to enhance the ability of Summit Health Group, Inc., a New Jersey corporation (the “Corporation”), to attract, retain and motivate its non-employee members of its Board of Directors and to provide additional incentive to such members of the Board of Directors by encouraging them to invest in shares of the Corporation’s common stock and thereby acquire a proprietary interest in the Corporation and an increased personal interest in the Corporation’s continued success and progress, to the mutual benefit of the Corporation and its shareholders.

2.             Aggregate Number of Shares. 150,000 shares of the corporation’s common stock, no par value per share (the “Common Stock”), shall be the aggregate number of shares which may be issued under this Plan. Notwithstanding the foregoing, in the event of any change in the capitalization of the Corporation, such as by stock dividend, stock split or what the Board of Directors of the Corporation deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under this Plan shall be automatically adjusted by the Board of Directors of the Corporation. Reacquired shares of the Common Stock as well as unissued shares, may be used for the purpose of this Plan. Common Stock subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Plan.

3.             Participation. Each person who is not an employee of the Corporation or any Corporation subsidiary corporation and who is a director of the Corporation as of June 1 of each year, beginning June 1, 1992, shall automatically be granted an option to purchase 3,000 shares of the Common Stock. Notwithstanding the foregoing, in the event of any change in the capitalization of the Corporation, such as by stock dividend, stock split, or what the Board of Directors of the Corporation deems in its sole discretion to be similar circumstances, the number and kind of shares which may be issued under this Plan shall be automatically adjusted by the Board of Directors of the Corporation.

4.             Administration of Plan.  This Plan shall be administered by the Board of Directors of the Corporation. The Board of Directors of the Corporation shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable. The Board of Directors of the Corporation shall have the exclusive right to construe the Plan and the options issued pursuant to it, to correct defects and

omissions and to reconcile inconsistencies to the extent necessary to effectuate the purpose of this Plan and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned. No member of the Board of Directors of the Corporation shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of any authority or discretion granted in connection with the Plan to the Board of Directors, or for the acts or omissions of any other members of the Board of Directors.

5.             Non-Qualified Stock Options, Option Price and Term.

a.             Options issued pursuant to this Plan shall be nonstatutory or non-qualified stock options. A non-qualified option is an option which does not satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The option price for the non-qualified stock options issued under this Plan shall be equal to the fair market value, of the Common Stock on the date of the grant of the option. The “fair market value” of the Common Stock on any particular date shall mean the last reported sale price of a share of the Common Stock on the NASDAQ National Market System, as reported by NASDAQ, or on any stock exchange on which such stock is then listed or admitted to trading, on such date, or if no sale took place on such day, the last such date on which a sale took place, or if the Common Stock is not then quoted on the NASDAQ National Market System or listed or admitted to trading on any stock exchange, the average of the bid and asked prices in the over-the-counter market on such date, or if none of the foregoing, a price determined by the Board of Directors.

b.             Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix I hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth herein. Options shall expire ten years after the date they are granted, unless terminated earlier as provided herein.

6.             Modification, Amendment, Suspension and Termination. Options shall not be granted pursuant to this Plan after the expiration of ten years from and after January 17, 1992, the date this Plan was approved by the Board of Directors of the Corporation. This Plan is subject to approval by the shareholders of the Corporation as provided in Section 7(e) of this Plan. The Board of Directors of the Corporation reserves the right at any time, and from time to time, to modify or amend this Plan in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors of the Corporation; provided, however, that (a) such action shall not affect options granted under the Plan prior to the actual date on which such action occurred, (b) the Plan provisions described in Rule 16b-3(c)(2) (ii) under the Securities Exchange Act of 1934, as amended (the “1934 Act”) may not be amended more than once every six (6) months (other than to comport with changes in the Code, the Employee Retirement Income Security Act or the rules thereunder), and (c) any amendment to the Plan which is described in (A), (B) or (C) of Rule 16b-3(b) (2) (ii) under the 1934 Act shall be approved by the shareholders of the

2

Corporation in the manner described in Section 7(e) hereof. If the Board of Directors voluntarily submits a proposed modification, amendment, suspension or termination for shareholder approval, such submission shall not require any future modifications, amendments (whether or not relating to the same provision or subject matter), suspensions or terminations to be similarly submitted for shareholder approval.

7.             General Conditions.     (a)           Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any director the right to continue as a director of the Corporation or interfere in any way with the right of the Corporation to terminate him as a director.

(b)           Corporate action constituting an offer of stock for sale to any director under the terms of the options to be granted hereunder shall be deemed complete as of the date when the actions of the shareholder(s) in electing or reelecting a non- employee director are completed, regardless of when the option is actually delivered to the non-employee director or CEO or acknowledged or agreed to by him.

(c)           The term “subsidiary corporation” as used throughout this Plan shall mean a corporation in which the Corporation owns, directly or indirectly, shares of stock representing fifty percent or more of the outstanding voting power of all classes of stock of such corporation at the time of the granting of an option under this Plan.

(d)           The use of the masculine pronoun shall include the feminine gender whenever appropriate.

(e)           This Plan was approved by the Board of Directors of the Corporation on January 17, 1992, and it shall be effective as of such date. However, if the Plan is not approved by the Corporation’s shareholders who represent a majority of the voting power, at the next regular meeting of the shareholders of the Corporation, and if the Plan is not approved by such shareholders prior to December 31, 1992, it shall automatically terminate and all options granted hereunder shall be void.

3

EX-10.4

Exhibit 10.4

MEDQUIST INC.

2002 STOCK OPTION PLAN

1.             Purpose of Plan

The purpose of this 2002 Stock Option Plan (the “Plan”) is to provide additional incentive to officers, other key employees, and non-employee directors of MedQuist Inc., a New Jersey corporation (the “Company”), and each present or future parent or subsidiary corporation, by encouraging them to invest in shares of the Company’s common stock, no par value (“Common Stock”), and thereby acquire a proprietary interest in the Company and an increased personal interest in the Company’s continued success and progress.

2.             Aggregate Number of Shares

1,500,000 shares of the Company’s Common Stock shall be the aggregate number of shares which may be issued under this Plan. Notwithstanding the foregoing, in the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee (defined in Section 4 (a)), deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under this Plan shall be appropriately adjusted in a manner determined in the sole discretion of the Committee. Reacquired shares of the Company’s Common Stock, as well as unissued shares, may be used for the purpose of this Plan. Common Stock of the Company subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Plan.

3.             Class of Persons Eligible to Receive Options

All officers and key employees of the Company and of any present or future Company parent or subsidiary corporation are eligible to receive an option or options under this Plan. All non-employee directors of the Company and of any present or future Company parent or subsidiary corporation are also eligible to receive an option or options under this Plan. The individuals who shall, in fact, receive an option or options shall be selected by the Committee, in its sole discretion, except as otherwise specified in Section 4 hereof. No individual may receive options under this Plan for more than 80% of the total number of shares of the Company’s Common Stock authorized for issuance under this Plan.

Unless otherwise amended by the Committee, each person who is not an employee of the Company or any Company subsidiary and who is a director of the Company as of June 1 of each year shall automatically be granted an option to purchase 3,000 shares of the Common Stock. The foregoing automatic grant may be modified or eliminated from time to time by vote of a majority of the Board of Directors who are not eligible to receive options pursuant to the foregoing automatic grant. Notwithstanding the foregoing, in the event of any change in the capitalization of the Company, such as by stock dividend, stock split, or what the Committee of

the Company deems in its sole discretion to be similar circumstances, the number and kind of shares which may be issued under this Plan shall be automatically adjusted by the Committee of the Company.

4.             Administration of Plan

a.             This Plan shall be administered by the Company’s Board of Directors or by an Option Committee (“Committee”) appointed by the Company’s Board of Directors. The Committee shall consist of a minimum of two and a maximum of five members of the Board of Directors, each of whom shall be a “Non-Employee Director” within the meaning of Rule 16b-3 (b) (3) under the Securities Exchange Act of 1934, as amended, or any future corresponding rule, except that the failure of the Committee for any reason to be composed solely of Non-Employee Directors shall not prevent an option from being considered granted under this Plan. The Committee shall, in addition to its other authority and subject to the provisions of this Plan, determine which individuals shall in fact be granted an option or options, whether the option shall be an Incentive Stock Option or a Non-Qualified Stock Option (as such terms are defined in Section 5(a)), the number of shares to be subject to each of the options, the time or times at which the options shall be granted, the rate of option exercisability, and, subject to Section 5 hereof, the price at which each of the options is exercisable and the duration of the option. The term “Committee”, as used in this Plan and the options granted hereunder, refers to either the Board of Directors or to the Committee, whichever is then administering this Plan.

b.             The Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable. A majority of the members of the Committee shall constitute a quorum for all purposes. The vote or written consent of a majority of the members of the Committee on a particular matter shall constitute the act of the Committee on such matter. The Committee shall have the right to construe the Plan and the options issued pursuant to it, to correct defects and omissions and to reconcile inconsistencies to the extent necessary to effectuate the Plan and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned. No member of the Committee or the Board of Directors shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of an authority or discretion granted in connection with the Plan to a Committee or the Board of Directors, or for the acts or omissions of any other members of a Committee or the Board of Directors. Subject to the numerical limitations on Committee membership set forth in Section 4(a) hereof, the Board of Directors may at any time appoint additional members of the Committee and may at any time remove any member of the Committee with or without cause. Vacancies in the Committee, however caused, may be filled by the Board of Directors, if it so desires.

5.             Incentive Stock Options and Non-Qualified Stock Options

a.             Options issued pursuant to this Plan may be either Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options granted pursuant to Section 5(c) hereof, as determined by the Committee. An “Incentive Stock Option” is an option which satisfies all of the requirements of Section 422(b) of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, and a “Non-Qualified Stock option” is an option which either does not satisfy all of those requirements or the terms of the option

2

provide that it will not be treated as an Incentive Stock Option. The Committee may grant both an Incentive Stock Option and a Non-Qualified Stock Option to the same person, or more than one of each type of option to the same person. The option, price for options issued under this Plan shall be equal at least to the fair, market value (as defined below) of the Company’s Common Stock on the date of the grant of the option. The fair market value of the Company’s Common Stock on ally particular date shall mean the last reported sale price of a share of the Company’s Common Stock on any stock exchange on which such stock is then listed or admitted to trading, or on the NASDAQ National Market System or Small Cap NASDAQ, on such date, or if no sale took place on such day, the last such date on which a sale took place, or if the Common Stock is not then quoted on the NASDAQ National Market System or Small Cap NASDAQ, or listed or admitted to trading on any stock exchange, the average of the bid and asked prices in the over-the-counter market on such date, or if none of the foregoing, a price determined in good faith by the Committee to equal the fair market value per share of the Common Stock.

b.             Subject to the authority of the Committee set forth in Section 4(a), hereof, Incentive Stock Options issued pursuant to this Plan shall be issued in such form as the Committee may determine from time to time, and shall contain substantially the terms and conditions set forth herein. Incentive Stock Options shall not be exercisable after the expiration of ten years from the date such. options are granted, unless terminated earlier under the terms of the option, except that options granted to individuals described in Section 422(b) (6) of the Code shall conform to the provisions of Section 422(c) (5) of the Code. Each of the options granted pursuant to this Section 5(b) is intended, if possible, to be an “Incentive Stock Option” as that term is defined in Section 422(b) of the Code and the regulations thereunder. In the event this Plan or any option granted pursuant to this Section 5(b) is in any way inconsistent with the applicable legal requirements of the Code or the regulations thereunder for an Incentive Stock Option, this Plan and such option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment.

c.             Subject to the authority of the Committee set forth in Section 4(a) hereof, Non-Qualified Stock Options issued to non-employee directors, officers and other key employees pursuant to this Plan shall be issued in such form as the Committee may determine from time to time, and shall contain substantially the terms and conditions set forth herein. Non-Qualified Stock Options shall expire ten years after the date they are granted, unless terminated earlier under the option terms.

d.             Neither the Company nor any of its current or future parent, subsidiaries or affiliates, nor their officers, directors, shareholders, stock option plan committees, employees or agents shall have any liability to any optionee in the event (i) an option granted pursuant to Section 5(b) hereof does not qualify as an “Incentive Stock Option” as that term is used in Section 422(b) of the Code and the regulations thereunder; (ii) any optionee does not obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any option granted pursuant to Section 5(c) hereof is an “Incentive Stock Option.”

3

6.             Amendment, Supplement, Suspension and Termination

Options shall not be granted pursuant to this Plan after the expiration of ten years from the date the Plan is adopted by the Board of Directors of the Company. The Board of Directors reserves the right at any time, and from time to time, to amend or supplement this Plan in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors; provided, however, that such action shall not, without the consent of the optionee, affect options granted under the Plan prior to the actual date on which such action occurred. If an amendment or supplement of this Plan is required by the Code or the regulations thereunder to be approved by the shareholders of the Company in order to permit the granting of “Incentive Stock Options” (as that term is defined in Section 422 (b) of the Code and regulations thereunder) pursuant to the amended or supplemented Plan, such amendment or supplement shall also be approved by the shareholders of the Company in such manner as is prescribed by the Code and the regulations thereunder. If the Board of Directors voluntarily submits a proposed amendment, supplement, suspension or termination for shareholder approval, such submission shall not require any future amendments, supplements, suspensions or terminations (whether or not relating to the same provision or subject matter) to be similarly submitted for shareholder approval.

7.             Effectiveness of Plan

This Plan shill become effective on the date of its adoption by the Company’s Board of Directors, subject however to approval by the holders of the Company’s Common Stock in the manner as prescribed in the Code and the regulations thereunder. Options may be granted under this Plan prior to obtaining shareholder approval, provided such options shall not be exercisable until shareholder approval is obtained.

8.             General Conditions

a.             Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any employee the right to continue in the employ of the Company or any affiliated or subsidiary corporation or interfere in any way with the rights of the Company or any affiliated or subsidiary corporation to terminate his employment in any way.

b.             Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any director the right to continue as a director of the Company or any affiliated or subsidiary corporation or interfere in any way with the rights of the Company or any affiliated or subsidiary corporation, or their respective shareholders, to terminate the directorship of any such director.

c.             Corporate action constituting an offer of stock for sale to any person under the terms of the options to be granted hereunder shall be deemed complete as of the date when the Committee authorizes the grant of the option to the such person, regardless of when the option is actually delivered to such person or acknowledged or agreed to by him.

d.             The terms “parent corporation” and “subsidiary corporation” as used throughout this Plan, and the options granted pursuant to this Plan, shall (except as otherwise provided in the option form) have the meaning that is ascribed to that term when contained in Section 422(b) of

4

the Code and the regulations thereunder, and the Company shall be deemed to be the grantor corporation for purposes of applying such meaning.

e.             References in this Plan to the Code shall be deemed to also refer to the corresponding provisions of any future United States revenue law.

f.              The use of the masculine pronoun shall include the feminine gender whenever appropriate.

5

EX-10.5

Exhibit 10.5

STOCK OPTION AGREEMENT

To:

Grant Date:

Pursuant to MedQuist’s Stock Option Plan (the “Plan”) adopted May 29, 2002, you are hereby granted separate options, effective as of the grant date, to purchase that number of shares of common stock, no par value per share (the “Common Stock”), of Medquist Inc., a New Jersey corporation (“MedQuist”), set forth on, and at the respective, exercise prices per share indicated on, the attached Grant Detail Report.  Your option price is intended to equal at least the fair market value of the Common Stock as of the grant date.  Your right to exercise this option will vest in equal 20% installments on each of the first 3 anniversaries of the grant date.

This option shall terminate and is not exercisable on or after                  (the “Scheduled Termination Date”), except if terminated earlier as hereafter provided.

You may exercise your option by giving written notice to the Secretary of MedQuist on forms supplied by MedQuist at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase.  The payment may be in cash or any manner permitted under the Plan and by MedQuist.

Your option will, to the extent not previously exercised by you, terminate ninety (90) days after the date either (i) you cease to perform services for MedQuist or a subsidiary corporation of MedQuist, or (ii) MedQuist or a subsidiary corporation of MedQuist delivers or receives notice of an intention to terminate the employment relationship, regardless of whether or not a different effective date of termination is provided in such notice, whether such termination is voluntary or not, but not if your termination is due to disability, as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, a. amended (the “Code”), or death (but in no event later than the Scheduled Termination date).  After that date your service or employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on such termination date.  If you are employed by a subsidiary corporation of MedQuist, your employment shall be deemed to have terminated on the date your employer ceases to be a subsidiary corporation of MedQuist, unless you are on that date transferred to MedQuist or another subsidiary corporation of MedQuist.  Your employment shall not be deemed to have terminated if you are transferred from MedQuist to a subsidiary corporation of MedQuist, or vise versa, or from one subsidiary corporation of MedQuist to another subsidiary corporation of MedQuist.

If you die while employed by MedQuist or a subsidiary corporation of MedQuist, your legatee(s), distributee(s), executor or administrator, as the case may be, may, at any time within one year after the date of your death (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime.  It your employment by MedQuist or a subsidiary corporation of MedQuist is terminated by reason of your becoming disabled (within the meaning of Section

22(e)(3) of the Code and the regulations thereunder), you or your legal guardian or custodian may at any time within one year after the date of such termination (but in no event later than the Scheduled Terminated Date), exorcise the option as to any shares which you had a right to purchase and did not purchase prior to such termination.  Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to MedQuist prior to being allowed to exercise this option.

In the event of any change in the outstanding shares of the Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Committee deems in its sole discretion to be similar circumstances the number and kind of shares subject to this option and the option price of such shares will be appropriately adjusted in a manner to be determined in the sole discretion of the Committee or replaced with equal value as determined in the sole discretion of the Committee.

The option is not transferable otherwise than by will, the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder , and is exercisable during your lifetime only by you.  Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any right, as a shareholder of MedQuist.  MedQuist reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which MedQuist. deems in its sole discretion, that such delivery would violate a federal, state, local or securities exchange rule, regulation or law or any terms of this Agreement, a prior stock option agreement or a restrictive covenant in favor of MedQuist.

Notwithstanding anything to the contrary contained herein, this option is not exercisable during any period of time in which MedQuist deems that the exercisability of this option, the offer to sell the shares options hereunder, or the sale hereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause MedQuist to be legally obligated to issue or sell more shares than MedQuist is legally entitled to issue or sell.

At the time of issuance of securities pursuant to this Plan, MedQuist may require such restrictions, legends or other provisions as it deems necessary to comply with any federal or state securities law.

In the event this option is in any way inconsistent with the legal requirements of the Code or the regulations thereunder for an “incentive stock option,” this option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment.  The attached Grant Detail Report specifies which of your options are intended to be incentive stock options (if any) and which are intended to be non-qualified stock options (if any).

This option shall be subject to the terms of the Plan as in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part thereof.  In the event of any conflict between the terms of this option and the terms of the Plan, the terms of the Plan shall govern.

2

This option constitutes the entire understanding between MedQuist and you with respect to the subject matter hereof and no amendment, modification or waiver of this option, in whole or in part, shall be binding upon MedQuist unless in writing and signed by a member or designee of the Compensation Committee of MedQuist.

Your exercise will not be completed until you have paid or made suitable arrangements to pay, (i) all federal, state and local income tax withholding required to be withheld by the Company in connection with the option exercise and (ii) the employee’s portion of other federal, state and local payroll and other taxes due in connection with the option exercise.

This grant is in partial consideration of your prior execution, delivery and performance of a Confidentiality and Non-Solicitation Agreement or similar agreement between you and MedQuist or any of its direct or indirect subsidiaries containing confidentiality, non-solicitation or other restrictive covenants (a “Noncompetition Agreement”).  If you have not previously executed a Noncompetition Agreement with the Company, you hereby agree to the confidentiality and noninterference provisions set forth on Attachment A, which shall then be considered the Noncompetition Agreement for purposes of interpreting this Agreement.  If you breach the terms of your Noncompetition Agreement, all of the options granted hereunder or granted to you previously shall expire immediately and the grant(s) shall be deemed void.  In the event of such a breach, if you have exercised any such options within 12 months prior to or any time after the breach, you shall be obligated to refund to MedQuist immediately an amount equal to the fair value of the Common Stock on the date of such exercise (less the exercise price paid by you) plus subsequent increase in value of MedQuist stock.  The foregoing is separate from and in addition to any other legal or equitable remedies to which the Company may be entitled as a result of such a breach.  If a court determines that all or a portion of your Noncompetition Agreement is not enforceable, then this Stock Option Agreement shall be void.

Validity, interpretation, construction, performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without regard to its conflict of law principles.  The parties fully agree that the exclusive venue of any action arising out of this Agreement and any Non-Competition Agreement shall be in the Superior Court of Burlington County, New Jersey, any other court of the State of New Jersey having jurisdiction and value over an action arising out of this agreement, or the United States District Court for the District of New Jersey.

Please sign the copy of this option and return it to MedQuist’s Secretary, thereby indicating your understanding of and agreement with its terms and conditions.

	MEDQUIST INC.
(SEAL)	By:
	Name:
	Title:
	(On Behalf of the Compensation Committee)

3

I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions.

	(Date)
(Signature)

4

ATTACHMENT A TO STOCK OPTION AGREEMENT

Confidentiality And Noninterference

a.             You covenant and agree that, in consideration of the grant to you of this stock option, you will not, during your employment with the Company or at any tine for two (2) years thereafter (except trade secrets shall be further protected so long as they remain trade secrets), directly or indirectly, disclose, communicate or divulge to any individual or entity, or use for the benefit of any individual or entity, any knowledge or information with respect to the conduct or details of the Company’s business which you, acting reasonably, believe or should believe to be of a confidential nature and the disclosure of which not to be in the Company’s interest.  You agree that all work performed by you for the Company is the sole property of the Company and the Company is the sole owner of all the results and proceeds of your services for the Company.  Information of a confidential nature shall specifically include, without limitation, client lists, pricing information, software, trade secrets, business methods and know how, employee, and contractor lists and contact information, and information about costs, markets, sales, product and technical and business processes.

b.             In consideration of the grant to you of this stock option, you will not, during your employment and for a period of two (2) years thereafter, directly or indirectly, whether as an employee, owner, partner, consultant, agent, director, officer, shareholder or in any other capacity, engage in or be employed by any prohibited business in your territory.  For purposes of the foregoing, a prohibited business means the medical transcription processing services and dictation business and your territory means the geographic territory in which you had business dealings while employed by the Company.  If you are a Georgia resident, the foregoing shall only apply to the extent you perform duties and activities similar to those you performed for the company within 100 miles of Atlanta, Georgia.

c.             You covenant and agree that, in consideration of the grant to you of this stock option, you will not, for a period of two years after your employment with the Company ceases for any reason whatsoever (whether voluntary or not), except with the express prior written consent of the Company, directly or indirectly, whether as employee, owner, partner, consultant, agent, director, officer, shareholder or in any other capacity, for your own account or for the benefit of any individual or entity, (i) solicit any customer of the Company with whom you had dealing while employed by the Company for business which would result in such customer terminating their relationship with the Company, or (ii) hire or engage, or solicit or induce any individual or entity which is an employee or contractor of the Company with whom you had dealings while employed by the Company to leave the Company or to otherwise terminate their relationship with the Company.

d.             The parties agree that any breach by you of any of the covenants or agreements contained in this Attachment A will result in irreparable injury to the Company for which money damages could not adequately compensate the Company and therefore, in the event of any such breach, the Company shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court enjoining and restraining you and/or any other individual or entity involved therein from continuing such

5

breach.  The existence of any claim or cause of action which you may have against the Company or any other individual or entity shall not constitute a defense or bar to the enforcement of such covenants.  If the Company is obliged to resort to the courts for the enforcement of any of the covenants or agreement contained in this Attachment A or if such covenant. or agreements are otherwise the subject of litigation between the parties, and the Company prevails in such enforcement or litigation, then the term of such covenants and agreements shall be extended for a period of time equal to the period of such breach, which extension shall commence on the later of (a) the date on which the original (unextended) term of such covenants and agreements is scheduled to terminate or (b) the date of the final court order (without further right of appeal) enforcing such covenant or agreement.

e.             If any portion of the Covenants or agreements contained in this Attachment A, or the application hereof, is construed to be invalid or unenforceable, the other portions of such covenant(s) or agreement(s), or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or enforceable portions to the fullest extant possible.  If any covenant or agreement in this Attachment A is held unenforceable because of the area covered, the duration thereof, or the scope thereof, then the court making such determination shall have the power to reduce the area and/or duration and/or limit the scope thereof, and the covenant or agreement shall then be enforceable in its reduced form.

f.              For purposes of this Attachment A, the term “the Company” shall include the Company, any successor to the Company and all present and future direct and indirect subsidiaries and affiliates of the Company.

6

EX-10.6

Exhibit 10.6

MEDQUIST INC.
1996 EMPLOYEE STOCK PURCHASE PLAN

1.             PURPOSE.

This 1996 Employee Stock Purchase Plan (the “Plan”) is intended to encourage and facilitate the purchase of the Common Stock of MedQuist Inc. (the “Company”), by employees of the Company, thereby providing employees with a personal stake in the Company and a long range inducement to remain in the employ of the Company. It is the intention of the Company to have the Plan qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

2.             DEFINITIONS.

2.1.          Board.  The “Board” is the Board of Directors of the Company.

2.2.          Common Stock.  The “Common Stock” is MedQuist Inc. Common Stock, no par value.

2.3.          Eligible Compensation.  The “Eligible Compensation” of each Participant is his or her regular rate of base compensation for a Grant Period determined as of the first day of the Grant Period on which the Participant is an Eligible Employee. “Eligible Compensation” does not include management incentives, variable commissions, bonuses, overtime, shift differentials, COLA adjustments, extended work-week premiums, amounts paid or accrued with respect to any qualified or nonqualified plan of deferred compensation or other employee welfare plan, payments for group insurance, hospitalization and similar benefits, perquisites reported as income, reimbursement for expenses and other forms of extraordinary pay. An employee’s base pay shall be calculated by multiplying the employee’s normal rate of pay as of the first day of the Grant Period on which the employee is an Eligible Employee by the number of pay periods between said first day and the end of the Grant Period.

2.4.          Eligible Employee.  An “Eligible Employee” is an employee of the Company or of a Designated Subsidiary; provided, however, that the term “Eligible Employee” shall not include:

2.4.1.       Employees who are scheduled to work less than twenty (20) hours per week or less than five (5) months during the Grant Period; or

2.4.2.       Any employee who, immediately after the close of a Grant Period, owns five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its subsidiaries as determined pursuant to Section 424(e) and (f) of the Code. For purposes of this Subsection 2.4.2 the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of an employee, and stock which the employee may purchase under outstanding options, whether or not granted under this Plan, shall be treated as stock owned by the employee.

2.5.          Exercise Dates. The “Exercise Dates” are June 30 and December 31 of each year.

2.6.          Fair Market Value. The “Fair Market Value” per share on any date shall be the last reported sale price of a Share of Common Stock on such date on the NASDAQ National Market or other over-the-counter market, the American Stock Exchange, or any other exchange on which the Common Stock is listed, or if no sale took place on such day, the last date on which a sale took place or, if none of the foregoing applies, a price determined by the Board of Directors.

2.7.          Grant Period. “Grant Periods” shall begin each January 1 and July 1, and shall end on the next June 30 and December 31, respectively.

2.8.          Participant. A “Participant” is an Eligible Employee of the Company who elects to participate in the Plan by filing an enrollment form with the Company as provided in Section 6.

2.9.          Purchase Price. The “Purchase Price” of a share of Common Stock shall be determined on the first and last days of each Grant Period, and shall be such amount as the Committee may determine from time to time, but in no event less than 85% of Fair Market Value on such date. Effective on the date of adoption of this Plan, and until such time that the Committee provides otherwise, the Purchase Price as of any date shall be 90% of Fair Market Value.

3.             ADMINISTRATION.

3.1.          The Plan shall be administered by a committee (the “Committee”) selected by the Board. The Committee shall consist of not less than three (3) members who are members of the Board of Directors. An individual will not be eligible to serve on the Committee if the individual is a Participant. Each member of the Committee shall serve for a term commencing on a date specified by the Board and continuing until such member dies, resigns, becomes a Participant or is removed from office by the Board.

3.2.          From time to time the Committee may adopt such rules and regulations for carrying out the Plan as it may deem proper and in the best interest of the Company. All determinations of the Committee shall be made by a majority of its members. The interpretation of any provision of the Plan by the Committee shall be final and the Board shall adopt and place into effect the determinations of the Committee.

4.             STOCK SUBJECT TO THE PLAN.

The stock subject to options under the Plan shall be authorized but unissued shares of the Company’s Common Stock. The aggregate amount of stock for which options may be granted under the Plan shall be 250,000 shares, subject to adjustment in accordance with Section 12. In the event that an option granted under the Plan to any Participant is unexercised at the end of a Grant Period as to any shares covered thereby, such shares thereafter shall be available for the granting of options under the Plan.

2

5.             GRANT OF OPTION.

Options will be granted on the first and last day of each Grant Period. All Participants granted options under the Plan shall have the same rights and privileges. On each such date, each Participant who is an Eligible Employee on the first day of the Grant Period shall be granted an option by the Board to purchase whole shares of Common Stock. The maximum number of shares of Common Stock for which each Participant shall be granted an option on each date shall equal ten percent (10%) of the Participant’s Eligible Compensation divided by the Purchase Price on such date. The number of shares elected to be purchased shall be determined by the amount of compensation designated by the Participant to be applied to such purchase. In the event that the maximum number of shares to be granted to all Participants on any date (determined according to the formula above) exceeds the total number of shares available for sale under the Plan pursuant to Section 4, the Committee shall make a pro rata allocation of the available shares among all Participants on such date based upon a uniform relationship to the Eligible Compensation of all Participants in effect on the date. The Committee may on the first day of each Grant Period decrease the percentage of Eligible Compensation set forth above to calculate the number of shares of Common Stock for which an Eligible Employee shall be granted options to a minimum of five percent (5%) or increase it to a maximum of twenty percent (20%). Notwithstanding the foregoing, in the event options are granted prior to the approval of this Plan by stockholders owning a majority of the common stock of the Company, such grant is expressly conditioned on subsequent approval of the Plan by the stockholders. Furthermore, both the grant and the exercise of any options under this Plan are expressly conditioned on the effective and continuing registration of this Plan under the Securities Act of 1933 or an available exemption from registration and effective registration or available exemption from registration under applicable state securities laws.

6.             ENROLLMENT, PAYROLL DEDUCTIONS AND CASH PAYMENTS.

6.1.          An employee who is not a Participant and who will be an Eligible Employee on the first day of a Grant Period may become a Participant pursuant to such procedure as the Company shall prescribe.

6.2.          Completion of an enrollment form in such a manner as the Company prescribes will allow an Eligible Employee to become a Participant by authorizing a regular payroll deduction from the Participant’s Eligible Compensation on each pay day during the Grant Period at a rate which will result in not less than a five dollar ($5.00) deduction per pay day and which will not exceed the percentage of the Participant’s Eligible Compensation designated by the Committee under Section 5 with respect to which an option to purchase shares has been granted.

6.3.          A participant’s payroll deductions shall be retained in the Company’s general corporate account and shall be credited to the Participant’s stock purchase account under the Plan. No interest shall accrue on the amount credited to a Participant’s stock purchase account. Except as provided in Section 6.2, a Participant may not make any separate cash payment into his or her account. A Participant may change the amount of the payroll deduction and thereby elect to increase or decrease the number of shares of Common Stock the Participant has an option to purchase during the Grant Period.

3

6.4.          Payroll deductions for a Participant for each Grant Period shall commence on the first pay day following the first day of the Grant Period on which the Participant is an Eligible Employee and shall end on the last pay day prior to the end of the Grant Period, unless sooner terminated by the Participant as provided in Section 8.

6.5.          Individual stock purchase accounts will be maintained for each Participant in the Plan. A statement shall be provided to each Participant, at such time and in such manner as the Company shall prescribe, which sets forth the amount of the Participant’s payroll deductions and any cash payments, the per share Purchase Price, the number of shares purchased, and the amount of the remaining balance, if any, credited to the Participant’s stock purchase account.

7.             EXERCISE OF OPTION.

7.1.          On the Exercise Date in each Grant Period, each Participant shall be deemed to have exercised an option to purchase such number of whole shares of Common Stock as the credit to the Participant’s stock purchase account on the Exercise Date will pay for at the lesser of the Purchase Price as determined as of the first day of the Grant Period and the Purchase Price as determined as of the last day of the Grant Period. No fractional shares of Common Stock shall be purchased. During the Participant’s lifetime, the option to purchase shares of Common Stock under the Plan is exercisable only by the Participant.

7.2.          Any amount remaining credited to a Participant’s stock purchase account on an Exercise Date, after the purchase of shares as provided above, shall continue to be credited to a Participant’s stock purchase account and shall be available to be applied to the purchase of Common Stock on the next Exercise Date.

7.3.          No Participant may be granted an option under the Plan which would permit such employee’s rights to purchase stock under all such employee stock purchase plans of the Company or its Subsidiaries to accrue at a rate which exceeds $25,000 in Fair Market Value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.

7.4.          Shares of Common Stock purchased by a Participant under the Plan will be issued only in the name of the Participant, or if the Participant so indicates on his or her enrollment form or in writing, in the name of the Participant and any other person as joint tenants with rights of survivorship.

7.5.          As promptly as practicable after each Exercise Date of the Grant Period, the Company shall cause the number of shares purchased by each Participant to be registered on the stock transfer records of the Company in the name of the Participant.

8.             WITHDRAWAL.

A Participant, at any time and for any reason, may terminate participation in the Plan by delivering written notice of withdrawal to the Participant’s appropriate payroll office. If a Participant withdraws from the Plan, the Participant shall not be eligible to again participate in the Plan for six (6) months thereafter, and the balance in the Participant’s stock purchase account

4

will be promptly refunded after receipt by the Company of the Participant’s notice of withdrawal.

9.             TERMINATION OF EMPLOYMENT OR ELIGIBILITY.

9.1.          If the employment of a Participant terminates, such Participant’s participation in the Plan automatically and without any act on his or her part shall terminate as of the date of the termination of his or her employment. The Company promptly will pay to the Participant the amount credited to his or her stock purchase account under the Plan (without interest), and thereupon the Participant’s interest in the Plan and any options under the Plan shall terminate.

9.2.          In the event a Participant fails to meet the requirements of an Eligible Employee under the Plan on the Exercise Date in the Grant Period, as set forth in Section 2.4, the Participant will be deemed to have withdrawn from the Plan and the payroll deductions credited to such Participant’s account will be promptly refunded to the Participant and no option to purchase shares of Common Stock shall be granted to such Participant.

9.3.          A Participant’s withdrawal from participation in the Plan during a Grant Period shall preclude (i) such Participant’s eligibility to participate in the Plan, and (ii) such Participant’s eligibility to participate in any similar plan which has been or may be adopted by the Company, for a period of six (6) months thereafter.

10.           TRANSFERABILITY.

Neither payroll deductions or cash payments credited to a Participant’s stock purchase account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 8.

11.           RIGHTS OF A STOCKHOLDER.

Each Participant shall have the rights or privileges of a stockholder of the Company with respect to shares purchased under the Plan when the shares have been registered in the name of the Participant on the stock transfer records of the Company.

12.           CAPITAL ADJUSTMENT AFFECTING COMMON STOCK.

In the event of a capital adjustment resulting from a recapitalization, stock dividend, stock split, reorganization, merger, consolidation or other change in capitalization affecting the present Common Stock, the Board may, at its option, terminate the Plan or make appropriate adjustments in the number of shares which may be issued and sold under the Plan and may make such other adjustments as it may deem equitable.

5

13.           TERMINATION AND AMENDMENTS TO PLAN.

The Board, at any time, may terminate the Plan or from time to time, may amend the Plan without the approval of the stockholders of the Company subject to Section 21 hereof; provided, however, that no such amendment shall be made without the stockholders’ approval which would (i) cause the Plan to fail to meet the requirements of an “employee stock purchase plan” as defined in Section 423 of the Code, or (ii) permit a Participant to be a member of the Committee.

14.           TERMINATION OF THE PLAN.

Upon termination of the Plan, the amount credited to the stock purchase accounts for all Participants shall be refunded promptly. The Exercise Dates may be accelerated by the Company in the event of a termination of the Plan.

15.           NON-GUARANTEE OF EMPLOYMENT.

Nothing in the Plan or in any option granted pursuant to the Plan shall be construed as a contract of employment between the Company and its employees, or as a contractual right to continue in the employ of the Company, or as a limitation of the right of the Company to discharge its employees at any time.

16.           EXCLUSION FROM RETIREMENT AND FRINGE BENEFIT COMPUTATION.

No portion of the award of options under this Plan shall be taken into account as “wages,” “salary” or “compensation” for any purpose, whether in determining eligibility, benefits or otherwise, under (i) any pension, retirement, profit sharing or other qualified or non-qualified plan of deferred compensation, (ii) any employee welfare or fringe benefit plan including, but not limited to, group insurance, hospitalization, medical, and disability, or (iii) any form of extraordinary pay including but not limited to bonuses, sick pay and vacation pay.

17.           LIABILITY LIMITED; INDEMNIFICATION.

17.1.        To the maximum extent permitted by New Jersey law, neither the Company, Board or Committee nor any of its members, shall be liable for any action or determination made with respect to this Plan.

17.2.        In addition to such other rights of indemnification that they may have, the members of the Board and Committee shall be indemnified by the Company to the maximum extent permitted by New Jersey law against any and all liabilities and expenses incurred in connection with their service in such capacity.

18.           GOVERNMENTAL REGULATIONS.

The Company’s obligation to sell and deliver the Common Stock under the plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such stock.

6

19.           STOCKHOLDER APPROVAL.

The Plan shall be subject to the approval of the stockholders owning a majority of the outstanding shares of the Common Stock, which approval must occur within the period beginning twelve (12) months before and ending twelve (12) months after the date the Plan is adopted by the Board.

20.           OTHER TERMS AND CONDITIONS.

The Committee may impose such other terms and conditions not inconsistent with the terms of the Plan, as it deems advisable, including, without limitation, restrictions and requirements relating to (i) the registration, listing or qualification of the Common Stock, (ii) the grant or exercise of options, or (iii) the shares of Common Stock acquired under the Plan. The Committee may require that a Participant notify the Company of any disposition of shares of Common Stock purchased under the Plan within a period of two (2) years subsequent to the Grant Date of the options exercised to purchase those shares.

21.           SECTION 16 COMPLIANCE.

Any person who is an officer or director of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended, is required to comply with the requirements of Rule 16b-3 of such act, as it may be amended from time to time.

22.           MISCELLANEOUS.

22.1.        The headings in this Plan are for reference purposes only and shall not affect the meaning or interpretation of the Plan.

22.2.        Any provision in this Plan which adversely affects the validity or qualification of this Plan under Section 423 of the Code shall be deemed null and void without affecting the remaining provisions of this Plan.

22.3.        This Plan shall be governed by, and construed in accordance with, the laws of New Jersey, without regard to principles of conflict of laws.

22.4.        All notices and other communications made or given pursuant to this Plan shall be in writing and shall be sufficiently made or given if delivered or mailed, addressed to the employee at the address contained in the records of the Company or to the Company at the Company’s principal office.

[Corporate Seal]	MedQuist Inc.
	By:
	Dated:

7

EX-10.7

Exhibit 10.7

MEDQUIST INC.

EXECUTIVE DEFERRED COMPENSATION PLAN

Originally Effective January 1, 2001
Amended and Restated Effective November 15, 2001

ARTICLE 1
PURPOSE

In recognition of the services provided by certain key employees, the Board of Directors of MedQuist Inc. hereby adopts the MedQuist Inc. Executive Deferred Compensation Plan to make additional retirement benefits and increased financial security available on a tax-favored basis to those individuals.

ARTICLE 2
DEFINITIONS

“Affiliate” means (a) any firm, partnership, or corporation that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with MedQuist Inc. and (b) any other organization similarly related to MedQuist Inc. that is designated as such by the Board.

“Beneficiary” means the person or persons designated as such in accordance with Section 12.3.

“Board” means the Board of Directors of MedQuist Inc.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the MedQuist Inc. Compensation Committee.

“Company” means MedQuist Inc. and each such subsidiary, division or Affiliate identified in Appendix A as may from time to time participate in the Plan by or pursuant to authorization of the Board and the board of directors of such subsidiary, division or Affiliate.

“Compensation” means, for any Eligible Employee, for any Plan Year, the Participant’s total taxable income received from the Company with respect to such Plan Year, including, but not limited to, base earnings, regular bonuses, commissions and overtime, plus pre-tax contributions and elective contributions that are not includible in gross income under section 125, 402(a)(8) or 402(h) of the Code, and excluding income recognized in connection with stock-related options and payments, reimbursements and other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare benefits, as determined pursuant to guidelines established and revised by the Plan Administrator from time to time and communicated to Eligible Employees.

“Tier 1 Compensation” means the amount of a Participant’s Compensation to the Social Security Wage Base for the Plan Year of determination.

“Tier 2 Compensation” means the amount of the Participant’s Compensation in excess of the Social Security Wage Base and up to Tier 3 Compensation.

“Tier 3 Compensation” means the excess of the Participant’s Compensation over the compensation limit of section 401(a)(17) of the Code, as in effect from time to time.

“Compensation Deferral” means that portion of Compensation as to which a Participant has made an annual election to defer receipt until the date specified under the In-Service Distribution Option or the Retirement Distribution Option.

“Disability” means a disability of an Employee which renders such Employee unable to perform the full extent of his duties and responsibilities by reason of his illness or incapacity which would entitle that Employee to receive Social Security Disability Income under the Social Security Act, as amended, and the regulations promulgated thereunder.  “Disabled” means having a Disability.  The determination of whether a Participant is Disabled shall be made by the Plan Administrator, whose determination shall be conclusive; provided that,

(a)           if a Participant is bound by the terms of an employment agreement between the Participant and the Employer, whether the Participant is “Disabled” for purposes of the Plan shall be determined in accordance with the procedures set forth in said employment agreement, if such procedures are therein provided; and

(b)           a Participant bound by such an employment agreement shall not be determined to be Disabled under the Plan any earlier than he would be determined to be disabled under his employment agreement.

“Distribution Option” means the two distribution options which are available under the Plan, consisting of the Retirement Distribution Option and the In-Service Distribution Option.

“Distribution Option Account(s)” means, with respect to a Participant, the Retirement Distribution Account and/or the In-Service Distribution Account established on the books of account of the Company, pursuant to Section 5.1, for each Distribution Option Period.

“Distribution Option Period” means, in general, a period for which an Eligible Employee elects, in the Enrollment Agreement, the time and manner of payment of amounts credited to the Eligible Employee’s In-Service Distribution Option Account for such period.  The first Distribution Option Period shall apply with respect to deferrals of Compensation credited from January 1, 2001 to December 31, 2005.  Thereafter, a new Distribution Option Period will begin every five years.

“Earnings Crediting Options” means the deemed investment options selected by the Participant from time to time pursuant to which deemed earnings are credited to the Participant’s Distribution Option Accounts.

“Eligible Employee” means an Employee who is a member of a group of selected management and/or highly compensated Employees of the Company and who is designated by the Plan Administrator as eligible to participate in the Plan.

2

“Employee” means any individual employed by the Company on a regular, full-time basis (in accordance with the personnel policies and practices of the Company), including citizens of the United States employed outside of their home country and resident aliens employed in the United States; provided, however, that to qualify as an “Employee” for purposes of the Plan, the individual must be a member of a group of “key management or other highly compensated employees” within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended; provided further, that individuals who are not on an employee payroll of the Company or who have entered into an agreement with the Company which excludes them from participation in the Plan shall not be eligible to participate in the Plan.

“Employer” means MedQuist Inc. and its Affiliates.

“Enrollment Agreement” means the authorization form which an Eligible Employee files with the Plan Administrator to participate in the Plan.

“In-Service Distribution Account” means the Account maintained for a Participant for each Distribution Option Period to which Compensation Deferrals are credited pursuant to the In-Service Distribution Option.

“In-Service Distribution Option” means the Distribution Option pursuant to which benefits are payable in accordance with Section 7.2.

“Matching Contributions” are contributions credited to the Participant’s Retirement Distribution Account by the Company pursuant to Section 4.3.

“Participant” means an Eligible Employee who has filed a completed and executed Enrollment Agreement with the Plan Administrator or its designee and is participating in the Plan in accordance with the provisions of Article 4.  In the event of the death or incompetency of a Participant, the term shall mean his personal representative or guardian.  An individual shall remain a Participant until that individual has received full distribution of any amount credited to the Participant’s Distribution Option
Account(s).

“Plan” means the MedQuist Inc. Executive Deferred Compensation Plan, as amended from time to time.

“Plan Administrator” means the Committee.

“Plan Year” means the 12-month period beginning on each January 1 and ending on the following December 31.

“Retirement” means the termination of the Participant’s Service with the Employer (for reasons other than death) at or after age 55.

“Retirement Distribution Account” means the Account maintained for a Participant to which Compensation Deferrals and Matching Contributions are credited pursuant to the Retirement Distribution Option.

3

“Retirement Distribution Option” means the Distribution Option pursuant to which benefits are payable in accordance with Section 7.1.

“Service” means the period of time during which an employment relationship exists between an Employee and the Company, including any period during which the Employee is on an approved leave of absence, whether paid or unpaid.  “Service” also includes employment with an Affiliate if an Employee transfers directly between the Company and the Affiliate.

“Termination Date” means the date of termination of a Participant’s Service with the Employer, determined without reference to any compensation continuing arrangement or severance benefit arrangement that may be applicable.

ARTICLE 3
ADMINISTRATION OF THE PLAN AND DISCRETION

3.1.          The Committee, as Plan Administrator, shall have full power and authority to interpret the Plan, to prescribe, amend and rescind any rules, forms and procedures as it deems necessary or appropriate for the proper administration of the Plan and to make any other determinations and to take any other such actions as it deems necessary or advisable in carrying out its duties under the Plan.  All action taken by the Plan Administrator arising out of, or in connection with, the administration of the Plan or any rules adopted thereunder, shall, in each case, lie within its sole discretion, and shall be final, conclusive and binding upon the Company, the Board, all Employees, all Beneficiaries of Employees and all persons and entities having an interest therein.  The Committee, may, however, delegate to any person or entity any of its powers or duties under the Plan.  To the extent of any such delegation, the delegate shall become the Plan Administrator responsible for administration of the Plan, and references to the Plan Administrator shall apply instead to the delegate.  Any action by the Committee assigning any of its responsibilities to specific persons who are all trustees, officers, or employees of the Company shall not constitute delegation of the Committee’s responsibility but rather shall be treated as the manner in which the Committee has determined internally to discharge such responsibility.

3.2.          The Plan Administrator shall serve without compensation for its services unless otherwise determined by the Board.  All expenses of administering the Plan shall be paid by the Company.

3.3.          The Company shall indemnify and hold harmless the Plan Administrator from any and all claims, losses, damages, expenses (including counsel fees) and liability (including any amounts paid in settlement of any claim or any other matter with the consent of the Board) arising from any act or omission of such member, except when the same is due to gross negligence or willful misconduct.

3.4.          Any decisions, actions or interpretations to be made under the Plan by the Company, the Board or the Plan Administrator shall be made in its respective sole discretion, not

4

as a fiduciary and need not be uniformly applied to similarly situated individuals and shall be final, binding and conclusive on all persons interested in the Plan.

ARTICLE 4
PARTICIPATION

4.1.          Election to Participate.

(a)           Timing of Election to Participate.  Any Eligible Employee may enroll in the Plan effective as of the first day of a Plan Year by filing a completed and fully executed Enrollment Agreement with the Plan Administrator by a date set by the Plan Administrator.

(i)            Base Salary.  With respect to the deferral of Compensation that is classified as base salary by the Company, an executed Enrollment Agreement must be filed by December 31 of the Plan Year preceding the Plan Year in which such base salary is to be earned, or such earlier time as may be established by the Plan Administrator.

(ii)           Bonus — General.  With respect to the deferral of Compensation that is classified by the Company as bonus, an executed Enrollment Agreement must be filed by June 30 of the Plan Year in which such bonus is earned, or such earlier time as may be established by the Plan Administrator.

(iii)          Bonus — 2001 Plan Year.  For the Plan Year commencing on January 1, 2001, an executed Enrollment Agreement must be submitted by December 31, 2000 and shall be effective for bonuses earned in 2000 and payable in January 2001.

(iv)          Bonus — 2002 Plan Year.  For the Plan Year commencing on January 1, 2002, an executed Enrollment Agreement must be submitted by November 30, 2001 and shall be effective for bonuses earned in 2001 and payable in January 2002.

(v)           Revocation of Election.  Once each Plan Year, a Participant may cancel his deferral election with respect to Compensation that is classified by the Company as base salary, provided that such cancellation is communicated to the Company in writing and shall be effective for all base salary earned for the remainder of the Plan Year.  Elections with respect to bonuses are irrevocable.

(b)           Amount of Deferral.

(i)            Maximum Deferral.  Pursuant to said Enrollment Agreement, the Eligible Employee shall irrevocably elect the percentages by which (as a result of payroll deduction) an amount equal to any whole percentage of the Participant’s Compensation, up to 15 percent of base salary (or such other maximum percentage as may be approved by the Plan Administrator and communicated to Participants) and 90 percent of bonus (or such other maximum percentage as may be approved by the Plan Administrator and

5

communicated to Participants) will be deferred; provided however, that deferrals will  be made after required non-deferrable payroll tax deductions and any deductions elected by the Participant (including, but not limited to, deductions for payment of health insurance premiums).

(ii)           Minimum Deferral.  The Plan Administrator may establish minimum amounts that may be deferred under this Section 4.1 and may change such standards from time to time.  Any such limit shall be communicated by the Plan Administrator to the Participants prior to the commencement of a Plan Year.

(iii)          Deferrals by Compensation Tier.  Participants may elect to defer separate percentages of Compensation, based on whether the Compensation is Tier 1 Compensation, Tier 2 Compensation, or Tier 3 Compensation.

(c)           Accounts to Which Amounts Credited.  Pursuant to said Enrollment Agreement, the Eligible Employee shall elect the Distribution Option Accounts to which such amounts will be credited, and shall provide such other information as the Plan Administrator shall require.

(d)           Form of Distribution from Accounts.  The first Enrollment Agreement filed by an Eligible Employee during any Distribution Option Period must also set forth the Participant’s election as to the time and manner of distribution from the Retirement Distribution Account and the In-Service Distribution Account and of amounts credited for that Distribution Option Period and related earnings.

4.2.          New Eligible Employees.  The Plan Administrator may, in its discretion, permit Employees who first become Eligible Employees after the beginning of a Plan Year to enroll in the Plan for that Plan Year by filing a completed and fully executed Enrollment Agreement, in accordance with Section 4.1, as soon as practicable following the date the Employee becomes an Eligible Employee but, in any event, not later than 30 days after such date.  Notwithstanding the foregoing, however, any election by an Eligible Employee to defer compensation pursuant to this Section 4.2 shall apply only to such amounts as are earned by the Eligible Employee after the date on which such Enrollment Agreement is filed.

4.3.          Matching Contributions.  If the Administrator so elects, Matching Contributions may be credited to a Participant’s Retirement Distribution Account in amount equal to a specified percentage of Compensation that is deferred pursuant to the Plan; provided that Matching Contributions shall only be credited with respect to Compensation that is classified by the Company as base salary.  The availability of Matching Contributions in any Plan Year shall be communicated to Participants in advance of the Plan Year.

ARTICLE 5
DISTRIBUTION OPTION ACCOUNTS

5.1.          Distribution Option Accounts.  The Plan Administrator shall establish and maintain separate Distribution Option Accounts with respect to a Participant for each Distribution Option Period.  A Participant’s Distribution Option Accounts shall consist of the

6

Retirement Distribution Account and/or one or more In-Service Distribution Accounts.  The amount of Compensation deferred pursuant to Section 4.1 or Section 4.2 shall be credited by the Company to the Participant’s Distribution Option Accounts, in accordance with the Distribution Option irrevocably elected by the Participant in the Enrollment Agreement, as soon as reasonably practicable following the close of the payroll period or bonus payment date for which the deferred Compensation would otherwise be payable, as determined by the Plan Administrator in its sole discretion.  Any amount once taken into account as Compensation for purposes of this Plan shall not be taken into account thereafter.  Matching Contributions, when credited, as determined by the Plan Administrator in its sole discretion, are credited only to the Retirement Distribution Account.  The Participant’s Distribution Option Accounts shall be reduced by the amount of payments made by the Company to the Participant or the Participant’s Beneficiary pursuant to this Plan.

5.2.          Earnings on Distribution Option Accounts.

(a)           General.  A Participant’s Distribution Option Accounts shall be credited with earnings in accordance with the Earnings Crediting Options elected by the Participant from time to time.  Participants may allocate their Retirement Distribution Account and/or each of their In-Service Distribution Accounts among the Earnings Crediting Options available under the Plan only in whole percentages of not less than five percent.

(b)           Investment Options.  The deemed rate of return, positive or negative, credited under each Earnings Crediting Option is based upon the actual investment performance of (i) the corresponding investment portfolios of the EQ Advisers Trust, open-end investment management companies under the Investment Company Act of 1940, as amended from time to time, or (ii) such other investment fund(s) as the Company may designate from time to time, and shall equal the total return of such investment fund net of asset based charges, including, without limitation, money management fees, fund expenses and mortality and expense risk insurance contract charges.  The Company reserves the right, on a prospective basis, to add or delete Earnings Crediting Options.

5.3.          Earnings Crediting Options.  Notwithstanding that the rates of return credited to Participants’ Distribution Option Accounts under the Earnings Crediting Options are based upon the actual performance of the investment options specified in Section 5.2, or such other investment funds as the Company may designate, the Company shall not be obligated to invest any Compensation deferred by Participants under this Plan, Matching Contributions, or any other amounts, in such portfolios or in any other investment funds.

5.4.          Changes in Earnings Crediting Options.  A Participant may change the Earnings Crediting Options to which his Distribution Option Accounts are deemed to be allocated subject to such rules as may be determined by the Plan Administrator, provided that except as the Plan Administrator may otherwise determine in light of legal restrictions on changes, the frequency of permitted changes shall not be less than four times per Plan Year.  Each such change may include (a) reallocation of the Participant’s existing Accounts in whole percentages of not less than five percent, and/or (b) change in investment allocation of amounts to be credited to the Participant’s Accounts in the future, as the Participant may elect.  The effect

7

of a Participant’s change in Earnings Crediting Options shall be reflected in the Participant’s Accounts as soon as reasonably practicable following the Plan Administrator’s receipt of notice of such change, as determined by the Plan Administrator in its sole discretion.

5.5.          Valuation of Accounts.  Except as otherwise provided in Section 5.7, the value of a Participant’s Distribution Option Accounts as of any date shall equal the amounts theretofore credited to such Accounts, including any earnings (positive or negative) deemed to be earned on such Accounts in accordance with Section 5.2 and Section 5.4 through the day preceding such date, less the amounts theretofore deducted from such Accounts.

5.6.          Statement of Accounts.  The Plan Administrator shall provide to each Participant, not less frequently than quarterly, a statement in such form as the Plan Administrator deems desirable for setting forth the balance standing to the credit of each Participant in each of his Distribution Option Accounts.

5.7.          Distributions from Accounts.  Any distribution made to or on behalf of a Participant from one or more of his Distribution Option Accounts in an amount which is less than the entire balance of any such Account shall be made pro rata from each of the Earnings Crediting Options to which such Account is then allocated.  For purposes of any provision of the Plan relating to distribution of benefits to Participants or Beneficiaries, the value of a Participant’s Distribution Option Accounts shall be determined as of a date as soon as reasonably practicable preceding the distribution date, as determined by the Plan Administrator in its sole discretion.  In the case of any benefit payable in the form of a cash lump sum, the value of a Participant’s Distribution Option Accounts, as determined pursuant to this Section 5.7, shall be distributed.  In the case of any benefit payable in the form of annual installments, as of any payment date, the amount of each installment payment shall be determined as the quotient of (a) the value of the Participant’s Distribution Option Account subject to distribution, as determined pursuant to this Section 5.7, divided by (b) the number of remaining annual installments immediately preceding the payment date.

ARTICLE 6
DISTRIBUTION OPTIONS

6.1.          Election of Distribution Option.  In the first completed and fully executed Enrollment Agreement filed with the Plan Administrator for each Distribution Option Period, an Eligible Employee shall elect the time and manner of payment pursuant to which the Eligible Employee’s Distribution Option Accounts for that Distribution Option Period will be distributed.  Annually, the Eligible Employee shall allocate his or her deferrals between the Distribution Options in increments of ten percent.

6.2.          Retirement Distribution Option.  Subject to Section 7.1, distribution of the Participant’s Retirement Distribution Account, if any, shall commence upon (a) the Participant’s Retirement or (b) the Participant’s attainment of age 65, as elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Account was established or otherwise as permitted under Section 7.1(a).

8

6.3.          In-Service Distribution Option.  Subject to Section 7.2, the Participant’s In-Service Distribution Account for any Distribution Option Period shall be distributed commencing in the year elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established.  Notwithstanding the foregoing, a Participant shall not be entitled to allocate any deferrals to an In-Service Distribution Account for the two Plan Years preceding the Plan Year which includes the date on which such Account is to be distributed and such additional deferrals shall instead be allocated to the Retirement Distribution Account.

ARTICLE 7
BENEFITS TO PARTICIPANTS

7.1.          Benefits Under the Retirement Distribution Option.  Benefits under the Retirement Distribution Option shall be paid to a Participant as follows:

(a)           Benefits Upon Retirement.

(i)            General.  In the case of a Participant whose Service with the Employer terminates on account of his Retirement, the Participant’s Retirement Distribution Account shall be distributed in one of the following methods, as elected by the Participant in writing either in the Enrollment Agreement or in a separate election made prior to the date of the Participant’s Retirement: (x) in a lump sum; (y) in annual installments over 5, 10, 15 or 20 years; or (z) by any other formula that is mathematically derived and is acceptable to the Plan Administrator.

(ii)           Payment of Lump Sums.  Any lump-sum benefit payable in accordance with this paragraph shall be paid in the Plan Year following the Plan Year in which the Participant’s Retirement occurs, but not earlier than six months following such Retirement, or, if later, attainment of age 65 as elected by the Participant in accordance with this Section 7.1 or Section 6.2.

(iii)          Payment of Annual Installments.  Annual installment payments, if any, shall commence in the Plan Year following the Plan Year in which the Participant’s Retirement occurs, but not earlier than six months following such Retirement, or, if later, as soon as reasonably practicable following the Participant’s attainment of age 65, as elected by the Participant in accordance with this Section 7.1 or Section 6.2.

(b)           Changes in Forms of Distribution.  A Participant may change the election regarding the manner of payment of the Participant’s Retirement Distribution Account by filing a revised Enrollment Agreement prior to the Participant’s Retirement.

(c)           Changes in Timing of Distribution.  A Participant may change the election regarding the timing of the distribution to defer the date on which the distribution should commence by filing a revised Enrollment Agreement prior to the Participant’s Retirement.

(d)           Benefits Upon Termination of Employment.  In the case of a Participant whose Service with the Employer terminates prior to the earliest date on which the

9

Participant is eligible for Retirement, other than on account of becoming Disabled or by reason of death, the Participant’s Retirement Distribution Account shall be distributed (i) in a lump sum in the Plan Year following the Plan Year that includes the Participant’s Termination Date, but not earlier than six months following such termination, or (ii) beginning as soon as reasonably practicable in the Plan Year following the Participant’s attainment of age 55, but not earlier than six months following such termination, all as elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Account was established.  A Participant may file a revised Enrollment Agreement prior to termination on which such Participant elects that benefits be distributed in accordance with the preceding subsections (i) or (ii).  Notwithstanding the preceding provisions of this subsection (d), the Company may override a Participant’s election and cause a distribution under clause (i) notwithstanding any other election by the Participant.

(e)           Forfeiture.  If a Participant who became a participant in the MRC Group, Inc. Profit-Sharing and Savings Plan (the “401(k) Plan”) after January 1, 1997, terminates Service, other than due to Retirement, Disability or death, prior to being credited with five (5) years of service, as determined pursuant to the terms of the 401(k) Plan, all or a portion of the Participant’s Retirement Distribution Account attributable to Matching Contributions shall be forfeited, as follows:

Termination Prior to
Completion of Year	Portion Forfeited
3	100	%
4	80	%
5	60	%

7.2.          Benefits Under the In-Service Distribution Option.  Benefits under the In-Service Distribution Option shall be paid to a Participant as follows:

(a)           In-Service Distributions.  In the case of a Participant who continues in Service with the Employer, the Participant’s In-Service Distribution Account for any Distribution Option Period shall be paid to the Participant commencing in, but not later than January 31 of, the Plan Year irrevocably elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established, which may be no earlier than the third Plan Year following the end of the last Plan Year in the Distribution Option Period in which deferrals are to be credited to the In-Service Distribution Account for that Distribution Option Period, in one lump sum or in annual installments payable over 2, 3, 4, or 5 years.

(i)            Any lump-sum benefit payable in accordance with this paragraph shall be paid in, but not later than January 31 of, the Plan Year elected by the Participant in accordance with Section 6.3.

10

(ii)           Annual installment payments, if any, shall commence in, not later than January 31 of, the Plan Year elected by the Participant in accordance with Section 6.3.

(b)           Benefits Upon Termination of Employment.  In the case of a Participant whose Service with the Employer terminates prior to the date on which the Participant’s In-Service Distribution Account would otherwise be distributed, other than on account of becoming Disabled or by reason of death, such In-Service Distribution Account shall be distributed:  (i) in a lump sum in the Plan Year following the Participant’s Termination Date, (ii) in annual installments commencing on the date such In-Service Distribution Account would otherwise have been distributed, or (iii) in a lump sum on the date such In-Service Distribution Account would otherwise have been distributed, all as elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Account was established; provided, however, that no distribution shall be made, or commence, earlier than the later of the first day of the Plan Year following such termination or six months following termination.  A Participant may file a revised Enrollment Agreement prior to termination on which such Participant elects that benefits be distributed in accordance with the preceding subsections (i), (ii) or (iii).  Notwithstanding the preceding provisions of this subsection (b), the Company may override a Participant’s election and cause a distribution under clause (i) notwithstanding any other election by the Participant.

ARTICLE 8
DISABILITY

8.1.          In the event a Participant becomes Disabled, the Participant’s right to make any further deferrals under this Plan shall terminate as of the date the Participant terminates due to Disability.  The Participant’s Distribution Option Accounts shall continue to be credited with earnings in accordance with Section 5.2 until such Accounts are fully distributed.  For purposes of this Plan, a Disabled Participant will not be treated as having terminated Service.  The Participant’s Retirement Distribution Account, if any, shall be distributed to the Participant in accordance with Section 7.1(a), provided, however, that distribution of the Participant’s Retirement Distribution Accounts, if any, shall commence not later than January 31 of the Plan Year immediately following the later of (a) the Plan Year in which the Participant first becomes eligible for Retirement, or (b) the Plan Year in which the Participant first terminated due to Disability.  The Participant’s In-Service Distribution Accounts, if any, will be distributed to the Participant in accordance with Section 7.2(a) without regard to the fact that the Participant became Disabled.

ARTICLE 9
SURVIVOR BENEFITS

9.1.          Death of Participant Prior to the Commencement of Benefits.  In the event of a Participant’s death prior to the commencement of benefits in accordance with Article 7, benefits shall be paid to the Participant’s Beneficiary, as determined under Section 12.3, pursuant to Section 9.2 or 9.3, whichever is applicable, in lieu of any benefits otherwise payable under the Plan to or on behalf of such Participant.

11

9.2.          Survivor Benefits Under the Retirement Distribution Option.  In the case of a Participant with respect to whom the Company has established a Retirement Distribution Account, and who dies prior to the commencement of benefits under such Retirement Distribution Account pursuant to Section 7.1, distribution of such Retirement Distribution Account shall be made in the manner and at such time as elected by the Participant in the Enrollment Agreement pursuant to which such Retirement Distribution Account was established or as may have been changed by the Participant.

9.3.          Survivor Benefits Under the In-Service Distribution Option.  In the case of a Participant with respect to whom the Company has established one or more In-Service Distribution Accounts, and who dies prior to the date on which such In-Service Distribution Accounts are to be paid pursuant to Section 7.2, distribution of such In-Service Distribution Accounts shall be made at such time and in such form as irrevocably elected by the Participant in the Enrollment Agreement pursuant to which such In-Service Distribution Accounts were established.

9.4.          Death of Participant After Benefits Have Commenced.  In the event a Participant who dies after annual installment benefits payable under Section 7.1 and/or Section 7.2 from the Participant’s Retirement Distribution Account and/or In-Service Distribution Account has commenced, but before the entire balance of such Accounts has been paid, any remaining annual installments shall continue to be paid to the Participant’s Beneficiary, subject to Section 11.3, at such times and in such amounts as they would have been paid to the Participant had he survived.

ARTICLE 10
EMERGENCY BENEFIT

10.1.        In the event that the Plan Administrator, upon written request of a Participant, determines, in its sole discretion, that the Participant has suffered an unforeseeable financial emergency, the Company shall pay to the Participant from his Distribution Option Account, as soon as practicable following such determination, an amount necessary to meet the emergency, after deduction of any and all taxes as may be required pursuant to Section 12.9 (the “Emergency Benefit”).  For purposes of this Plan, an unforeseeable financial emergency is an unexpected need for cash arising from an illness, casualty loss, sudden financial reversal, or other such unforeseeable occurrence.  Cash needs arising from foreseeable events such as the purchase of a house or education expenses for children shall not be considered to be the result of an unforeseeable financial emergency.  Emergency Benefits shall be paid first from the Participant’s In-Service Distribution Accounts, if any, to the extent the balance of one or more of such InService Distribution Accounts is sufficient to meet the emergency, in the order in which such Accounts would otherwise be distributed to the Participant.  If the distribution exhausts the InService Distribution Accounts, the Retirement Distribution Account may be accessed.  With respect to that portion of any Distribution Option Account which is distributed to a Participant as an Emergency Benefit in accordance with this Article 10, no further benefit shall be payable to the Participant under this Plan.  Notwithstanding anything in this Plan to the contrary, a Participant who receives an Emergency Benefit in any Plan Year shall not be entitled to make any further deferrals for the remainder of such Plan Year.  It is intended that the Plan

12

Administrator’s determination as to whether a Participant has suffered an “unforeseeable financial emergency” shall be made consistent with the requirements under section 457(d) of the Code.

ARTICLE 11
ACCELERATED DISTRIBUTION

11.1.        Availability of Withdrawal Prior to Retirement.  Upon the Participant’s written election, the Participant may elect to withdraw all or a portion of the Participant’s Distribution Option Account at any time prior to the time such Distribution Option Account otherwise becomes payable under the Plan, provided the conditions specified in Section 11.3,  Section 11.4. and Section 11.5 are satisfied.

11.2.        Acceleration of Periodic Distributions.  Upon the Participant’s written election, the Participant or Participant’s Beneficiary who is receiving annual installment payments under the Plan may elect to have all or a percentage of the remaining annual installments distributed in the form of an immediately payable lump sum, provided the condition specified in Section 11.3 is satisfied.

11.3.        Forfeiture Penalty.  In the event of a withdrawal pursuant to Section 11.1, or an accelerated distribution pursuant to Section 11.2, the Participant shall forfeit from his Distribution Option Account from which the withdrawal is made an amount equal to 10% of the amount of the withdrawal or accelerated distribution, as the case may be.  The forfeited amount shall be deducted from the applicable Distribution Option Account prior to giving effect to the withdrawal or acceleration.  The Participant and the Participant’s Beneficiary shall not have any right or claim to the forfeited amount and the Company shall have no obligation whatsoever to the Participant, the Participant’s Beneficiary or any other person with regard to the forfeited amount.

11.4.        Minimum Withdrawal.  In no event shall the amount withdrawn in accordance with Section 11.1 be less than 25% of the amount credited to the Participant’s Distribution Option Account immediately prior to the withdrawal.

11.5.        Suspension from Deferrals.  In the event of a withdrawal pursuant to Section 11.1, a Participant who is otherwise eligible to make deferrals under Article 4 shall be prohibited from making any deferrals with respect to the Plan Year immediately following the Plan Year during which the withdrawal was made, and any election previously made by the Participant with respect to deferrals for the Plan Year of the withdrawal shall be void and of no effect with respect to subsequent deferrals for such Plan Year.

ARTICLE 12
MISCELLANEOUS

12.1.        Amendment and Termination.  The Plan may be amended, suspended, discontinued or terminated at any time by the Plan Administrator; provided, however, that no such amendment, suspension, discontinuance or termination shall reduce or in any manner

13

adversely affect the rights of any Participant with respect to benefits that are payable or may become payable under the Plan based upon the balance of the Participant’s Accounts as of the effective date of such amendment, suspension, discontinuance or termination.

12.2.        Claims Procedure.

(a)           Claim.  A person who believes that he is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Plan Administrator, setting forth the claim.

(b)           Claim Decision.  Upon receipt of a claim, the Plan Administrator shall advise the Claimant within ninety (90) days of receipt of the claim whether the claim is denied.  If special circumstances require more than ninety (90) days for processing, the Claimant will be notified in writing within ninety (90) days of filing the claim that the Plan Administrator requires up to an additional ninety (90) days to reply.  The notice will explain what special circumstances make an extension necessary and indicate the date a final decision is expected to be made.

If the Claimant does not receive a written denial notice or notice of an extension within ninety (90) days, the Claimant may consider the claim denied and may then request a review of denial of the claim, as described below.

If the claim is denied in whole or in part, the Claimant shall be provided a written opinion, using language calculated to be understood by the Claimant, setting forth:

(i)            The specific reason or reasons for such denial;

(ii)           The specific reference to pertinent provisions of this Plan on which such denial is based;

(iii)          A description of any additional material or information necessary for the Claimant to perfect his claim and an explanation why such material or such information is necessary;

(iv)          Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and

(v)           The time limits for requesting a review under subsection (c) and for review under subsection (d) hereof.

(c)           Request for Review.  Within sixty (60) days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Plan Administrator review its determination. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Plan Administrator.  If the Claimant does not request a review of the initial determination within such sixty (60) day period, the Claimant shall be barred and estopped from challenging the determination.

14

(d)           Review of Decision.  Within sixty (60) days after the Plan Administrator’s receipt of a request for review, it will review the initial determination.  After considering all materials presented by the Claimant, the Plan Administrator will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Agreement on which the decision is based.  If special circumstances require that the sixty (60) day time period be extended, the Plan Administrator will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review.

12.3.        Designation of Benefit.  Each Participant may designate a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant’s death.  Such designation may be changed or canceled at any time without the consent of any such Beneficiary.  Any such designation, change or cancellation must be made in a form approved by the Plan Administrator and shall not be effective until received by the Plan Administrator, or its designee.  If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, the Beneficiary shall be the Participant’s estate.  If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal shares, unless the Participant has specifically designated otherwise.

12.4.        Limitation of Participant’s Right.  Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company, nor shall it interfere with the rights of the Company to terminate the employment of any Participant and/or to take any personnel action affecting any Participant without regard to the effect which such action may have upon such Participant as a recipient or prospective recipient of benefits under the Plan.  Any amounts payable hereunder shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which the Participant may be entitled under any other arrangement established by the Employer for the benefit of its employees.

12.5.        No Limitation on Company Actions.  Nothing contained in the Plan shall be construed to prevent the Company from taking any action which is deemed by it to be appropriate or in its best interest.  No Participant, Beneficiary, or other person shall have any claim against the Company as a result of such action.

12.6.        Obligations to Company.  If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Employer, then the Employer may offset such amount owed to it against the amount of benefits otherwise distributable.  Such determination shall be made by the Plan Administrator.

12.7.        Nonalienation of Benefits.  Except as expressly provided herein, no Participant or Beneficiary shall have the power or right to transfer (otherwise than by will or the laws of descent and distribution), alienate, or otherwise encumber the Participant’s or Beneficiary’s interest under the Plan.  The Company’s obligations under this Plan are not

15

assignable or transferable, except to (a) any corporation or partnership which acquires all or substantially all of the Company’s assets or (b) any corporation or partnership into which the Company may be merged or consolidated.  A Participant’s or Beneficiary’s interest under the Plan is not assignable or transferable pursuant to a domestic relations order.  The provisions of the Plan shall inure to the benefit of each Participant and the Participant’s Beneficiaries, heirs, executors, administrators or successors in interest.

12.8.        Protective Provisions.  Each Participant shall cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Company may deem necessary and taking such other relevant action as may be requested by the Company.  If a Participant refuses to cooperate, the Company shall have no further obligation to the Participant under the Plan, other than payment to such Participant of the then current balance of the Participant’s Distribution Option Accounts in accordance with his prior elections.

12.9.        Taxes.  The Company may make such provisions and take such action as it may deem appropriate for the withholding of any taxes which the Company is required by any law or regulation of any governmental authority, whether Federal, state or local, to withhold in connection with any benefits under the Plan, including, but not limited to, the withholding of appropriate sums from any amount otherwise payable to the Participant (or his Beneficiary).  Each Participant, however, shall be responsible for the payment of all individual tax liabilities relating to any such benefits.

12.10.      Unfunded Status of Plan. The Plan is an “unfunded” plan for tax and Employee Retirement Income Security Act purposes.  This means that the value of a Participant’s Distribution Option Accounts is based on the value assigned to a hypothetical bookkeeping account, which is invested in hypothetical shares of investments funds available under the Plan.  As the nature of the investment fund which forms the “index” or “meter” for the valuation of the bookkeeping account changes, the valuation of the bookkeeping account changes as well.  The amount owed to a Participant is based on the value assigned to the bookkeeping account.  MedQuist Inc. may decide to use a “rabbi trust” to anticipate its potential Plan liabilities, and it may attempt to have Plan investments mirror the hypothetical investments deemed credited to the bookkeeping accounts.  However, the liability to pay the benefits is MedQuist Inc.’s, and the assets of the rabbi trust are potentially available to satisfy the claims of non-participant creditors of MedQuist Inc.

12.11.      Severability.  If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

12.12.      Governing Law.  The Plan shall be construed in accordance with and governed by the laws of the State of New Jersey, without reference to the principles of conflict of laws.

16

12.13.      Headings.  Headings are inserted in this Plan for convenience of reference only and are to be ignored in the construction of the provisions of the Plan.

12.14.      Gender, Singular and Plural.  All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require.  As the context may require, the singular may read as the plural and the plural as the singular.

12.15.      Notice.  Any notice or filing required or permitted to be given to the Plan Administrator under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to MedQuist Inc., 5 Greentree Centre, Suite 311, Marlton, New Jersey 10853, Attention: General Counsel, or to such other entity as the Plan Administrator may designate from time to time.  Such notice shall be deemed given as to the date of delivery, or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

17

EX-10.8

Exhibit 10.8

SEPARATION AGREEMENT

This Separation Agreement is made this 10th day of December 2004, by and between MedQuist Inc. (hereinafter the “Company”) and John W. Quaintance (hereinafter “Quaintance”), currently Chief Operating Officer of the Company.

WHEREAS, Quaintance and the Company have agreed that Quaintance will resign from his employment with the Company as of January 31, 2005; and

WHEREAS, the parties desire to set forth the terms and conditions relating to Quaintance’s resignation of employment with the Company.

NOW THEREFORE, the parties, intending to be legally bound, in consideration of the mutual promises and undertakings set forth herein, do hereby agree as follows:

1.             Quaintance agrees to resign from his employment as Chief Operating Officer and resign his duties as an Officer of the Company effective January 31, 2005 (the “Resignation Date”).

2.             In accordance with his Employment Agreement entered into as of the 22nd of May 2000, by and between the Company and Quaintance (the “Employment Agreement”), Quaintance will continue to perform the services that are appropriate for a person in his position as well as provide all reasonable assistance to the Company in transitioning the responsibilities of his position. The Company reserves the right to relieve Quaintance of his obligation to report to the office prior to the Resignation Date, provided however, that Quaintance remains obligated to continue to cooperate on an as-needed basis with any requests from the Board or from a successor COO to assist in the transition of responsibilities. Quaintance will receive all accrued but unpaid salary through the Resignation Date, $33,155.60, which is the cash equivalent of all accrued but unused paid time off through the Resignation Date, and unreimbursed expenses incurred through the Resignation Date. Quaintance will be eligible to receive the portion of the Discretionary Bonus for 2004 that is dependent upon the financial performance of the Company for calendar year 2004, which will be calculated and, if applicable, paid in accordance with the terms and conditions of the Discretionary Bonus Plan and mailed to Quaintance at Quaintance’s home address of record.

3.             Effective February 1, 2005, Quaintance may elect continued medical and dental coverage for the time period permitted by COBRA, by completing the applicable COBRA forms when sent to him. Upon receipt of the completed applicable COBRA forms, the Company will make the necessary payments to continue Quaintance’s medical and/or dental coverage. Quaintance agrees to notify the Company immediately if he secures medical and dental coverage through any other source during this 18 month period. To the extent that Quaintance is required to pay a portion of the cost of medical and/or dental coverage, the Company will reimburse Quaintance for the portion of the cost of medical and/or dental coverage paid by Quaintance during the 18 month period. If Quaintance is not required to pay any part of the cost of other

medical and/or dental coverage during the 18 month period, then the Company will cease making COBRA payments.

4.             Quaintance’s stock options, to the extent vested as of the Resignation Date, shall remain exercisable for the post-termination exercise period provided in the option award agreements, such period commencing on the date that the suspension is lifted for the exercise of options and Quaintance will be notified of said date along with and in the same manner as all persons with Company stock options. No additional stock options will vest following the Resignation Date. Quaintance’s participation in all Company benefit plans shall cease as of the Resignation Date. The options as to which the exercise period is extended pursuant to the Agreement may be subject to the provisions of section 409A of the Internal Revenue Code and the regulations issued thereunder and, as such, Quaintance may incur income tax and/or penalties as a result of such extension.

5.             The Company and Quaintance agree that the time period set out in Section 9(a) of the Employment Agreement is hereby reduced to eighteen (18) months. Except as specifically modified here, Section 9 of the Employment Agreement (Restrictive Covenants and Confidentiality; Injunctive Relief) and Section 10 (Survival), shall apply in full force and effect.

6.             Release.  a.  Quaintance hereby forever releases and discharges the Company, the Company’s past, present, or future parent, affiliated, related, and/or subsidiary entities, and all of their past, present and future directors, shareholders, officers, general or limited partners, employees, agents, attorneys and representatives for actions or omissions taken by any or all of them on behalf of the Company in each of their respective capacities, and the employee benefit plans in which Quaintance is or has been a participant by virtue of his employment with the Company (collectively, the “Company Releasees”), from, and agrees hereby forever not to sue the Company Releasees with respect to, any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, attorneys’ fees, complaints, obligations, promises, agreements, controversies, suits, expenses, any form of compensation (including but not limited to salary, bonuses, commissions or related fees), responsibility and liability of every kind and character whatsoever, whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected, which Quaintance has or may have had against the Company Releasees based on any events or circumstances arising or occurring on or prior to the date of this Agreement arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever, (i) Quaintance’s Employment Agreement or stock option agreements; (ii) Quaintance’s employment with the Company or his separation of employment, (iii) Quaintance’s status at any time as a holder of any securities of the Company, or (iv) without limitation, any and all claims arising under federal, state, or local laws relating to employment or securities, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA,” a law which prohibits discrimination on the basis of age), the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, The New Jersey Law Against Discrimination, New Jersey Conscientious Employee Protection Act, The New Jersey Wage

2

Payment and Collection Law and similar state or local statutes, ordinances, and regulations; provided, that, notwithstanding anything to the contrary set forth herein, this general release shall not extend to (x) benefit claims under employee pension and deferred compensation benefit plans in which Quaintance was a participant by virtue of his employment with the Company; (y) indemnification rights Quaintance may have by virtue of his status as a former officer in accordance with applicable law and the Company’s by-laws and that certain Undertaking dated September 10, 2004; and (z) any obligation of the Company under this Separation Agreement.

b.             Except for the survival and continuation of Quaintance’s obligations as set forth in Section 5 of this Separation Agreement, the Company fully, forever, irrevocably and unconditionally releases, remises, settles and discharges Quaintance from any and all manner of claims, charges, complaints, debts, liabilities, demands, actions, causes of action, suits, rights, covenants, contracts, controversies, agreements, promises, omissions, damages, obligations and expenses of any kind, whether known or unknown, which it had, now has, or hereafter may have against Quaintance arising from, or relating in any way to Quaintance’s employment by the Company, except for actions by Quaintance that constitute fraud or other intentional misconduct.

c.             Quaintance understands that the release of claims he has given, as set forth in Section 6a of this Agreement, includes a release of claims arising under the ADEA. Quaintance understands and warrants that he has been given a period of 21 days to review and consider this Agreement. By his signature below, Quaintance warrants that he has consulted with an attorney as to the terms of this Agreement. Quaintance further warrants that he understands that he may accept and return the Agreement prior to the expiration of this 21-day review period, and, if he chooses to do so, he warrants that he used as much of the 21-day review period as he required and returned the Agreement knowingly and voluntarily and without any pressure or coercion on the part of the Company or any of its representatives.

d.             Quaintance further warrants that he understands that he has seven (7) days after signing this Agreement to revoke the Agreement by notice in writing to the Company’s Human Resources Manager at Mount Laurel, New Jersey, 08054-4632. This Agreement shall be binding, effective, and enforceable upon both parties upon the expiration of this seven (7) day revocation period without the Company having received such revocation, but not before such time.

7.             Provided that (i) Quaintance has executed this Agreement, (ii) the time period in Section 6c has expired, and (iii) he has performed the duties requested of him in Section 1 satisfactorily and has not engaged in any intentional wrongdoing or other gross misconduct prior to the Resignation Date, on or before February 15, 2005, the Company shall pay to Quaintance, as consideration for executing this Agreement, a lump sum payment in a total amount equal to $582,450.00, less applicable withholding, which will be mailed to Quaintance at Quaintance’s home address of record.

8.             The parties acknowledge that the sums and benefits set forth in Sections 3, 4, and 7 above represent amounts in addition to anything of value to which Quaintance is otherwise entitled and are provided in consideration for the execution of this Agreement.

3

9.             In response to any inquiries from future or prospective employers concerning Quaintance, it is agreed that the Company will provide the letter of referral attached hereto as Exhibit A and further agrees not to provide any information that is not consistent with the attached letter of referral.

10.           Quaintance agrees that he will cooperate fully with the Company and its counsel with respect to any matter (including litigation, investigation, or governmental proceeding) which relates to matters with which Quaintance was involved during the period in which he was employed or engaged as a consultant by the Company, including full disclosure of all relevant information and truthfully testifying on the Company’s behalf in connection with any such proceeding or investigation. Quaintance will render such cooperation in a timely manner and at such times and places as may be mutually agreeable to the parties. Upon submission of appropriate documentation, Quaintance shall be reimbursed by the Company for reasonable travel, lodging, meals, and telecommunications expenses incurred in cooperating with the Company under the terms of this provision. Except as required by operation of law, Quaintance agrees that he will promptly notify the Company if he is contacted for an interview or if he receives a subpoena in any matter relating in any way to his employment with the Company and, in such event, the Company, upon request from Quaintance, agrees to provide in its discretion reasonable access to information and documents within its control. Quaintance further agrees that he will not initiate any communication with a member of the press regarding his employment with the Company and that if he is contacted by the press for any such information, he will decline comment and refer the person seeking information to the Company.

11.           The parties agree that the terms of this Agreement shall remain completely confidential, and that they will not disclose the terms of this Agreement to any person, except that this Section shall not prohibit the parties from disclosing the fact and terms of this Agreement to immediate family or to personal or company accountants and/or financial or legal advisors. The Company is not prohibited from disclosing the facts and terms of this settlement to those Company employees who have a “need to know” about the Agreement as determined by the Company. The parties understand and agree that such information may be disclosed to the aforementioned individuals only on the condition that such individuals in turn agree to keep such information completely confidential, and not to disclose it to others. This Section shall not prohibit the parties from disclosing the fact or details of this Agreement to any federal, state or local authority or government agency, nor does it prohibit the parties from complying with a valid court order or any law or regulation that compels disclosure.

12.           Quaintance agrees that except as set forth in this Agreement, Quaintance is not entitled to any other compensation or benefits from the Company arising from his status as an employee of the Company, including any severance benefits that may be available under the Employment Agreement or any severance arrangement of the Company.

13.           Quaintance and the Company affirm that this Agreement, including the provisions of the Employment Agreement as incorporated in Section 5 above, set forth the entire agreement between the parties with respect to the subject matter contained herein and supersede all prior or contemporaneous agreements or understandings between the parties with respect to the subject matter contained herein. Further, there are no representations, arrangements or understandings, either oral or written, between the parties, which are not fully expressed herein.

4

Finally, no alteration or other modification of this Agreement shall be effective unless made in writing and signed by both parties.

14.           This Agreement may be executed in one or more counterparts by facsimile, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

15.           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 addressed as follows:

If to Quaintance:	John W. Quaintance
	233 South 6th Street
	Apt. 1902
	Philadelphia, PA 19106
with a copy to:	Alan B. Epstein, Esq.
	Spector, Gadon & Rosen
	1635 Market St., 7th Floor
	Philadelphia, PA 19103
If to the Company:	MedQuist Inc.
	1000 Bishops Gate
	Mount Laurel, NJ 08054-4632
	Attn: Gregory M. Sebasky
with a copy to:	Barry Abelson, Esquire
	Pepper Hamilton LLP
	3000 Two Logan Square
	Eighteenth and Arch Streets
	Philadelphia, PA 19103-2799

Either party may change the address to which such notices are to be addressed by giving the other party notice in the manner indicated above.

16.           The parties acknowledge that they have carefully reviewed this Agreement with the assistance of counsel, that they have entered into this Agreement voluntarily and knowingly and without reliance on any promises not expressly contained herein, that they have been afforded an adequate time to review carefully the terms of this Agreement, and that this Agreement shall not be deemed void or voidable by claims of duress, deception, mistake of fact or otherwise. Nor shall the principle of construction whereby all ambiguities are to be construed against the drafter be employed in the interpretation of this Agreement. This Agreement should not be construed for or against any party.

5

17.           This Agreement shall be governed by and all questions relating to its validity, interpretation, enforcement and performance shall be construed in accordance with the laws of the State of New Jersey. The exclusive choice of laws set forth in this Section shall not be deemed to preclude the enforcement of any judgment obtained in any forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction.

18.           Quaintance affirms that he has carefully read the foregoing Agreement, that he fully understands the meaning and intent of this document and that he intends to be bound by the promises contained in this Agreement for the aforesaid consideration.

IN WITNESS WHEREOF, Quaintance and the authorized representative of the Company have executed this Agreement on the dates indicated below:

By:	/s/ John W. Quaintance	Dated:  December 9, 2004
	John W. Quaintance
By:	/s/ Gregory M. Sebasky	Dated:  December 9, 2004
	Gregory M. Sebasky
	MedQuist Inc.

6

EX-10.9

Exhibit 10.9

SEPARATION AGREEMENT

This Separation Agreement is made this 20th day of December, 2004, by and between MedQuist Inc. (hereinafter the “Company”) and Ethan Cohen (hereinafter “Cohen”), former Senior Vice President and Chief Technology Officer of the Company.

WHEREAS, Cohen and the Company have agreed that Cohen’s employment with the Company ended as of October 31, 2004; and

WHEREAS, the parties desire to set forth the terms and conditions relating to Cohen’s separation of employment with the Company.

NOW THEREFORE, the parties, intending to be legally bound, in consideration of the mutual promises and undertakings set forth herein, do hereby agree as follows:

1.             Cohen’s employment as Senior Vice President and Chief Technology Officer and duties as an Officer of the Company terminated on October 31, 2004 (the “Separation Date”).

2.             In accordance with his Employment Agreement entered into as of the 22nd of May 2000, by and between the Company and Cohen (the “Employment Agreement”), Cohen will receive all accrued but unpaid salary through the Separation Date and unreimbursed expenses incurred through the Separation Date.

3.             Effective November 1, 2004, Cohen may elect continued medical and dental coverage at his expense for the time period permitted by COBRA, by completing the applicable COBRA forms when sent to him. As soon as practicable following submission by Cohen of evidence of payment of the COBRA premium, the Company shall reimburse Cohen for up to 18 months of COBRA continuation coverage premiums. Such reimbursements will be mailed monthly to Cohen at Cohen’s home address of record. Cohen agrees to notify the Company immediately if he secures medical and dental coverage through any other source during this 18 month period. To the extent that Cohen or his wife is required to pay a portion of the cost of medical and/or dental coverage for Cohen, the Company will continue to reimburse Cohen for the portion of the cost of medical and/or dental coverage paid by Cohen or his wife during the 18 month period. If Cohen is not required to pay any part of the cost of other medical and/or dental coverage during the 18 month period, then the Company will stop making reimbursement payments to Cohen.

4.             Cohen’s stock options, to the extent vested as of the Separation Date, shall remain exercisable for the post-termination exercise period provided in the option award agreements by and between Cohen and the Company (each a “Stock Option Agreement”); provided, however, that with respect to any of Cohen’s non-qualified Stock Option Agreements and Cohen’s incentive Stock Option Agreement dated January 1, 2001, the post-termination exercise period set forth in such Stock Option Agreements shall not begin to run (i.e., such period shall be tolled) until the date, if ever, that the suspension is lifted for the exercise of options, upon which event the Company will notify Cohen of the lifting of such suspension along

with and in the same manner as all other persons with Company stock options. No additional stock options will vest following the Separation Date. Cohen’s participation in all Company benefit plans shall cease as of the Separation Date. The options as to which the exercise period is extended pursuant to the Agreement may be subject to the provisions of section 409A of the Internal Revenue Code and the regulations issued thereunder and, as such, Cohen may incur income tax and/or penalties as a result of such extension.

5.             The Company and Cohen agree that the time period set out is Section 9(a) of the Employment Agreement is hereby reduced to eighteen (18) months, that Section 9(a)(i) of the Employment Agreement is hereby modified to prohibit the delineated communications to those made directly or indirectly on behalf of a “Competing Business,” that Section 9(a) (ii) of the Employment Agreement is hereby modified to insert “or” before “entice” and to delete “hire[,]” and Section 9(a)(iii) of the Employment Agreement is hereby modified to delete the following: “and health information management solutions services[.]” Except as specifically modified herein, Section 9 of the Employment Agreement (Restrictive Covenants and Confidentiality; Injunctive Relief) and Section 10 (Survival), shall continue to apply in full force and effect.

6.             Release.  a.  Cohen hereby forever releases and discharges the Company, the Company’s past, present, or future parent, affiliated, related, and/or subsidiary entities, and all of their past, present and future directors, shareholders, officers, general or limited partners, employees, agents, attorneys and representatives, and the employee benefit plans in which Cohen is or has been a participant by virtue of his employment with the Company (collectively, the “Company Releasees”), from, and agrees hereby forever not to sue the Company Releasees with respect to, any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, attorneys’ fees, complaints, obligations, promises, agreements, controversies, suits, expenses, any form of compensation (including but not limited to salary, bonuses, commissions or related fees), responsibility and liability of every kind and character whatsoever, whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected, which Cohen has or may have had against the Company Releasees based on any events or circumstances arising or occurring on or prior to the date of this Agreement arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever, (i) Cohen’s Employment Agreement or stock option agreements; (ii) Cohen’s employment with the Company or the termination thereof, (iii) Cohen’s status at any time as a holder of any securities of the Company, or (iv) without limitation, any and all claims arising under federal, state, or local laws relating to employment, or securities, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (“ADEA,” a law which prohibits discrimination on the basis of age), the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act, The New Jersey Law Against Discrimination, New Jersey Conscientious Employee Protection Act, The New Jersey Wage Payment and Collection Law and similar state or local statutes, ordinances, and regulations; provided, that, notwithstanding anything to the contrary set forth herein, this general release shall not extend to (x) benefit claims under an employee pension

2

plan, the deferred compensation benefit plan or any other benefit plans in which Cohen was a participant by virtue of his employment with the Company; (y) indemnification rights Cohen may have by virtue of his status as a former officer in accordance with applicable law and the Company’s by-laws and that certain Undertaking dated August 30, 2004; and (z) any obligation of the Company under this Separation Agreement.

b.             Except for the survival and continuation of Cohen’s obligations as set forth in Section 5 of this Separation Agreement, the Company fully, forever, irrevocably and unconditionally releases, remises, settles and discharges Cohen from any and all manner of claims, charges, complaints, debts, liabilities, demands, actions, causes of action, suits, rights, covenants, contracts, controversies, agreements, promises, omissions, damages, obligations and expenses of any kind, whether known or unknown, which it had, now has, or hereafter may have against Cohen arising from, or relating in any way to Cohen’s employment by the Company, except for actions by Cohen that constitute fraud or other intentional misconduct.

c.             Cohen understands that the release of claims he has given, as set forth in Section 6a of this Agreement, includes a release of claims arising under the ADEA. Cohen understands and warrants that he has been given a period of 21 days to review and consider this Agreement. By his signature below, Cohen warrants that he has consulted with an attorney as to the terms of this Agreement. Cohen further warrants that he understands that he may accept and return the Agreement prior to the expiration of this 21-day review period, and, if he chooses to do so, he warrants that he used as much of the 21-day review period as he required and returned the Agreement knowingly and voluntarily and without any pressure or coercion on the part of the Company or any of its representatives.

d.             Cohen further warrants that he understands that he has seven (7) days after signing this Agreement to revoke the Agreement by notice in writing to the Company’s Human Resources Manager at Mount Laurel, New Jersey, 08054-4632. This Agreement shall be binding, effective, and enforceable upon both parties upon the expiration of this seven (7) day revocation period without the Company having received such revocation, but not before such time.

7.             Provided Cohen has executed this Agreement and the time period in Section 6c has expired, the Company shall pay to Cohen, as consideration for executing this Agreement, payments in a total amount equal to $364,336.50, less applicable withholding, which will be paid as follows: an initial lump sum in the amount of $182,331.75 to be paid within fourteen (14) days of Cohen’s execution of this Agreement and the balance to be paid in twelve (12) equal monthly installments. As Cohen’s employment terminated on October 31, 2004, the Company agrees that the initial installment payment to be paid in January 2005, prior to January 15, 2005, shall include the monthly installment payments for November 2004, December 2004 and January 2005. Thereafter, the remaining nine (9) monthly installment payments made in accordance with this Section will be mailed to Cohen at Cohen’s home address of record on or before the 15th day of each month a payment is due.

8.             The parties acknowledge that the sums and benefits set forth in Sections 3, 4, and 7 above represent amounts in addition to anything of value to which Cohen is otherwise entitled and are provided in consideration for the execution of this Agreement.

3

9.             In response to any inquiries from future or prospective employers concerning Cohen, it is agreed that the parties will confirm only that Cohen resigned, dates of employment, titles of positions held, and salary.

10.           Cohen agrees that he will cooperate with the Company and its counsel with respect to any matter (including litigation, investigation, or governmental proceeding) which relates to matters with which Cohen was involved during the period in which he was employed or engaged as a consultant by the Company, including full disclosure of all relevant information and truthfully testifying on the Company’s behalf in connection with any such proceeding or investigation. Cohen will render such cooperation in a timely manner and at such times and places as may be mutually agreeable to the parties. The Company agrees that any request for cooperation to Cohen will be reasonable and will not be unduly burdensome to Cohen. Cohen agrees that he will promptly notify the Company if he is contacted for an interview or if he receives a subpoena in any matter relating in any way to his employment with the Company and, in such event, the Company, upon request from Cohen, agrees to provide in its discretion (not to be unreasonably withheld) reasonable access to information and documents within its control. Both the Company and Cohen further agree that they will not initiate any communication with a member of the press regarding Cohen’s employment with the Company and that if they are contacted by the press for any such information, they will decline comment. Upon submission of appropriate documentation, Cohen shall be reimbursed by the Company for reasonable travel, lodging, meals, and telecommunications expenses incurred in cooperating with the Company under the terms of this provision. Notwithstanding the above, Cohen retains the right to a good faith assertion of any applicable privilege.

11.           The parties agree that the terms of this Agreement shall remain completely confidential, and that they will not disclose the terms of this Agreement to any person, except that this Section shall not prohibit the parties from disclosing the fact and terms of this Agreement to immediate family or to personal or company accountants and/or financial or legal advisors. The Company is not prohibited from disclosing the facts and terms of this settlement to those Company employees who have a “need to know” about the Agreement as determined by the Company. The parties understand and agree that such information may be disclosed to the aforementioned individuals only on the condition that such individuals in turn agree to keep such information completely confidential, and not to disclose it to others. This Section shall not prohibit the parties from disclosing the fact or details of this Agreement to any federal, state or local authority or government agency, nor does it prohibit the parties from complying with a valid court order or any law or regulation that compels disclosure. This Section shall also not prohibit the parties from disclosing the terms of Cohen’s post-employment restrictions as set out in Sections 9 and 10 of his Employment Agreement as modified by Section 5 above.

12.           Cohen agrees that except as set forth in this Agreement, Cohen is not entitled to any other compensation or benefits from the Company arising from his status as an employee of the Company, including any severance benefits that may be available under the Employment Agreement or any severance arrangement of the Company; provided, however, that this Section 12 does not release any rights to compensation or benefits by virtue of Cohen’s participation in the Company benefit plans referenced in Section 6a(x) above.

4

13.           Cohen and the Company affirm that this Agreement, including the provisions of the Employment Agreement as incorporated in Section 5 above, set forth the entire agreement between the parties with respect to the subject matter contained herein and supersede all prior or contemporaneous agreements or understandings between the parties with respect to the subject matter contained herein. Further, there are no representations, arrangements or understandings, either oral or written, between the parties, which are not fully expressed herein. Finally, no alteration or other modification of this Agreement shall be effective unless made in writing and signed by both parties.

14.           This Agreement may be executed in one or more counterparts by facsimile, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

15.           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 addressed as follows:

If to Cohen:	Ethan Cohen
	22425 Canterbury Lane
	Shaker Heights, OH 44122
with a copy to:	Rob Gilmore, Esq.
	Kohrman, Jackson & Krantz P.L.L.
	1375 East 9th Street
	20th Floor, One Cleveland Center
	Cleveland, Ohio 44114
If to the	MedQuist Inc.
Company:	1000 Bishops Gate
	Mount Laurel, NJ 08054-4632
	Attn: Gregory M. Sebasky
with a copy to:	Barry Abelson, Esquire
	Pepper Hamilton LLP
	3000 Two Logan Square
	Eighteenth and Arch Streets
	Philadelphia, PA 19103-2799

Either party may change the address to which such notices are to be addressed by giving the other party notice in the manner indicated above.

16.           The parties acknowledge that they have carefully reviewed this Agreement with the assistance of counsel, that they have entered into this Agreement voluntarily and knowingly and without reliance on any promises not expressly contained herein, that they have

5

been afforded an adequate time to review carefully the terms of this Agreement, and that this Agreement shall not be deemed void or voidable by claims of duress, deception, mistake of fact or otherwise.

17.           This Agreement shall be governed by and all questions relating to its validity, interpretation, enforcement and performance shall be construed in accordance with the laws of the State of New Jersey. The exclusive choice of laws set forth in this Section shall not be deemed to preclude the enforcement of any judgment obtained in any forum or the taking of any action under this Agreement to enforce such judgment in any appropriate jurisdiction.

18.           Cohen affirms that he has carefully read the foregoing Agreement, that he fully understands the meaning and intent of this document and that he intends to be bound by the promises contained in this Agreement for the aforesaid consideration.

IN WITNESS WHEREOF, Cohen and the authorized representative of the Company have executed this Agreement on the dates indicated below:

By:		/s/ Ethan Cohen	Dated: December 17, 2004
		Ethan Cohen
	MedQuist Inc.		Dated: December 20, 2004
By:		/s/ Gregory M. Sebasky
		Gregory M. Sebasky President

6

EX-10.10

Exhibit 10.10

SEPARATION AGREEMENT

THIS SEPARATION AGREEMENT is hereby made and entered into between Terry L. Cameron, Senior Vice President-Marketing and Business Development, a Georgia resident (“Employee”), and MedQuist Inc. (the “Company”), a New Jersey corporation, having its principal office at 1000 Bishops Gate Boulevard, Mount Laurel, New Jersey.

1.The Company and the Employee, each acting of their own free will and intending to be legally and irrevocably bound hereby, mutually agree as follows:

For purposes of this Separation Agreement, the following terms shall have the meanings given to them below:

“Employee” shall mean Terry L. Cameron and his heirs, personal representatives, successors and assigns.

“Company” shall mean the Company, MedQuist Transcriptions, Ltd., and its and their parent companies, subsidiaries, affiliates, shareholders, predecessors and assigns, together with each and every of their officers, directors, shareholders, employees and agents and the heirs and executors of same (each in their respective capacity as such and individually).

“Claims” shall mean any and all suits, causes of action, complaints, charges, obligations, demands, or claims of any kind, whether in law or in equity, direct or indirect, known or unknown, matured or unmatured, which Employee may now have or ever had against the Company.

2.Employee and the Company agree and acknowledge that Employee’s employment with the Company terminated effective as of the close of business on October 6, 2005 (the “Separation Date”).

3.The Company shall pay Employee accrued but unpaid salary through the Separation Date and shall pay Employee for unreimbursed expenses incurred through the Separation Date.

4.In accordance with Paragraph 5 of the November 15, 2004 agreement between Employee and Company (the “Employment Agreement”), and in consideration of Employee’s execution of this Separation Agreement, the Company shall pay or provide to the Employee the following amounts, and no other amounts or benefits, as severance, less all applicable taxes and withholdings: (i) continued payment of Employee’s current base salary (at the base salary rate of $220,000 annually) for a period of twelve (12) months to be paid in twelve (12) equal monthly installments on the first of every month commencing on November 1, 2005; and (ii) within seven (7) days of the full execution of this Separation Agreement, payment in one lump sum of $99,000, which constitutes 45 % of Employee’s current base salary.  All payments made in accordance with this paragraph will be mailed to Employee at Employee’s home address of record.

5.In accordance with Paragraph 5 of the Employment Agreement, and in consideration of the Company’s obligations set forth herein, Employee hereby generally releases and discharges the Company from any and all Claims which Employee ever had or now has against the Company, including, without limitation, any employment related Claims.  This release specifically includes, without limitation, any and all Claims for: (i) wages and benefits (including without limitation salary, stock, stock options, commissions, royalties, license fees, health and welfare benefits, paid time off, vacation pay, personal time and bonuses); (ii) wrongful discharge and breach of contract (whether express or implied), and implied covenants of good faith and fair dealing; (iii) alleged employment discrimination on the basis of age, race, color, religion, sex, national origin, veteran status, and/or handicap, in violation of any federal, state or local statute, ordinance, judicial precedent or executive order, including but not limited to claims for discrimination under the following statutes: Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000 et seq., the Civil Rights Act of 1866, 42 U.S.C. 1981, and any similar act under applicable state laws; (iv) under any federal or state statute relating to employee benefits or pensions; (v) in tort (including, but not limited to, any claims for misrepresentation, defamation, interference with contract or prospective economic advantage, intentional infliction of emotional distress and negligence); and (vi) attorney’s fees and costs.

6.Employee agrees and acknowledges that this Separation Agreement is a full and final general release of all claims, including, but not limited to unknown, unanticipated, and undisclosed losses, wrongs, injuries, claims and damages that arise wholly or in part from any act or omission occurring before this Separation Agreement becomes effective, and that this constitutes an essential term of this Separation Agreement.

7.Employee agrees and acknowledges the significance and consequence of this Separation Agreement and of each specific release and waiver, and expressly agrees that this Separation Agreement shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected claims, demands, obligations, and causes of action, if any, as well as those relating to any other claims, demands, obligations or causes of action herein above-specified.

8.All remedies at law or in equity shall be available for the enforcement of this Separation Agreement.  This Separation Agreement may be pleaded as a full bar to the enforcement of any claim which Employee may have against the Company.  If Employee violates the release contained herein, in addition to all other legal and equitable remedies available to the Company, Employee understands and agrees that any such violation of the terms of this Separation Agreement shall result in immediate termination of the Company’s obligation to make further payment(s) under this Separation Agreement.

9.Employee agrees and acknowledges that neither the execution of this Separation Agreement by the Company, nor the terms hereof constitute an admission by the Company of liability with respect to any possible Claim which was or could have been made by Employee.

10.On or before 5:00 p.m. on October 7, 2005 the Employee shall return to the Company all property belonging to the Company that has been provided to the Employee and also all property that is in the Employee’s possession or control, including, without limitation,

2

laptop computer(s), computers, computer accessories, cell phones, cell phone accessories, credit cards, and copies or abstracts of any proprietary or confidential information.

11.Employee agrees and acknowledges that Employee shall be considered an Employee of the Company only through October 6, 2005.  Except for the payment obligations specifically set forth herein, any other rights Employee shall have as an employee of the Company shall terminate as of October 6, 2005.

12.The Employee agrees and acknowledges that the Employee has waived any right to reinstatement to employment with the Company, and the Employee further agrees not to take legal action of any kind as a result of a refusal by the Company to consider the Employee for employment after the date of this Separation Agreement.

13.The Employee agrees and acknowledges that, in accordance with the terms of the Employment Agreement, Paragraph 4 of the Employment Agreement shall survive Employee’s termination of employment; provided, however, that the Company and Employee agree that (i) the time period set out in Section 4(c) of the Employment Agreement is hereby reduced to twelve (12) months and (ii) if Employee provides the Company with advance notice of any business or specific division of a business with which employee desires to directly or indirectly engage in or become financially interested in, as set forth in Section 4(c) of the Employment Agreement, the Company shall inform Employee whether such business is a business which is involved in business activities which are the same as or in direct competition with business activities carried on by the Company, or which were being definitively planned by the Company as of the Separation Date.  The parties further agree and acknowledge that all other terms of the Employment Agreement shall terminate in accordance with their provisions as of October 6, 2005.

14.In response to any inquiries from future or prospective employers concerning Employee, it is agreed that the Company will confirm only dates of employment, title of position held, and last salary.

15.Employee agrees that he will cooperate fully with the Company and its counsel with respect to any matter, including, but not limited to, any litigation, investigation, or governmental proceeding or internal Company review, which relates to matters with which Employee was involved during the period in which he was employed by the Company, or concerning which the Company reasonably determines Employee may have responsive or relevant information.  Such cooperation includes, but is not limited to, full disclosure of all relevant information and truthfully testifying on the Company’s behalf in connection with any such litigation, proceeding, investigation or review.  In addition, such cooperation shall include, but shall not be limited to, Employee’s making himself reasonably available for interviews by Company or its counsel, depositions and/or court appearances upon Company’s request.  Employee will render such cooperation in a timely manner and at such times and places as may be mutually agreeable to the parties.  Upon submission of appropriate documentation, Employee shall be reimbursed by the Company for reasonable travel, lodging, meals, and telecommunications expenses incurred in cooperating with the Company under the terms of this provision.  Except as required by operation of law, Employee agrees that he will immediately notify the Company if he is contacted for an interview or if he receives a subpoena in any matter

3

relating in any way to his employment with the Company.  Employee further agrees that he will not initiate any communication with a member of the press regarding his employment with the Company and that if he is contacted by the press for any such information, he will decline comment and refer the person seeking information to the Company.

16.The Company agrees and acknowledges that Employee shall be permitted to utilize the services of the professional placement firm, Korn/Ferry International.

17.a.This Separation Agreement contains the entire agreement of the parties with respect to the subject matter hereof, and shall be binding upon their respective parties and their heirs, executors, administrators, successors and assigns.

b.If any provision of this Separation Agreement or the application thereof is adjudicated to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Separation Agreement which can be given effect without the invalid or unenforceable provision.

c.Neither this Separation Agreement nor any term hereof may be orally changed, waived, discharged, or terminated, except by a written agreement between the parties hereto.

d.This Separation Agreement shall be governed by the laws of the State of New Jersey without regard to its conflicts of law principals.  Any action relating to this Separation Agreement shall be brought in a state court in Burlington County, New Jersey or in Federal Court for the District of New Jersey.

e.The terms of the Separation Agreement contained herein are contractual, and not a mere recital.

18.Employee represents and warrants that he is acting of his own free will; that he has had the opportunity to seek the advice of counsel with respect hereto; that he has had adequate time to consider this Separation Agreement; and that he is entering into this agreement knowingly and voluntarily.

IN WITNESS HEREOF, Employee and the Company have caused the execution of this Separation Agreement as of the day and year indicated below.

		MEDQUIST INC.
/s/ Terry L. Cameron		By:	/s/ Howard S. Hoffmann
Terry L. Cameron			Howard S. Hoffmann
			Chief Executive Officer
Date:	10/24/05	Date:

4

EX-10.11

Exhibit 10.11

SEPARATION AGREEMENT

THIS SEPARATION AGREEMENT is hereby made and entered into between James M. Weiland, Senior Vice President-Sales, a California resident (“Employee”), and MedQuist Inc. (the “Company”), a New Jersey corporation, having its principal office at 1000 Bishops Gate Boulevard, Mount Laurel, New Jersey.

The Company and the Employee, each acting of their own free will and intending to be legally and irrevocably bound hereby, mutually agree as follows:

1.For purposes of this Separation Agreement, the following terms shall have the meanings given to them below:

“Employee” shall mean James M. Weiland and his heirs, personal representatives, successors and assigns.

“Company” shall mean the Company, MedQuist Transcriptions, Ltd., and its and their parent companies, subsidiaries, affiliates, shareholders, predecessors and assigns, together with each and every of their officers, directors, shareholders, employees and agents and the heirs and executors of same (each in their respective capacity as such and individually).

“Claims” shall mean any and all suits, causes of action, complaints, charges, obligations, demands, or claims of any kind, whether in law or in equity, direct or indirect, known or unknown, matured or unmatured, which Employee may now have or ever had against the Company.

2.Employee and the Company agree and acknowledge that Employee’s employment with the Company terminated effective as of the close of business on October 6, 2005 (the “Separation Date”).

3.The Company shall pay Employee accrued but unpaid salary through the Separation Date and shall pay Employee for unreimbursed expenses incurred through the Separation Date.

4.In accordance with Paragraph 5 of the November 15, 2004 agreement between Employee and Company (the “Employment Agreement”), and in consideration of Employee’s execution of this Separation Agreement, the Company shall pay or provide to the Employee the following amount, and no other amounts or benefits, as severance, less all applicable taxes and withholdings: continued payment of Employee’s current base salary (at the base salary rate of $210,000 annually) for a period of twelve (12) months to be paid in twelve (12) equal monthly installments on the first of every month commencing on November 1, 2005. All payments made in accordance with this paragraph will be mailed to Employee at Employee’s home address of record.

5.In accordance with Paragraph 5 of the Employment Agreement, and in consideration of the Company’s obligations set forth herein, Employee hereby generally releases

and discharges the Company from any and all Claims which Employee ever had or now has against the Company, including, without limitation, any employment related Claims. This release specifically includes, without limitation, any and all Claims for: (i) wages and benefits (including without limitation salary, stock, stock options, commissions, royalties, license fees, health and welfare benefits, paid time off, vacation pay, personal time and bonuses); (ii) wrongful discharge and breach of contract (whether express or implied), and implied covenants of good faith and fair dealing; (iii) alleged employment discrimination on the basis of age, race, color, religion, sex, national origin, veteran status, and/or handicap, in violation of any federal, state or local statute, ordinance, judicial precedent or executive order, including but not limited to claims for discrimination under the following statutes: Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000 et seq., the Civil Rights Act of 1866, 42 U.S.C. 1981, and any similar act under applicable state laws; (iv) under any federal or state statute relating to employee benefits or pensions; (v) in tort (including, but not limited to, any claims for misrepresentation, defamation, interference with contract or prospective economic advantage, intentional infliction of emotional distress and negligence); (vi) attorney’s fees and costs; and (vii) age discrimination or other claims under the Age Discrimination in Employment Act, as amended, 29 U.S.C. 621 et seq., the Older Workers Benefit Protection Act, the Rehabilitation Act of 1972, as amended, 29 U.S.C. 701 et seq. or any similar act under applicable state laws, rules and regulations.

6.Employee agrees and acknowledges that this Separation Agreement is a full and final general release of all claims, including, but not limited to unknown, unanticipated, and undisclosed losses, wrongs, injuries, claims and damages that arise wholly or in part from any act or omission occurring before this Separation Agreement becomes effective, and that this constitutes an essential term of this Separation Agreement. Therefore, Employee agrees and acknowledges that this Separation Agreement waives and releases any claims which would otherwise be preserved by operation of section 1542 of the California Civil Code, which provides: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known to him or her must have materially affected his or her settlement with the debtor.”

7.Employee agrees and acknowledges the significance and consequence of this Separation Agreement and of each specific release and waiver, and expressly agrees that this Separation Agreement shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected claims, demands, obligations, and causes of action, if any, as well as those relating to any other claims, demands, obligations or causes of action herein above-specified.

8.All remedies at law or in equity shall be available for the enforcement of this Separation Agreement. This Separation Agreement may be pleaded as a full bar to the enforcement of any claim which Employee may have against the Company. If Employee violates the release contained herein, in addition to all other legal and equitable remedies available to the Company, Employee understands and agrees that any such violation of the terms of this Separation Agreement shall result in immediate termination of the Company’s obligation to make further payment(s) under this Separation Agreement.

9.Employee agrees and acknowledges that neither the execution of this Separation Agreement by the Company, nor the terms hereof constitute an admission by the

2

Company of liability with respect to any possible Claim which was or could have been made by Employee.

10.On or before 5:00 p.m. on October 7, 2005 the Employee shall return to the Company all property belonging to the Company that has been provided to the Employee and also all property that is in the Employee’s possession or control, including, without limitation, laptop computer(s), computers, computer accessories, cell phones, cell phone accessories, credit cards, and copies or abstracts of any proprietary or confidential information.

11.Employee agrees and acknowledges that Employee shall be considered an Employee of the Company only through October 6, 2005. Except for the payment obligations specifically set forth herein, any other rights Employee shall have as an employee of the Company shall terminate as of October 6, 2005.

12.The Employee agrees and acknowledges that the Employee has waived any right to reinstatement to employment with the Company, and the Employee further agrees not to take legal action of any kind as a result of a refusal by the Company to consider the Employee for employment after the date of this Separation Agreement.

13.The Employee agrees and acknowledges that, in accordance with the terms of the Employment Agreement, Paragraph 4 of the Employment Agreement shall survive Employee’s termination of employment; provided, however, that the Company and Employee agree that the time period set out in Section 4(c) of the Employment Agreement is hereby reduced to twelve (12) months. The parties further agree and acknowledge that all other terms of the Employment Agreement shall terminate in accordance with their provisions as of October 6, 2005.

14.In response to any inquiries from future or prospective employers concerning Employee, it is agreed that the Company will confirm only dates of employment, title of position held, and last salary.

15.Employee agrees that he will cooperate fully with the Company and its counsel with respect to any matter, including, but not limited to, any litigation, investigation, or governmental proceeding or internal Company review, which relates to matters with which Employee was involved during the period in which he was employed by the Company, or concerning which the Company reasonably determines Employee may have responsive or relevant information. Such cooperation includes, but is not limited to, full disclosure of all relevant information and truthfully testifying on the Company’s behalf in connection with any such litigation, proceeding, investigation or review. In addition, such cooperation shall include, but shall not be limited to, Employee’s making himself reasonably available for interviews by Company or its counsel, depositions and/or court appearances upon Company’s request. Employee will render such cooperation in a timely manner and at such times and places as may be mutually agreeable to the parties. Upon submission of appropriate documentation, Employee shall be reimbursed by the Company for reasonable travel, lodging, meals, and telecommunications expenses incurred in cooperating with the Company under the terms of this provision. Except as required by operation of law, Employee agrees that he will immediately notify the Company if he is contacted for an interview or if he receives a subpoena in any matter

3

relating in any way to his employment with the Company. Employee further agrees that he will not initiate any communication with a member of the press regarding his employment with the Company and that if he is contacted by the press for any such information, he will decline comment and refer the person seeking information to the Company.

16.Employee has been advised that he has twenty-one (21) days in which to consider this Separation Agreement and in which to consult with counsel. Employee agrees that, in the event Employee elects to revoke the Employee’s acceptance of this Separation Agreement, Employee will do so within seven (7) days after executing it, by depositing (either directly or through counsel) a letter via overnight express mail, addressed to the Company’s counsel:

Mark R. Sullivan
Acting General Counsel
MedQuist Inc.
1000 Bishops Gate Blvd., Suite 300
Mt. Laurel, NJ  08054-4632

17.aThis Separation Agreement contains the entire agreement of the parties with respect to the subject matter hereof, and shall be binding upon their respective parties and their heirs, executors, administrators, successors and assigns.

b.If any provision of this Separation Agreement or the application thereof is adjudicated to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Separation Agreement which can be given effect without the invalid or unenforceable provision.

c.Neither this Separation Agreement nor any term hereof may be orally changed, waived, discharged, or terminated, except by a written agreement between the parties hereto.

d.This Separation Agreement shall be governed by the laws of the State of New Jersey without regard to its conflicts of law principals. Any action relating to this Separation Agreement shall be brought in a state court in Burlington County, New Jersey or in Federal Court for the District of New Jersey.

e.The terms of the Separation Agreement contained herein are contractual, and not a mere recital.

18.Employee represents and warrants that he is acting of his own free will; that he has had the opportunity to seek the advice of counsel with respect hereto; that he has had adequate time to consider this Separation Agreement; and that he is entering into this agreement knowingly and voluntarily.

4

IN WITNESS HEREOF, Employee and the Company have caused the execution of this Separation Agreement as of the day and year indicated below.

		MEDQUIST INC.
/s/ James M. Weiland		By:	/s/ Howard Hoffmann
James M. Weiland				Name:
				Title:
Date:	10-25-05	Date:		10/27/05

5

EX-10.12

Exhibit 10.12

February 9, 2005

Adele T. Barbato
514 Carriage House Lane
Harleysville, PA 19438

Dear Adele:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes the terms of your new employment as the Company’s Senior Vice-President Human Resources, which must commence on a date mutually agreed to in writing by you and the Company (the “Employment Commencement Date”).  For purposes of this Agreement, you are referred to as the “Employee.”  Other capitalized terms used in this Agreement have the meanings defined in Section 7, below.

1.             Term.  The Company shall employ Employee hereunder for a three (3) year term commencing on the Employment Commencement Date hereof (the “Term”), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Employment Commencement Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days’ prior written notice of its intention not to renew this Agreement unless terminated earlier pursuant to Sections 3 or 5 of this Agreement.

2.             Consideration.

a.             Compensation.  As consideration for all services rendered by Employee to the Company and for the Covenants contained herein, Employee will be entitled to:

(1)           base salary at an annual rate of $220,000;

(2)           signing bonus of $70,000 to be paid as follows: $45,000 to be paid within thirty (30) days of Employment Commencement Date and the remaining $25,000 to be paid on the twelve (12) month anniversary of the Commencement Date.  In the event that you voluntarily resign from the Company within your first 12 months of employment, this signing bonus must be repaid on a pro rata basis;

(3)           participate in MedQuist’s Management Bonus Plan for 2005.  Your target bonus in this plan will be 40% of your base salary for 2005 and following years.  The target bonus is the payment amount that the Employee shall be eligible to receive if the Company and Employee both attain the pre-established bonus plan target objectives.  The actual bonus award may be higher or lower than the target bonus amount based upon achievement of the objectives by Employee and the Company.  Management Bonus Plan target objectives shall be developed on or before February 28th of each year of the Management Bonus Plan;

(4)           participate in the same employee benefit plans available generally to other full-time employees of the Company, subject to the terms of those plans (as the same may be modified, amended or terminated from time to time); (benefits information package enclosed);

(5)           if Employee’s employment is terminated by the Company without Cause the severance pay and benefits are described below in Section 5.

b.             Long Term Incentives.  In addition, from time to time, the Board may review the performance of the Company and Employee and, in its sole discretion, may grant stock options, shares of restricted stock or other equity-based incentives to Employee to reward extraordinary performance and/or to encourage Employee’s future efforts on behalf of the Company.  The grant of any such equity incentives will be subject to the terms of the Company’s equity-based plans and will be evidenced by a separate award agreement by and between the Company and Employee.

(1)           Upon joining MedQuist, you will become entitled to a special stock option grant of 10,000 shares of non-qualified stock options (“Special Option Grant”) to purchase Company common stock, no par value (“Common Stock”), pursuant to the Company’s Stock Option Plan adopted May 29, 2002 (the “Option Plan”).  The grant date of the Special Option Grant will not occur until after the Company becomes current in its reporting obligations under the Securities and Exchange Act of 1934; provided that you are still an employee on the grant date.  The option price for the Special Option Grant shall be equal at least to the fair market value of the Company’s Common Stock as of the grant date.  The Special Option Grant will be subject to all of the terms and conditions of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes effective.  Your right to exercise the option will vest in equal 20% installments on each of the first five (5) anniversaries of the grant date.  In the event of a “Change of Control” (as defined below) of the Company while you are an employee, your Special Option Grant may, from and after the date which is six months after the Change of Control (but not beyond the expiration date of the option), be exercised for up to 100% of the total number of shares then subject to the Special Option Grant minus the number of shares previously purchased upon exercise of such option (as adjusted for any change in the outstanding shares of the Common Stock of the Company in accordance with the terms of the Option Plan) and your vesting date will accelerate accordingly.  A “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(i)            A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or

(ii)           Any other event deemed to constitute a “Change of Control” by the Company’s Board of Directors.

(2)           Contingent upon Employee’s continued attainment of performance objectives, the Company agrees to deliver a long term incentive value of $60,000 annually through one of the following, as determined in the Company’s sole discretion:  (i) a stock option grant pursuant to the Option Plan, (ii) a restricted stock grant or (iii) a cash-based

2

long term incentive program to be developed.  The long term incentive value of Company stock will be calculated based on an industry accepted stock valuation methodology.

(3)           Employment At-Will.  Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee.  Employee’s employment by the Company may be terminated by Employee or the Company at any time; provided, however, that while employed by the Company, the terms and conditions of Employee’s employment by the Company will be as herein set forth; and provided further, that Section 4 of this Agreement will survive the termination of Employee’s employment.

3.             Covenants.

a.             Non-Solicitation.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee will not do any of the following without the prior written consent of the Company:

(1)           solicit, entice or induce, either directly or indirectly, any person, firm or corporation who or which is a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation;

(2)           influence or attempt to influence, either directly or indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company); or

(3)           influence or attempt to influence, either directly or indirectly, any person to terminate or modify any employment, consulting, agency, distributorship, licensing or other similar relationship or arrangement with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company).

b.             Non-Disclosure.  Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the business methods, business policies, policies, procedures, techniques, research or development projects or results, historical or projected financial information, budgets, trade secrets, or other knowledge or processes of, or developed by, Company or any other confidential information relating to or dealing with the business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public.  The foregoing provisions of this subsection shall apply during and after the period when the Employee is an employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like.  At the termination of Employee’s employment with Company, Employee shall return to the

3

Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

c.             Non-Competition.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business which is involved in business activities which are the same as or in direct competition with business activities carried on by the Company, or being definitively planned by the Company at the time of termination of Employee’s employment.  Nothing contained in this subsection shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

d.             Intellectual Property & Company Creations.

(1)           Ownership.  All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) at any time and at any place that relates directly or indirectly to the business of the Company, as then operated, operated in the past or under consideration or development or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

(2)           Assignment.  To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration.  Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations.  The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

(3)           Disclosure & Cooperation.  Employee shall keep and maintain adequate and current written records of all Company Creations and their development

4

by Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company.  Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations.  Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations.  Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

e.             Acknowledgments.  Employee acknowledges that the Covenants are reasonable and necessary to protect the Company’s legitimate business interests, its relationships with its customers, its trade secrets and other confidential or proprietary information.  Employee further acknowledges that the duration and scope of the Covenants are reasonable given the nature of this Agreement and the position Employee holds or will hold within the Company.  Employee further acknowledges that the Covenants are included herein to induce the Company to enter into this Agreement and that the Company would not have entered into this Agreement or otherwise employed or continued to employ the Employee in the absence of the Covenants.  Finally, Employee also acknowledges that any breach, willful or otherwise, of the Covenants will cause continuing and irreparable injury to the Company for which monetary damages, alone, will not be an adequate remedy.

f.              Enforcement.

(1)           If any court determines that the Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, that court will have the power to modify such provision and, in its modified form, such provision will then be enforceable.

(2)           The parties acknowledge that significant damages will be caused by a breach of any of the Covenants, but that such damages will be difficult to quantify.  Therefore, the parties agree that if Employee breaches any of the Covenants, liquidated damages will be paid by Employee in the following manner:

(i)            any Company stock options, stock appreciation rights, restricted stock units or similar equity incentives then held by Employee, whether or not then vested, will be immediately and automatically forfeited;

(ii)           any shares of restricted stock issued by the Company, then held by Employee or her permitted transferee and then subject to forfeiture will be immediately and automatically forfeited; and

(iii)          any obligation of the Company to provide severance pay or benefits (whether pursuant to Section 5 or otherwise) will cease.

5

(3)           In addition to the remedies specified in Section 4(f)(2) and any other relief awarded by any court, if Employee breaches any of the Covenants:

(i)            Employee will be required to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any such breach; and

(ii)           the Company will be entitled to injunctive or other equitable relief to prevent further breaches of the Covenants by Employee.

(4)           If Employee breaches Section 4, then the duration of the restriction therein contained will be extended for a period equal to the period that Employee was in breach of such restriction.

4.             Termination.  Employee’s employment by the Company may be terminated at any time.  Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that subject to Section 4(f)(2)(iii), if Employee’s employment is terminated by the Company without Cause Employee will be entitled to (a) continued payment of her base salary (at the rate in effect upon termination) for a period of 12 months; (b) a payment equal to the average of the last three bonuses from the MedQuist Management Bonus Plan received by Employee.  In the event that there are not three full years of employment, then the average of the last two years will apply.  If less than two years, the target bonus will be paid; and notwithstanding the foregoing, no amount will be paid or benefit provided under this Section 5 unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this Section 5 will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.

5.             Miscellaneous.

a.             Other Agreements.  Employee represents and warrants to the Company that there are no restrictions, agreements or understandings whatsoever to which she is a party that would prevent or make unlawful her execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Employee of her duties to the Company.

b.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the employment of Employee by the Company.  This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

6

c.             Waiver.  Any waiver of any term or condition hereof will not operate as a waiver of any other term or condition of this Agreement.  Any failure to enforce any provision hereof will not operate as a waiver of such provision or of any other provision of this Agreement.

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

e.             Severability.  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 the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been herein contained.

f.              Wage Claims.  The parties intend that all obligations to pay compensation to Employee be obligations solely of the Company.  Therefore, intending to be bound by this provision, Employee hereby waives any right to claim payment of amounts owed to her, now or in the future, from directors or officers of the Company in the event of the Company’s insolvency.

g.             Successors and Assigns.  This Agreement is binding on the Company’s successors and assigns.

h.             Section Headings.  The section headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation.

i.              Counterparts.  This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

6.             Definitions.  Capitalized terms used herein will have the meanings below defined:

a.             “Business” means electronic transcription services and other health information management solutions services businesses in which the Company or its subsidiaries are engaged anywhere within the United States.

b.             “Cause” means the occurrence of any of the following: (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) her employment duties or to follow the lawful directives of her superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise

7

could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

c.             “Covenants” means the covenants set forth in Section 4 of this Agreement.

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within five (5) days of the date of this Agreement and return a singed copy to my attention.  If the Agreement is not signed and returned within (5) days, the terms and conditions of this Agreement will be deemed withdrawn.

	Sincerely,
	MEDQUIST INC.
	By:	/s/ Howard Hoffmann
		Howard Hoffmann
		Chief Executive Officer
Accepted and Agreed:
/s/ Adele T. Barbato
Adele T. Barbato

8

EX-10.13

Exhibit 10.13

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (“Agreement”) is hereby entered into by Frank W. Lavelle (“LAVELLE”) and MedQuist Inc., together with its parents, subsidiaries, divisions, affiliates, related companies, predecessors and successors (“MEDQUIST”).

1.             Departure Date.  LAVELLE’s employment with MEDQUIST ended effective May 14, 2007 (the “Departure Date”).  As of the Departure Date, all titles, duties, responsibilities and authority assigned to LAVELLE as an officer of MEDQUIST ended.

2.             Termination of Employment Agreement/Survival of Certain Provisions.  As of the Departure Date, LAVELLE understands and agrees that the February 24, 2005 Employment Agreement between LAVELLE and MEDQUIST, as amended February 12, 2007 (collectively, the “Employment Agreement”), was terminated, except as may otherwise be provided for in the Employment Agreement or as may be required by operation of law.  Without limiting the foregoing, LAVELLE understands and agrees that the covenants and enforcement provisions of Section 4 of the Employment Agreement shall remain in effect in accordance with their terms.  Again without limiting the foregoing, LAVELLE and MEDQUIST additionally agree that the provisions of Section 6(e) of the Employment Agreement shall remain in effect in accordance with their terms, and the terms of any applicable insurance policy.  True and correct copies of the Employment Agreement documents are attached hereto as Exhibits A and B.

3.             No Future MedQuist Employment.  LAVELLE understands and agrees that: (a) he has no intention of applying for and will not apply for or otherwise seek reemployment or reinstatement with MEDQUIST; and (b) MEDQUIST has no obligation to reinstate, rehire, reemploy or hire LAVELLE at any time in the future.

4.             Consideration.  In consideration for LAVELLE entering into this Agreement and fully abiding by its terms, and assuming LAVELLE has not revoked the Agreement as described in Paragraph 18 below, MEDQUIST agrees to provide LAVELLE with the following consideration:

(a)           Separation Benefit.  The separation benefits set forth in Section 5(b) of the Employment Agreement;

(i)            With respect to such benefits, the parties agree that for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), separation benefits paid pursuant to Paragraph 4(a) above, (x) to the extent of payments made from the date of separation of LAVELLE’S employment through March 14th of the calendar year following such separation, are intended to constitute separate payments for purposes of Section l.409A-2(b)(2) of the Treasury Regulations and thus payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations; and (y) to the extent such payments are made following said March 14th, they are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations made upon a separation from service and payable pursuant to Section l.409A—1(b)(9)(iii) of the Treasury Regulations, to the maximum extent permitted by said provision. The parties agree that

all amounts payable pursuant to Section 5(b)(l) of the employment agreement that are to be paid prior to the date which is six months after the date of separation of LAVELLE’S employment are amounts that meet the requirements of clause (x) above.  If the parties determine that payments (other than those described in clause (x) and (y) of the initial sentence of this Paragraph 4(a)(i)) hereunder fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Code, the payment of such benefit shall be delayed to the minimum extent necessary so that such payments are not subject to the provisions of Section 409A(a)(l) of the Code.

(ii)           The parties additionally agree that the reimbursement for costs incurred in obtaining outplacement services pursuant to Section 5(b)(2) of the Employment Agreement shall only be for costs incurred during the limited period described in Section 1.409A-1(b)(9)(v)(E) of the Treasury Regulations and be paid in accordance with such regulation.

(b)           Response to Inquiries.  MEDQUIST agrees that, in response to any inquiries regarding LAVELLE’s departure, it will only provide the information set forth in MEDQUIST’s May 14, 2007 press release regarding LAVELLE’s departure from MEDQUIST, a true and correct copy of which is attached hereto as Exhibit C.  LAVELLE shall direct any inquiries to Donna Jack at (856) 206-4905 or djack@medquist.com.

5.             No Other Compensation or Benefits Owing.  LAVELLE understands and agrees that, except as otherwise provided for in this Agreement and as may be required by the Employment Agreement, LAVELLE is not and will not be due any other compensation or benefits from MEDQUIST.

6.             Release by LAVELLE.  In consideration of the compensation, benefits and agreements provided for pursuant to this Agreement and the Employment Agreement, the sufficiency of which is hereby acknowledged, LAVELLE, for himself and for any person who may claim by or through him, releases and forever discharges MEDQUIST, and its past, present and future parents, subsidiaries, divisions, affiliates, related companies, predecessors, successors, officers, directors, attorneys, agents, and employees (the “Releasees”), from any and all claims or causes of action that LAVELLE had, has or may have, relating to LAVELLE’S employment with and/or separation from MEDQUIST, up until the date of this Agreement, including, but not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, as amended, Section 1981 of the Civil Rights Act of 1866, as amended, the Civil Rights Act of 1991, as amended, the Family and Medical Leave Act, the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990 (“ADEA”), the Americans with Disabilities Act, the Employee Retirement Income Security Act (“ERISA); claims under any other federal, state or local statute, regulation or ordinance; claims for discrimination or harassment of any kind, breach of contract or public policy, wrongful or retaliatory discharge, defamation or other personal or business injury of any kind; claims for breach of any agreement between LAVELLE and MEDQUIST or for any compensation or benefits provided for pursuant to any such agreement; and any and all other claims to any form of legal or equitable relief or damages; any other claims for compensation or benefits; or any claims for attorneys’ fees or costs.

7.             Exclusion for Certain Claims.  LAVELLE and MEDQUIST understand and agree that the release in Paragraph 6 shall not apply to any claims, including any claims under ADEA, arising after the effective date of this Agreement, nor shall anything herein prevent any party from instituting any action to enforce the terms of this Agreement.

8.             Exclusion of Filing EEOC Charges/Waiver of Individual Recovery.  LAVELLE and MEDQUIST understand and agree that nothing in this Agreement shall prevent LAVELLE from filing a charge with the Equal Employment Opportunity Commission (“EEOC”), or from participating in any EEOC investigation or proceeding; provided, however, that LAVELLE waives any and all rights to recover any individual damages or relief in connection with any EEOC investigation or proceeding.

9.             Disclosure of Any Material Information.  As of the date LAVELLE signs this Agreement, LAVELLE represents and warrants that he has disclosed to MEDQUIST any information in his possession concerning any conduct involving MEDQUIST that he has any reason to believe may be unlawful, violates any MEDQUIST policy or would otherwise reflect poorly on MEDQUIST in any respect.

10.           Duty to Cooperate.  LAVELLE understands and agrees that he shall cooperate fully with MEDQUIST regarding any matter, including, but not limited to, any litigation, investigation, governmental proceeding or internal MEDQUIST review, which relates to any matter in which LAVELLE was involved or concerning which MEDQUIST reasonably determines LAVELLE may have responsive or relevant information.  LAVELLE further understands and agrees that such cooperation includes, but is not limited to, full disclosure of all relevant information; truthfully testifying and/or answering questions; and making himself reasonably available for interviews, depositions or court appearances in connection with any such litigation, investigation, proceeding or internal MEDQUIST review.  LAVELLE understands and agrees that he shall render any such cooperation in a timely manner and at such times and places as may be mutually agreeable to LAVELLE and MEDQUIST.  Upon submission of appropriate documentation, MEDQUIST shall reimburse LAVELLE for reasonable travel, lodging, meals, and telecommunications expenses incurred by LAVELLE in connection with his compliance with this Paragraph.  Except as may be prohibited by operation of law, LAVELLE understands and agrees that he shall immediately notify MEDQUIST if he is contacted for an interview or receives a subpoena or request for information in any matter related to or concerning his employment with MEDQUIST.  LAVELLE further understands and agrees that he will not initiate any communication or respond to any inquiry with a member of the press regarding his employment with MEDQUIST, and will refer any such inquiry to MEDQUIST.

11.           Return of Property.  LAVELLE represents and warrants that as of the date he signs this Agreement he has returned all property of MEDQUIST, regardless of the type or medium (i.e., hard or flash drive, computer disk, CD-ROM, DVD-ROM) upon which it is maintained, including, but not limited to, all customer lists, vendor lists, business plans and strategies, financial data or reports, memoranda, correspondence, software, contract terms, compensation and commission plans, and any other documents pertaining to the business of MEDQUIST, or its customers or vendors, as well as any credit cards, keys, identification cards, and any other documents, writings and materials that LAVELLE came to possess or otherwise acquired as a result of and/or in connection with LAVELLE’s employment with MEDQUIST.

Should LAVELLE later find any MEDQUIST property in LAVELLE’s possession, LAVELLE agrees to immediately return it.  LAVELLE further agrees not to maintain any copies of said property or make any copies of said property available to any third party.

12.           Non-Disparagement.  The parties agree not to engage in any form of conduct or to make any statements or representations that disparage or otherwise impair the reputation, goodwill or commercial interests of LAVELLE or MEDQUIST; provided, however, that nothing in this Paragraph shall prohibit LAVELLE from lawfully responding to any inquiry in connection with a government investigation or proceeding, or in response to a lawfully-issued subpoena that is served upon LAVELLE, requiring him to give testimony.

13.           Remedies for Breach.  LAVELLE understands and agrees that a breach of this Agreement or any provision of the Employment Agreement that survives its expiration will result in immediate and irreparable injury to MEDQUIST.  LAVELLE, therefore, agrees that, in addition to any remedy MEDQUIST may have under the Agreement, the Employment Agreement, or applicable law, MEDQUIST shall be entitled to a forfeiture of any amounts still due and owing to LAVELLE under the terms of this Agreement or the Employment Agreement.  Nothing herein shall be construed as prohibiting MEDQUIST from pursuing any other remedies for any breach.

14.           Non-Admission by MedQuist.  LAVELLE understands and agrees that this Agreement shall not be deemed or construed as an admission of liability by MEDQUIST for any purpose.  Specifically, but without limiting the foregoing, LAVELLE understands and agrees that this Agreement shall not constitute an admission that any action by MEDQUIST relating to LAVELLE was in any way wrongful or unlawful.  LAVELLE further agrees that nothing contained in this Agreement can be used by LAVELLE, or any other individual in any way as precedent for future dealings with MEDQUIST, or any of its officers, directors, attorneys, agents or employees.

15.           General.

(a)           Severability.  If any provision of this Agreement is found by a court of competent jurisdiction to be unenforceable, in whole or in part, then that provision will be eliminated, modified or restricted in whatever manner is necessary to make the remaining provisions enforceable to the maximum extent allowable by law.

(b)           Successors.  This Agreement shall be binding upon, enforceable by, and inure to the benefit of LAVELLE, MEDQUIST and each Releasee, and LAVELLE’s and MEDQUIST’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and to any successor or assign of each Releasee, but neither this Agreement, nor any rights, payments, or obligations arising hereunder may be assigned, pledged, transferred, or hypothecated by LAVELLE or MEDQUIST.

(c)           Controlling Law and Venue.  This Agreement shall be construed and enforced under the laws of and before the courts of the State of New Jersey.  Any action relating to this Agreement or the Employment Agreement shall be brought in state court in Burlington County, New Jersey, or in Federal Court for the District of New Jersey.

(d)           Waiver.  No claim or right arising out of a breach or default under this Agreement can be discharged by a waiver of that claim or right unless the waiver is in writing signed by the party hereto to be bound by such waiver.  A waiver by any party hereto of a breach or default by another party of any provision of this Agreement shall not be deemed a waiver of future compliance therewith and such provision shall remain in full force and effect.

(e)           Notices.  All notices, requests, demands and other communications regarding this Agreement shall be in writing and delivered in person or sent by Registered or Certified U.S.  Mail, Postage Prepaid, Return Receipt Requested, and properly addressed as follows:

To MEDQUIST:	MedQuist Inc.
	1000 Bishops Gate Boulevard
	Suite 300
	Mt. Laurel, NJ 08054-4632
	Attention: General Counsel
To LAVELLE:	Frank W. Lavelle
	4 Iddings Lane
	Newtown Square, PA 19073

16.           Entire Agreement/Amendment.  The parties hereto agree that this Agreement and those provisions of the Employment Agreement that survive its expiration constitutes the entire agreement between LAVELLE and MEDQUIST, and that neither may be modified except by written document, signed by the parties hereto.

17.           Knowing and Voluntary Action.  LAVELLE acknowledges that he received this Agreement on May 14, 2007 and has consulted an attorney before signing this Agreement.  LAVELLE further represents and warrants that he has read this Agreement, has been given a period of at least twenty one (21) days to consider the Agreement; understands its meaning and application; and is signing of his own free will with the intent of being bound by it.  If LAVELLE elects to sign this Agreement prior to the expiration of twenty one (21) days, he has done so voluntarily and knowingly.

18.           Revocation of Agreement.  LAVELLE further acknowledges that he may revoke this Agreement at any time within a period of seven (7) days following the date he signs the Agreement.  Notice of revocation shall be made in writing, sent via Registered or Certified U.S.  Mail, Postage Prepaid, Return Receipt Requested and properly addressed to MEDQUIST in accordance with Paragraph 15 above.  Such revocation must be received by MEDQUIST by the close of business of the first day following the end of the seven-day revocation period.  This Agreement shall not become effective until after the time period for revocation has expired.

THIS SPACE LEFT INTENTIONALLY BLANK

IN WITNESS WHEREOF, the parties have executed and agreed to this Agreement consisting of
six (6) pages.

	FRANK W. LAVELLE
	/s/ Frank W. Lavelle
	Date: June 17, 2007
	MEDQUIST INC.
By:	/s/ Howard Hoffmann
	Title: CEO
	Date: June 28, 2007

EX-10.14

Exhibit 10.14

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (“Agreement”) is hereby entered into by Linda Reino (“REINO”) and MedQuist Inc., together with its parents, subsidiaries, divisions, affiliates, related companies, predecessors and successors (“MEDQUIST”).

1.             Departure Date.  REINO’s employment with MEDQUIST was terminated effective May 14, 2007 (the “Departure Date”).  As of the Departure Date, REINO was relieved of all titles, duties, responsibilities and authority as an officer of MEDQUIST.

2.             Termination of Employment Agreement/Survival of Certain Provisions.  As of the Departure Date, REINO understands and agrees that the August 10, 2006 Employment Agreement between REINO and MEDQUIST (the “Employment Agreement”), was terminated, except as may otherwise be provided for in the Employment Agreement or as may be required by operation of law.  Without limiting the foregoing, REINO understands and agrees that the covenants and enforcement provisions of Section 4 of the Employment Agreement shall remain in effect in accordance with their terms.  A true and correct copy of the Employment Agreement is attached hereto as Exhibit A.

3.             No Future MedQuist Employment.  REINO understands and agrees that:  (a) she has no intention of applying for and will not apply for or otherwise seek reemployment or reinstatement with MEDQUIST; and (b) MEDQUIST has no obligation to reinstate, rehire, reemploy or hire REINO at any time in the future.

4.             Consideration.  In consideration for REINO entering into this Agreement and fully abiding by its terms, and assuming REINO has not revoked the Agreement as described in 18 below, MEDQUIST agrees to provide REINO with the following consideration:

(a)           Separation Benefits.  The separation benefits set forth in Section 5 of the Employment Agreement;

(b)           Response to Inquiries.  MEDQUIST agrees that, in response to any inquiries regarding REINO’s departure, it will only provide the information set forth in MEDQUIST’s May 14, 2007 press release regarding REINO’s departure from MEDQUIST, a true and correct copy of which is attached hereto as Exhibit B, along with only confirming dates of employment and salary.  REINO shall direct any inquiries to Donna Jack at (856) 206-4905 or djack@medquist.com.

5.             No Other Compensation or Benefits Owing.  REINO understands and agrees that, except as otherwise provided for in this Agreement and as may be required by the Employment Agreement, REINO is not and will not be due any other compensation or benefits from MEDQUIST.

6.             Release by REINO.  In consideration of the compensation, benefits and agreements provided for pursuant to this Agreement and the Employment Agreement, the sufficiency of which is hereby acknowledged, REINO, for herself and for any person who may claim by or through her, releases and forever discharges MEDQUIST, and its past, present and future parents, subsidiaries, divisions, affiliates, related companies, predecessors, successors,

officers, directors, attorneys, agents, and employees (the “Releasees”), from any and all claims or causes of action that REINO had, has or may have, relating to REINO’S employment with and/or termination from MEDQUIST, up until the date of this Agreement, including, but not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, as amended, Section 1981 of the Civil Rights Act of 1866, as amended, the Civil Rights Act of 1991, as amended, the Family and Medical Leave Act, the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990 (“ADEA”), the Americans with Disabilities Act, the Employee Retirement Income Security Act (“ERISA); claims under any other federal, state or local statute, regulation or ordinance; claims for discrimination or harassment of any, kind, breach of contract or public policy, wrongful or retaliatory discharge, defamation or other personal or business ‘injury of any kind; claims for breach of any agreement between REINO and MEDQUIST or for any compensation or benefits provided for pursuant to any such agreement; and any and all other claims to any form of legal or equitable relief or damages; any other claims for compensation or benefits; or any claims for attorneys’ fees or costs.

7.             Exclusion for Certain Claims.  REINO and MEDQUIST understand and agree that the release in Paragraph 6 shall not apply to any claims, including any claims under ADEA, arising after the effective date of this Agreement, nor shall anything herein prevent any party from instituting any action to enforce the terms of this Agreement.

8.             Exclusion of Filing EEOC Charges/Waiver of Individual Recovery.  REINO and MEDQUIST understand and agree that nothing in this Agreement shall prevent REINO from filing a charge with the Equal Employment Opportunity Commission (“EEOC”), or from participating in any EEOC investigation or proceeding; provided, however, that REINO waives any and all rights to recover any individual damages or relief in connection with any EEOC investigation or proceeding.

9.             Disclosure of Any Material Information.  As of the date REINO signs this Agreement, REINO represents and warrants that she has disclosed to MEDQUIST any information in her possession concerning any conduct involving MEDQUIST that she has any reason to believe may be unlawful, violates any MEDQUIST policy or would otherwise reflect poorly on MEDQUIST in any respect.

10.           Duty to Cooperate.  REINO understands and agrees that she shall cooperate fully with MEDQUIST regarding any matter, including, but not limited to, any litigation, investigation, governmental proceeding or internal MEDQUIST review, which relates to any matter in which REINO was involved or concerning which MEDQUIST reasonably determines REINO may have responsive or relevant information.  REINO further understands and agrees that such cooperation includes, but is not limited to, full disclosure of all relevant information; truthfully testifying and/or answering questions; and making herself reasonably available for interviews, depositions or court appearances in connection with any such litigation, investigation, proceeding or internal MEDQUIST review.  REINO understands and agrees that she shall render any such cooperation in a timely manner and at such times and places as may be mutually agreeable to REINO and MEDQUIST.  Upon submission of appropriate documentation, MEDQUIST shall reimburse REINO for reasonable travel, lodging, meals, and telecommunications expenses incurred by REINO in connection with her compliance with this

Paragraph.  Except as may be prohibited by operation of law, REINO understands and agrees that she shall immediately notify MEDQUIST if she is contacted for an interview or receives a subpoena or request for information in any matter related to or concerning her employment with MEDQUIST.  REINO further understands and agrees that she will not initiate any communication or respond to any inquiry with a member of the press regarding MEDQUIST, and will refer any such inquiry to MEDQUIST, unless REINO is responding to a press release or other communication issued by MEDQUIST regarding REINO’s employment with MEDQUIST.

11.           Return of Property.  REINO represents and warrants that as of the date she signs this Agreement she has returned all property of MEDQUIST, regardless of the type or medium (i.e., hard or flash drive, computer disk, CD-ROM, DVD-ROM) upon which it is maintained, including, but not limited to, all customer lists, vendor lists, business plans and strategies, financial data or reports, memoranda, correspondence, software, contract terms, compensation and commission plans, and any other documents pertaining to the business of MEDQUIST, or its customers or vendors, as well as any credit cards, keys, identification cards, and any other documents, writings and materials that REINO came to possess or otherwise acquired as a result of and/or in connection with REINO’s employment with MEDQUIST.  Should REINO later find any MEDQUIST property in REINO’s possession, REINO agrees to immediately return it.  REINO further agrees not to maintain any copies of said property or make any copies of said property available to any third-party.

12.           Non-Disparagement.  The parties agree not to engage in any form of conduct or to make any statements or representations that disparage or otherwise impair the reputation, goodwill or commercial interests of REINO or MEDQUIST.

13.           Remedies for Breach.  REINO understands and agrees that a breach of this Agreement or any provision of the Employment Agreement that survives its expiration will result in immediate and irreparable injury to MEDQUIST. REINO, therefore, agrees that, in addition to any remedy MEDQUIST may have under the Agreement, the Employment Agreement, or applicable law, MEDQUIST shall be entitled to a forfeiture of any amounts still due and owing to REINO under the terms of this Agreement or the Employment Agreement.  Nothing herein shall be construed as prohibiting MEDQUIST from pursuing any other remedies for any breach.

14.           Non-Admission by MedQuist.  REINO understands and agrees that this Agreement shall not be deemed or construed as an admission of liability by MEDQUIST for any purpose.  Specifically, but without limiting the foregoing, REINO understands and agrees that this Agreement shall not constitute an admission that any action by MEDQUIST relating to REINO was in any way wrongful or unlawful.  REINO further agrees that nothing contained in this Agreement can be used by REINO, or any other individual in any way as precedent for future dealings with MEDQUIST, or any of its officers, directors, attorneys, agents or employees.

15.           General.

(a)           Severability.  If any provision of this Agreement is found by a court of competent jurisdiction to be unenforceable, in whole or in part, then that provision will

be eliminated, modified or restricted in whatever manner is necessary to make the remaining provisions enforceable to the maximum extent allowable by law.

(b)           Successors.  This Agreement shall be binding upon, enforceable by, and inure to the benefit of REINO, MEDQUIST and each Releasee, and REINO’s and MEDQUIST’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees, and to any successor or assign of each Releasee, but neither this Agreement, nor any rights, payments, or obligations arising hereunder may be assigned, pledged, transferred, or hypothecated by REINO or MEDQUIST.

(c)           Controlling Law and Venue.  This Agreement shall be construed and enforced under the laws of and before the courts of the State of New Jersey.  Any action relating to this Agreement or the Employment Agreement shall be brought in state court in Burlington County, New Jersey, or in Federal Court for the District of New Jersey.

(d)           Waiver.  No claim or right arising out of a breach or default under this Agreement can be discharged by a waiver of that claim or right unless the waiver is in writing signed by the party hereto to be bound by such waiver.  A waiver by any party hereto of a breach or default by another party of any provision of this Agreement shall not be deemed a waiver of future compliance therewith and such provision shall remain in full force and effect.

(e)           Notices.  All notices, requests, demands and other communications regarding this Agreement shall be in writing and delivered in person or sent by Registered or Certified U.S.  Mail, Postage Prepaid, Return Receipt Requested, and properly addressed as follows:

To MEDQUIST:	MedQuist Inc.
	1000 Bishops Gate Boulevard
	Suite 300
	Mt. Laurel, NJ 08054-4632
	Attention: General Counsel
To REINO:	Linda Reino
	1529 Canyon Drive
	Downingtown, PA 19335

16.           Entire Agreement/Amendment.  The parties hereto agree that this Agreement and those provisions of the Employment Agreement that survive its expiration constitutes the entire agreement between REINO and MEDQUIST, and that neither may be modified except by written document, signed by the parties hereto.

17.           Knowing and Voluntary Action.  REINO acknowledges that she received this Agreement on May 15, 2007 and has consulted an attorney before signing this Agreement.  REINO further represents and warrants that she has read this Agreement; has been given a period of at least twenty one (21) days to consider the Agreement; understands its meaning and application; and is signing of her own free will with the intent of being bound by it.  If REINO elects to sign this Agreement prior to the expiration of twenty one (21) days, she has done so voluntarily and knowingly.

18.           Revocation of Agreement.  REINO further acknowledges that she may revoke this Agreement at any time within a period of seven (7) days following the date she signs the Agreement.  Notice of revocation shall be made in writing, sent via Registered or Certified U.S. Mail, Postage Prepaid, Return Receipt Requested and properly addressed to MEDQUIST in accordance with Paragraph 15 above.  Such revocation must be received by MEDQUIST by the close of business of the first day following the end of the seven-day revocation period.  This Agreement shall not become effective until after the time period for revocation has expired.

IN WITNESS WHEREOF, the parties have executed and agreed to this Agreement consisting of five (5) pages.

	LINDA REINO
	/s/ Linda Reino
	Date: June 13, 2007
	MEDQUIST INC.
By:	/s/ Howard Hoffmann
	Title: CEO
	Date: June 28, 2007

EX-10.15

Exhibit 10.15

MedQuist

Corporate Offices

1000 Bishops Gate Blvd. Suite 300

April 26, 2006

Adele T. Barbato
Senior Vice President - Human Resources
c/o MedQuist Inc.
1000 Bishops Gate Boulevard
Mount Laurel, NJ 08054

Dear Adele:

This letter agreement sets forth our agreement with respect to the relocation of your principal residence from Harleysville, Pennsylvania to Huntingdon Valley, Pennsylvania in connection with your continued employment by MedQuist Inc. (the “Company”).

As we have agreed, the Company will reimburse you for (or provide an allowance, as applicable) all reasonable and customary moving and other relocation expenses to the extent set forth on Schedule A attached hereto. In addition to moving costs incurred in connection with your relocation you are entitled to reimbursement (or an allowance) for (i) expenses attendant to the sale of your former residence; (ii) certain expenses incurred in the purchase of your new residence; and (iii) incidental miscellaneous expenses.

The Company will pay all covered expenses promptly following its receipt of appropriate documentation for such expenses. All such expenses must be documented on the appropriate expense voucher provided by the Company (and include supporting documentation) and must be within the parameters set forth on Schedule A. To the extent you voluntarily terminate your employment with the Company within one year of your relocation, you must reimburse the Company for all Company-paid expenses on a pro-rata basis as set forth on Schedule A. For purposes of this letter agreement your relocation date shall be deemed to be the date of the first to occur of (i) the sale of your Harleysville, Pennsylvania residence or (ii) the purchase of your Huntingdon Valley, Pennsylvania.

Nothing contained in this letter agreement is intended or shall be construed to confer upon you any rights to employment or continued employment with the Company beyond the provisions set forth in that certain letter agreement between you and the Company dated February 8, 2005 (the “Employment Agreement”), and nothing herein shall be construed as an amendment, modification or waiver of any provision of the Employment Agreement. This letter agreement constitutes the entire agreement among the parties with respect to the subject matter hereof.

If the foregoing accurately sets forth our understanding in regard to the matters set forth herein, please acknowledge your agreement to and intention to be legally bound by the terms and conditions of this letter agreement by signing below and returning a copy of this letter agreement to me.

	Sincerely,
	/s/ Frank Lavelle
	Frank Lavelle
	President, MedQuist Inc.
AGREED AND ACCEPTED,
This      day of April, 2006
/s/ Adele T. Barbato
Adele T. Barbato

SCHEDULE A

Moving and Other Relocation Expenses

1.             Moving Expenses.

You are eligible for reimbursement of the following reasonable expenses:

a.             Transportation of household goods and automobiles; and

b.             Packing, unpacking and storage of household goods. Insurance is provided based on the reasonable value of household goods.

2.             Expenses attendant to the sale of a former residence.

MedQuist will reimburse you for the reasonable and customary closing costs incurred by you in connection with the sale of your primary residence in Harleysville, Pennsylvania including attorney fees, real estate transfer fees, title survey costs, inspection fees required by law, real estate commission at prevailing rate up to 6% maximum, or advertising costs, and mortgage prepayment penalty.

3.             Expenses attendant to purchase of new residence.

MedQuist will reimburse you, up to a maximum of $5,000, for reasonable and customary costs incurred by you in connection with the purchase of your primary residence in the Huntingdon Valley, Pennsylvania including home inspection fee, appraisal fee, credit report and survey fee incurred due to requirement by law, mortgage, or local custom; recording of mortgage and deed an applicable governmental fees; title insurance or guarantees; tax and title search, attorney’s fees and loan origination fees.

4.             Resignation within 12 months of relocation

In the event you voluntarily resign from your employment with MedQuist within one year of relocation, you must reimburse the company for all company-paid relocation expenses on a pro rata basis (one-twelfth per month).

5.             Miscellaneous

MedQuist will reimburse you for miscellaneous expenses, up to a maximum of $10,000, for documented items with receipts to cover such items as, automobile(s) retagging/registration, connecting appliances, telephone installation, etc.

EX-10.16

Exhibit 10.16

February 24, 2005

Via Overnight Mail

Frank Lavelle
4 Iddings Lane
Newtown Square, PA 19073

Dear Frank:

On behalf of MedQuist Inc. (the “Company”), this letter describes the terms of your new employment as the Company’s President, which must commence on a date mutually agreed to in writing by you and the Company (the “Employment Commencement Date”).  For purposes of this Agreement, you are referred to as the “Employee.”  Other capitalized terms used in this Agreement have the meanings defined in Section 7, below.

1.             Term.  The Company shall employ Employee hereunder for a three-year (3) year term commencing on the Employment Commencement Date hereof (the “Term”), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Employment Commencement Date and upon each subsequent anniversary thereof unless:  (a) either party provides the other party with at least ninety (90) days’ prior written notice of its intention not to renew this Agreement; (b) Employee resigns prior to the expiration of the Term upon at least thirty (30) days’ prior written notice; (c) Company terminates Employee’s employment without Cause upon at least thirty (30) days’ prior written notice; or (d) the Employee’s employment is terminated by the Company for Cause.

2.             Responsibilities/Reporting.  Employee shall devote his full time and attention to the duties and responsibilities of the Company’s President and shall report to the Interim Chief Executive Officer.  Subject to the approval of the Company’s Board of Directors (the “Board”), Employee shall become the Company’s Chief Executive Officer.  If and when the Board acts to appoint Employee as Chief Executive Officer, Employee shall, thereafter, report to the Board.  In the event of such appointment as Chief Executive Officer, Employee shall continue to be subject to the terms of this Agreement.  Notwithstanding the preceding provisions of this subsection, Employee shall not be prohibited from serving on corporate, industry, civic, or charitable boards or committees, so long as such activities do not interfere with the performance of Employee’s responsibilities as an employee of the Company in accordance with this Agreement or violate Section 4 of this Agreement; provided, however, that if Employee wishes to join any such boards or committees after the Employment Commencement Date, Employee shall provide the Board with advance written notice and Board approval, which shall not be unreasonably withheld, shall be required prior to Employee joining any such board or committee.

3.             Consideration.

a.             Compensation.  As consideration for all services rendered by Employee to the Company and for the Covenants contained herein, Employee will be entitled to:

(1)           base salary at a minimum annual rate of $500,000, subject to review and adjustment annually during the Term;

(2)           signing bonus of $46,000 payable within thirty (30) days of the Employment Commencement Date;

(3)           participate in MedQuist’s Management Bonus Plan.  Employee’s annual target bonus in this plan will be 50% of Employee’s annual base salary.  The annual target bonus is the amount that the Employee shall be eligible to receive if the Company and Employee attain the pre-established bonus plan target objectives.  Each year, 75% of the annual target bonus will be based upon achievement of financial objectives proposed by Company management and approved by the Board (hereinafter “Annual Financial Objectives”); and (b) 25% of the annual target bonus will be based upon achievement of specific strategic and tactical initiatives proposed by Company management and approved by the Board (hereinafter “Annual Strategic Initiatives”).  The actual annual bonus award may be higher or lower than the annual target bonus amount based upon achievement of the objectives by Employee and the Company.  Management Bonus Plan target objectives shall be developed on or before February 28th of each year of the Management Bonus Plan.  For 2005, payment of the annual target bonus in the amount of $250,000 is guaranteed;

(4)           receive an annual discretionary bonus of up to 50% of base salary which shall be payable at the discretion of the Compensation Committee of the Board;

(5)           participate in the same employee benefit plans available generally to other full-time employees of the Company, subject to the terms of those plans (as the same may be modified, amended or terminated from time to time) (benefits information package enclosed);

(6)           vacation in accordance with the Company’s policies; provided that Employee shall be entitled to a minimum of four (4) weeks of vacation annually;

(7)           a car allowance of $1,500 per month;

(8)           reimbursement of business expenses in accordance with Company policy;

(9)           reimbursement of up to $7,500 in legal fees associated with the review and negotiation of this Agreement; and

(10)         if Employee’s employment is terminated by the Company without Cause, Employee terminates for Good Reason or due to Disability, or the Company does not renew the Term in accordance with Section 1, the severance pay and benefits described below in Section 5.

2

b.             Long Term Incentives.

(1)           Annual Option Grant.  Employee shall be eligible for annual grants of non-qualified stock options (“Annual Option Grant”) to purchase Company common stock, no par value (“Common Stock”) pursuant to the Company’s Stock Option Plan adopted May 29, 2002 or any successor option plan adopted by the Company and approved by shareholders (the “Option Plan”).  The Annual Option Grant shall have a target value, based on an accepted option pricing methodology chosen by the Company, of 100% of Employee’s base salary for the year in which such Annual Option Grant is made, subject to the following:

(A)          Employee shall be eligible for 75% of the Annual Option Grant upon achievement of the Annual Financial Objectives and an additional 25% of the Annual Option Grant upon achievement of Annual Strategic Initiatives.  The Annual Option Grant shall be made in accordance with the terms of the Option Plan within thirty (30) days after the Company has determined that the objectives and initiatives have been met; provided that, with respect to any year, the Company shall make such determination not later than the end of the first calendar quarter following such year.

(B)           Fifty percent (50%) of the options subject to the Annual Option Grant shall have an exercise price equal to fair market value of the Common Stock on the date of grant; 25% of such options shall have an exercise price equal to 125% of fair market value of the Common Stock on the date of grant; and 25% of such options shall have an exercise price of 150% of fair market value of the Common Stock on the date of grant.

(C)           If the Employee is not eligible for the entire target grant with respect to any year, the preceding exercise prices shall be applied proportionally to that portion of the Annual Option Grant that is made.

(D)          Each Annual Option Grant shall vest in equal 20% installments on each of the first five (5) anniversaries of the applicable grant date, subject to Employee’s continued employment with the Company.

(E)           Each Annual Option Grant shall be subject to the terms and conditions of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes effective.

(2)           Restricted Stock In Lieu of Annual Option Grant.  In lieu of one or more of the Annual Option Grants provided for in the preceding subsection (1), the Board may issue shares of Common Stock that are subject to restrictions and a risk of forfeiture (“Restricted Stock Grant”); provided that any such grant shall be pursuant to a plan approved by the Company’s shareholders (a “Restricted Stock Plan”).  If the Board determines to grant a Restricted Stock Grant, the value of any such grant shall equal the value of the Annual Option Grant, which shall based on an accepted option pricing methodology chosen by the Company, to which Employee is otherwise entitled.  Any Restricted Stock Grant shall be subject to the vesting schedule specified in Section 3.b.(1)D.

(3)           Cash in Lieu of Annual Option Grant or Restricted Stock Grant.  If Employee has earned all of part of the Annual Option Grant pursuant to Section 3.b.(1)(A),

3

but the Board chooses not to grant the Annual Option Grant (or Restricted Stock Grant in lieu thereof) in any year during the Term because:  (A) the Company is not current in its reporting obligations under the Securities and Exchange Act of 1934; (B) the Form S-8 Registration Statement for the Option Plan or a Restricted Stock Plan does not comply with the requirement of the Securities and Exchange Commission; and/or (C) there are not a sufficient number of shares available under the Option Plan or a Restricted Stock Plan, then within 30 days after the later of (x) the close of such year or (y) the date on which the Board determines the degree to which the Annual Strategic Initiatives and Annual Financial Objectives have been satisfied, the Employee shall be entitled to a cash payment of $250,000, or portion thereof, based on the achievement of the Annual Strategic Initiatives and Annual Financial Objectives to which the Annual Option Grant is subject.

(4)           Restricted Stock Signing Bonus.  Within a reasonable period of time following the date that the Company again becomes current in its reporting obligations under the Securities and Exchange Act of 1934, Employee will be granted 35,000 shares of restricted Common Stock (the “Restricted Stock”).  The Restricted Stock shall vest and thereafter not be subject to forfeiture as follows: 40% on the second anniversary of Employee’s Employment Commencement Date; 20% on each anniversary thereafter.  The grant of Restricted Stock pursuant to this subsection shall be pursuant to a Restricted Stock Plan.  If there is not a Restricted Stock Plan, Employee will be granted non-qualified options to purchase 100,000 shares of Common Stock pursuant to the Option Plan.  Such stock options shall be subject to the same vesting schedule to which the Restricted Stock would have been subject if granted.  The Restricted Stock shall be subject to an award agreement with terms and conditions not inconsistent with the provisions set forth herein, as well as such other terms and conditions to which grants of restricted stock are customarily subject.  Any grant of Restricted Stock will be made at fair market value on the date of grant.  If such Restricted Stock or stock option grant is not made by December 31, 2005, Employee shall receive a cash payment of $250,000, less applicable withholding, in January 2006.

(5)           In the event of a Change in Control, Employee shall be fully vested in any restricted stock and stock options issued pursuant to this Section 3.

4.             Covenants.

a.             Non-Solicitation.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason  (and without regard to whether such cessation was initiated by Employee or the Company), Employee will not do any of the following without the prior written consent of the Company:

(1)           solicit, entice or induce, either directly or indirectly, any person, firm or corporation who or which is a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation that is in the same Business as the Company;

(2)           influence or attempt to influence, either directly or indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or

4

oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company); or

(3)           influence or attempt to influence, either directly or indirectly, any person to terminate or modify any employment, consulting, agency, distributorship, licensing or other similar relationship or arrangement with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company).

b.             Non-Disclosure.  Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the business methods, business policies, policies, procedures, techniques, research or development projects or results, historical or projected financial information, budgets, trade secrets, or other knowledge or processes of, or developed by, Company or any other confidential information relating to or dealing with the business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public.  The foregoing provisions of this subsection shall apply during and after the period when the Employee is an employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like.  At the termination of Employee’s employment with Company, Employee shall return to the Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

c.             Non-Competition.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business which is involved in business activities which are the same as or in direct competition with business activities carried on by the Company, or being definitively planned by the Company at the time of termination of Employee’s employment.  Nothing contained in this subsection shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

d.             Intellectual Property & Company Creations.

(1)           Ownership.  All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable

5

works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) at any time and at any place that relates directly or indirectly to the business of the Company, as then operated, operated in the past or under consideration or development or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

(2)           Assignment.  To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration.  Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations.  The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

(3)           Disclosure & Cooperation.  Employee shall keep and maintain adequate and current written records of all Company Creations and their development by Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company.  Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations.  Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations.  Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

e.             Acknowledgments.  Employee acknowledges that the Covenants are reasonable and necessary to protect the Company’s legitimate business interests, its relationships with its customers, its trade secrets and other confidential or proprietary information.  Employee further acknowledges that the duration and scope of the Covenants are reasonable given the nature of this Agreement and the position Employee holds or will hold within the Company.  Employee further acknowledges that the Covenants are included herein to induce the Company to enter into this Agreement and that the Company would not have entered into this Agreement or otherwise employed or continued to employ the Employee in the absence of the Covenants.  Finally, Employee also acknowledges that any breach, willful or otherwise, of the Covenants will cause continuing and irreparable injury to the Company for which monetary damages, alone, will not be an adequate remedy.

6

f.              Enforcement.

(1)           If any court determines that the Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, that court will have the power to modify such provision and, in its modified form, such provision will then be enforceable.

(A)          The parties acknowledge that significant damages will be caused by a breach of any of the Covenants, but that such damages will be difficult to quantify.  Therefore, the parties agree that the Company shall have the right to enforce Section 4 by injunction, specific performance or other equitable relief, without prejudice to any other rights and remedies that the Company may have for a breach, or threatened breach, of the Covenants.

(2)           In addition to the remedies specified in Section 4.f.(1)A and any other relief awarded by any court, if Employee breaches any of the Covenants:

(A)          Employee will be required to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any such breach; and

(B)           the Company will be entitled to injunctive or other equitable relief to prevent further breaches of the Covenants by Employee.

(3)           If Employee breaches Section 4, then the duration of the restriction therein contained will be extended for a period equal to the period that Employee was in breach of such restriction.

5.             Termination.

a.             Except as specified in Sections 5.b. and 5.c., upon termination of employment, including termination due to Employee’s death, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination.

b.             If Employee’s employment does not automatically renew, is terminated by the Company without Cause, if Employee terminates for Good Reason in accordance with Sections 7.f. or if Employee terminates due to Disability, Employee will be entitled to the following:

(1)           monthly payments for a period of 18 months following the termination date in an amount equal to the quotient obtained by dividing (x) the sum of (A) 1.5 times the base salary paid in the 12-month period preceding the termination date and (B) the total cash bonus paid pursuant to Sections 3.a.(3) and (4) in the 12-month period preceding the termination date by (y) 18; provided if Employee’s employment is terminated by the Company without Cause prior to the first anniversary of the Employment Commencement Date, such amount shall not be less than $1,000,000 payable over the 18-month period.

7

(2)           reimbursement for costs incurred in obtaining outplacement services, at a cost not to exceed $100,000, subject to provision of documentation reasonably satisfactory to the Company.

(3)           medical coverage following the date of termination until the earlier to occur of the expiration of 18 months or the date on which Employee is eligible for coverage under a plan maintained by a new employer or a plan maintained by his spouse’s employer, at the level in effect at the date of his termination (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, as the same may be changed by the Company from time to time for employees generally, as if the Employee had continued in employment during such period; provided, in any case, that the COBRA health care continuation coverage period under section 4980B of the Internal Revenue Code of 1986, as amended, shall run concurrently with the foregoing period.

(4)           immediate vesting in any restricted stock and stock options issued pursuant to Section 3.

c.             In the case of termination due to Employee’s Disability, any severance benefits payable pursuant to this Section 5 will be offset by any long-term disability benefits to which Employee is entitled under the Company’s long-term disability plan.

d.             Notwithstanding the preceding provisions of this Section 5, no amount will be paid or benefit provided under this Section 5 unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this Section 5 will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.

6.             Miscellaneous.

a.             Arbitration.  Except a controversy or claim arising out or relating to Section 4 of this Agreement, any controversy or claim arising out of or relating to this Agreement or the breach of any covenant or agreement contained herein, shall be commenced by filing a notice (the “Notice”) for arbitration with the American Arbitration Association (“AAA”), with a copy to the other party hereto.  Such controversy or claim shall be decided by arbitration in Philadelphia, Pennsylvania, in accordance with the Employment Arbitration Rules of the AAA then obtaining.  The decision and the award of damages rendered by the Arbitrator shall be final and binding and judgment may be entered upon it in any court having jurisdiction thereof.

b.             Other Agreements.  Employee represents and warrants to the Company that there are no restrictions, agreements or understandings whatsoever to which he is a party that would prevent or make unlawful his execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Employee of his duties to the Company.

c.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and

8

merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the employment of Employee by the Company.  This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

d.             Waiver.  Any waiver of any term or condition hereof will not operate as a waiver of any other term or condition of this Agreement.  Any failure to enforce any provision hereof will not operate as a waiver of such provision or of any other provision of this Agreement.

e.             Indemnification.  Employee shall be indemnified for acts performed in good faith as an officer, director or employee of the Company in the manner provided in the Company’s charter and by-laws, and shall be covered by director and officer liability insurance coverage for such acts to the same extent that any such coverage is provided to the Company’s executive officers.

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

g.             Severability.  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 the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been herein contained.

h.             Wage Claims.  The parties intend that all obligations to pay compensation to Employee be obligations solely of the Company.  Therefore, intending to be bound by this provision, Employee hereby waives any right to claim payment of amounts owed to him, now or in the future, from directors or officers of the Company in the event of the Company’s insolvency.

i.              Successors and Assigns.  This Agreement is binding on the Company’s successors and assigns.

j.              Section Headings.  The section headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation.

k.             Counterparts.  This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

9

7.             Definitions.  Capitalized terms used herein will have the meanings below defined:

a.             “Business” means electronic transcription services and other health information management solutions services businesses in which the Company or its subsidiaries are engaged anywhere within the United States.

b.             “Cause” means the occurrence of any of the following:  (1) Employee’s willful failure or refusal to perform (other than due to illness or Disability) his employment duties or to follow the lawful directives of his superiors or the Board, but only after written notice and a period of time to correct or otherwise remedy such conduct or failure within a time period specified by the Board, which shall not exceed 30 days; (2) willful misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of fraud, embezzlement, or theft in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a felony or to a crime involving moral turpitude or any other crime that otherwise could reasonably be expected to have a material adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

c.             “Change of Control” shall be deemed to have occurred if any person, entity, or any group of persons or entities acting in concert, other than Koninklijke Philips Electronics N.V., acquires more than 50% of the outstanding voting stock of the Company.

d.             “Covenants” means the covenants set forth in Section 5 of this Agreement.

e.             “Disability” means the Employee’s entitlement to benefits under the Company’s long-term disability plan.

f.              “Good Reason” means (1) a reduction in Employee’s annual base salary below $500,000 without Employee’s consent, (2) requiring Employee to be based more than twenty-five (25) miles from the Company’s current office location as of the Employment Commencement Date, unless closer to the Employee’s residence, (3) the Board’s failure to appoint Employee to Chief Executive Officer upon the later of (x) thirty (30) days following the departure of the current Interim Chief Executive Officer or (y) the second anniversary of the Employee Commencement Date, or (4) substantial and material diminution of duties; provided that in each case written notice of Employee’s termination for Good Reason must be delivered to the Company within 30 days after the occurrence of any such event with such notice specifying one or more specific reason(s) in this Section 7.f in order for Employee’s termination with Good Reason to be effective hereunder.

10

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within five (5) days of the date of this Agreement and return a singed copy to my attention.  If the Agreement is not signed and returned within (5) days, the terms and conditions of this Agreement will be deemed withdrawn.

Sincerely,
MEDQUIST INC.
By:	/s/ Howard Hoffmann
	Howard Hoffmann
	Chief Executive Officer

Accepted and Agreed:

/s/ Frank Lavelle

Frank Lavelle

11

EX-10.16.1

Exhibit 10.16.1

Corporate Offices

1000 Bishops Gate Blvd, Suite 300

Mount Laurel, NJ 08054-4632

February 12, 2007

Via Facsimile and Overnight Mail

Frank W. Lavelle

President

MedQuist, Inc.

1000 Bishops Gate Blvd. Suite 300

Mt. Laurel, NJ 08054

Re:Amendment No. 1 to Employment Agreement

Dear Frank:

This letter (the “Amendment”) describes the amendment to letter agreement of employment between you and MedQuist Inc. (the “Company”) dated February 24, 2005 (the “Employment Agreement”). Capitalized terms not otherwise defined in this Amendment shall have the meanings given to them in the Agreement. The purposes of the amendment are to (i) revise the date on which the Company’s obligation to provide you with severance pay and benefits if Board does not appoint you as the Chief Executive Officer, to June 30, 2007 and (ii) to establish the exact severance pay and benefits to which you will be entitled if the Board does not appoint you as Chief Executive Officer of the Company by June 30, 2007.

In consideration of the mutual agreements and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, it is mutually agreed and covenanted by and between the parties to this Amendment, as follows:

A.The following Section 3.a.(11) shall be added to the Agreement:

“(11)       upon Employee’s election, if the Board fails to appoint Employee to Chief Executive Officer by June 30, 2007 and Employee resigns as a result thereof, severance payment in the amount of $1,000,000 payable in 18 monthly installments of $55,555.56 commencing on July 31, 2007 and the severance benefits described below in Sections 5.b.(2) to 5.b.(4). If Employee is not appointed Chief Executive Officer by June 30, 2007, Employee must provide the Company’s Board of Directors and General Counsel with written notice by July 30, 2007 of Employee’s resignation in order for the Company’s severance payment and benefits obligations of this Section 3.a.(11) to apply.”

B.Section 7.f. Agreement shall be deleted in its entirety and replaced with the following:

“f.            “Good Reason” means (1) a reduction in Employee’s annual base salary below $500,000 without Employee’s consent, (2) requiring Employee to be based more than twenty-five (25) miles from the Company’s current office location as of the Employment Commencement Date, unless closer to the Employee’s residence, or (3) substantial and material diminution of duties; provided that in each case written notice of Employee’s termination for Good Reason must be delivered to the Company within 30 days after the occurrence of any such event with such notice specifying one or more specific reason(s) in this Section 7.f in order for Employee’s termination with Good Reason to be effective hereunder.”

C.Counterparts.  This Amendment may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

D.Except as modified by this Amendment, the Agreement shall remain in full force and effect unmodified. To the extent the terms of the Agreement are inconsistent with the terms of this Amendment, the terms of this Amendment shall control.

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided.

Sincerely,
MEDQUIST INC.
By:	/s/ Stephen H. Rusckowski
	Stephen H. Rusckowski
	Chairman of the Board of Directors
By:	/s/ John Underwood
	John Underwood
	Chairman of the Compensation Committee of the Board of
	Directors
By:	/s/ Howard S. Hoffmann
	Howard S. Hoffmann, Chief Executive Officer

READ, UNDERSTOOD AND AGREED TO BY:

/s/ Frank W. Lavelle

Frank W. Lavelle, President

Date: February 16, 2007

2

EX-10.17

Exhibit 10.17

April 21, 2005

Michael Clark
42225 N. Olympic
Fields Court
Anthem, AZ 85086

Dear Mike:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes your severance benefits should your employment with the Company terminate pursuant to the conditions set out below.  For purposes of this Agreement, you are referred to as the “Employee.”

1.             Employment At-Will.  Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee.  Employee’s employment by the Company may be terminated by Employee or the Company at any time.

2.             Severance Payments.  Employee’s employment by the Company may be terminated at any time.  Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that if Employee’s employment is terminated by the Company without Cause, Employee will be entitled to continued payment of his base salary (at the rate in effect upon termination), subject to applicable federal, state, and local income tax deductions, for a period of 12 months to be paid in accordance with the Company’s normal payroll process.  Notwithstanding the foregoing, no amount will be paid or benefit provided under this paragraph unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, which will include, among other things, non-competition and non-solicitation obligations for the duration of the severance period, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this paragraph will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.  No severance benefits will be paid in the event that Employee resigns his employment with the Company; provided, however, that Employee will be paid severance benefits if he tenders his written resignation within 30 days following a substantial and material diminution of his duties or a reduction in his base salary in excess of ten percent, which diminution or reduction is not cured by the Company within 10 days of receiving Employee’s written resignation.

3.             Termination for Cause.  For purposes of this Agreement, “Cause” means the occurrence of any of the following:  (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) his employment duties or to follow the lawful

directives of his superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.  No severance benefits will be paid in the event that the Company terminates the Employee for Cause.

4.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof.  This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

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

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within 5 days of the date of this Agreement and return a singed copy to my attention.  If the Agreement is not signed and returned within 5 days, the terms and conditions of this Agreement will be deemed withdrawn.

Sincerely,
MEDQUIST INC.
By:	/s/ Frank Lavelle

Accepted and Agreed:

/s/ Michael Clark

Michael Clark

2

EX-10.18

Exhibit 10.18

April 21, 2005

Mark R. Sullivan
432 Oldershaw Avenue
Moorestown, NJ 08057

Dear Mark:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes your severance benefits should your employment with the Company terminate pursuant to the conditions set out below.  For purposes of this Agreement, you are referred to as the “Employee.”

1.             Employment At-Will.  Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee.  Employee’s employment by the Company may be terminated by Employee or the Company at any time.

2.             Severance Payments.  Employee’s employment by the Company may be terminated at any time.  Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that if Employee’s employment is terminated by the Company without Cause, Employee will be entitled to continued payment of his base salary (at the rate in effect upon termination), subject to applicable federal, state, and local income tax deductions, for a period of 12 months to be paid in accordance with the Company’s normal payroll process.  Notwithstanding the foregoing, no amount will be paid or benefit provided under this paragraph unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, which will include, among other things, non-competition and non-solicitation obligations for the duration of the severance period, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this paragraph will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.  No severance benefits will be paid in the event that Employee resigns his employment with the Company; provided, however, that Employee will be paid severance benefits if he tenders his written resignation within 30 days following a substantial and material diminution of his duties or a reduction in his base salary in excess of ten percent, which diminution or reduction is not cured by the Company within 10 days of receiving Employee’s written resignation.

3.             Termination for Cause.  For purposes of this Agreement, “Cause” means the occurrence of any of the following:  (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) his employment duties or to follow the lawful directives of his superiors; (2) misconduct or gross negligence by Employee in the course of

employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.  No severance benefits will be paid in the event that the Company terminates the Employee for Cause.

4.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof.  This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

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

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within 5 days of the date of this Agreement and return a singed copy to my attention.  If the Agreement is not signed and returned within 5 days, the terms and conditions of this Agreement will be deemed withdrawn.

Sincerely,
MEDQUIST INC.
By:	/s/ Frank Lavelle

Accepted and Agreed:

/s/ Mark Sullivan

Mark Sullivan

2

EX-10.19

Exhibit 10.19

May 27, 2005

Mr. Mark Ivie
19405 Saint James Road
Brookfield, WI 53045

Dear Mark:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes the terms of your new employment as the Company’s Chief Technology Officer, which must commence on a date mutually agreed to in writing by you and the Company (the “Employment Commencement Date”).  For purposes of this Agreement, you are referred to as the “Employee.” Other capitalized terms used in this Agreement have the meanings defined in Section 7, below.

1.             Term.  The Company shall employ Employee hereunder for a three (3) year term commencing on the Employment Commencement Date hereof (the “Term”), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Employment Commencement Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days prior written notice of its intention not to renew this Agreement unless terminated earlier pursuant to Sections 3 or 5 of this Agreement.

2.             Consideration.

a.             Compensation.  As consideration for all services rendered by Employee to the Company and for the Covenants contained herein, Employee will be entitled to:

(1)           base salary at an annual rate of $225,000;

(2)           signing bonus of $50,000 to be paid within thirty (30) days of Employment Commencement Date.

(3)           participate in MedQuist’s Management Bonus Plan for 2005.  Your target bonus in this plan will be 40% of your base salary for 2005 and following years; provided, however that your bonus for 2005 shall be prorated based upon your Employment Commencement Date.  The target bonus is the payment amount that the Employee shall be eligible to receive if the Company and Employee both attain the pre-established bonus plan target objectives.  The actual bonus award may be higher or lower than the target bonus amount based upon achievement of the objectives by Employee and the Company.  Management Bonus Plan target objectives shall be developed on or before February 28th of each year of the Management Bonus Plan;

(4)           participate in the same employee benefit plans available generally to other full-time employees of the Company, subject to the terms of those plans (as the same may be modified, amended or terminated from time to time); (benefits information package enclosed);

(5)           receive relocation support in accordance with the Company Relocation Policy (policy enclosed).  This relocation policy will be in effect for the first 12 months of your employment;

(6)           if Employee’s employment is terminated by the Company without Cause, the severance pay and benefits described below in Section 5.

b.             Long Term Incentives.  In addition, from time to time, the Board may review the performance of the Company and Employee and, in its sole discretion, may grant stock options, shares of restricted stock or other equity-based incentives to Employee to reward extraordinary performance and/or to encourage Employee’s future efforts on behalf of the Company.  The grant of any such equity incentives will be subject to the terms of the Company’s equity-based plans and will be evidenced by a separate award agreement by and between the Company and Employee.

(1)           Upon joining MedQuist, you will become entitled to a special stock option grant of 60,000 shares of non-qualified stock options (“Special Option Grant”) to purchase Company common stock, no par value (“Common Stock”), pursuant to the Company’s Stock Option Plan adopted May 29, 2002 (the “Option Plan”).  The grant date of the Special Option Grant will occur on the later of (i) the date the Company becomes current in its reporting obligations under the Securities Exchange Act of 1934; or (ii) the first date thereafter when the Form S8 Registration Statement for the Option Plan complies with the requirement of the Securities Exchange Commission provided that you are still an employee on the grant date.  The option price for the Special Option Grant shall be equal at least to the fair market value of the Company’s Common Stock as of the grant date.  The Special Option Grant will be subject to all of the terms and conditions of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes effective.  Your right to exercise the option will vest in equal 20% installments on each of the first five (5) anniversaries of the grant date.  In the event of a “Change of Control” (as defined below) of the Company while you are an employee, your Special Option Grant may, from and after the date which is six months after the Change of Control (but not beyond the expiration date of the option), be exercised for up to 100% of the total number of shares then subject to the Special Option Grant minus the number of shares previously purchased upon exercise of such option (as adjusted for any change in the outstanding shares of the Common Stock of the Company in accordance with the terms of the Option Plan) and your vesting date will accelerate accordingly.  A “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(i)            A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or

(ii)           Any other event deemed to constitute a “Change of Control” by the Company’s Board of Directors.

(2)           Contingent upon Employee’s continued attainment of performance objectives, the Company agrees to deliver a long term incentive value of $60,000 annually through one of the following, as determined in the Company’s sole discretion:  (i) a stock option grant pursuant to the Option Plan, (ii) a restricted stock grant or (iii) a cash-based

2

long term incentive program to be developed.  The long term incentive value of Company stock will be calculated based on an industry accepted stock valuation methodology.

(3)           Employment-At-Will.  Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee.  Employee’s employment by the Company may be terminated by Employee or the Company at any time; provided, however, that while employed by the Company, the terms and conditions of Employee’s employment by the Company will be as herein set forth; and provided further, that Section 4 of this Agreement will survive the termination of Employee’s employment.

3.             Covenants.

a.             Non-Solicitation.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee will not do any of the following without the prior written consent of the Company:

(1)           solicit, entice or induce, either directly or indirectly, any person, firm or corporation who or which is a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation;

(2)           influence or attempt to influence, either directly or indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company); or

(3)           influence or attempt to influence, either directly or indirectly, any person to terminate or modify any employment, consulting, agency, distributorship, licensing or other similar relationship or arrangement with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company).

b.             Non-Disclosure.  Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the business methods, business policies, policies, procedures, techniques, research or development projects or results, historical or projected financial information, budgets, trade secrets, or other knowledge or processes of, or developed by, Company or any other confidential information relating to or dealing with the business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public.  The foregoing provisions of this subsection shall apply during and after the period when the Employee is an employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like.  At the termination of Employee’s employment with Company, Employee shall return to the

3

Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

c.             Non-Competition.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business which is involved in business activities which are the same as or in direct competition with business activities carried on by the Company, or being definitively planned by the Company at the time of termination of Employee’s employment.  Nothing contained in this subsection shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

d.             Intellectual Property & Company Creations.

(1)           Ownership.  All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) at any time and at any place that relates directly or indirectly to the business of the Company, as then operated, operated in the past or under consideration or development or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

(2)           Assignment.  To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration.  Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations.  The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

(3)           Disclosure & Cooperation.  Employee shall keep and maintain adequate and current written records of all Company Creations and their development

4

by Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company.  Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations.  Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations.  Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

e.             Acknowledgments.  Employee acknowledges that the Covenants are reasonable and necessary to protect the Company’s legitimate business interests, its relationships with its customers, its trade secrets and other confidential or proprietary information.  Employee further acknowledges that the duration and scope of the Covenants are reasonable given the nature of this Agreement and the position Employee holds or will hold within the Company.  Employee further acknowledges that the Covenants are included herein to induce the Company to enter into this Agreement and that the Company would not have entered into this Agreement or otherwise employed or continued to employ the Employee in the absence of the Covenants.  Finally, Employee also acknowledges that any breach, willful or otherwise, of the Covenants will cause continuing and irreparable injury to the Company for which monetary damages, alone, will not be an adequate remedy.

f.              Enforcement.

(1)           If any court determines that the Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, that court will have the power to modify such provision and, in its modified form, such provision will then be enforceable.

(2)           The parties acknowledge that significant damages will be caused by a breach of any of the Covenants, but that such damages will be difficult to quantify.  Therefore, the parties agree that if Employee breaches any of the Covenants, liquidated damages will be paid by Employee in the following manner:

(i)            any Company stock options, stock appreciation rights, restricted stock units or similar equity incentives then held by Employee, whether or not then vested, will be immediately and automatically forfeited;

(ii)           any shares of restricted stock issued by the Company, then held by Employee or her permitted transferee and then subject to forfeiture will be immediately and automatically forfeited; and

(iii)          any obligation of the Company to provide severance pay or benefits (whether pursuant to Section 5 or otherwise) will cease.

5

(3)           In addition to the remedies specified in Section 4(f)(2) and any other relief awarded by any court, if Employee breaches any of the Covenants:

(i)            Employee will be required to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any such breach; and

(ii)           the Company will be entitled to injunctive or other equitable relief to prevent further breaches of the Covenants by Employee.

(4)           If Employee breaches Section 4, then the duration of the restriction therein contained will be extended for a period equal to the period that Employee was in breach of such restriction.

4.             Termination.  Employee’s employment by the Company may be terminated at any time.  Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that subject to Section 4(f)(2)(iii), if Employee’s employment is terminated by the Company without Cause, Employee will be entitled to (a) continued payment of his base salary (at the rate in effect upon termination) for a period of 12 months; (b) a payment equal to the average of the last three bonuses from the MedQuist Management Bonus Plan received by Employee.  In the event that there are not three full years of employment, then the average of the last two years will apply.  If less than two years, the target bonus will be paid; and notwithstanding the foregoing, no amount will be paid or benefit provided under this Section 5 unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this Section 5 will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.

5.             Miscellaneous.

a.             Other Agreements.  Employee represents and warrants to the Company that there are no restrictions, agreements or understandings whatsoever to which he is a party that would prevent or make unlawful her execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Employee of his duties to the Company.

b.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the employment of Employee by the Company.  This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

6

c.             Waiver.  Any waiver of any term or condition hereof will not operate as a waiver of any other term or condition of this Agreement.  Any failure to enforce any provision hereof will not operate as a waiver of such provision or of any other provision of this Agreement.

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

e.             Severability.  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 the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been herein contained.

f.              Wage Claims.  The parties intend that all obligations to pay compensation to Employee be obligations solely of the Company.  Therefore, intending to be bound by this provision, Employee hereby waives any right to claim payment of amounts owed to her, now or in the future, from directors or officers of the Company in the event of the Company’s insolvency.

g.             Successors and Assigns.  This Agreement is binding on the Company’s successors and assigns.

h.             Section Headings.  The section headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation.

i.              Counterparts.  This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

6.             Definitions.  Capitalized terms used herein will have the meanings below defined:

a.             “Business” means electronic transcription services and other health information management solutions services businesses in which the Company or its subsidiaries are engaged anywhere within the United States.

b.             “Cause” means the occurrence of any of the following:  (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) her employment duties or to follow the lawful directives of her superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral

7

turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

c.             “Covenants” means the covenants set forth in Section 4 of this Agreement.

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within five (5) days of the date of this Agreement and return a signed copy to my attention.  If the Agreement is not signed and returned within (5) days, the terms and conditions of this Agreement will be deemed withdrawn.

Sincerely,
MEDQUIST INC.
By:	/s/ Frank W. Lavelle
	Frank W. Lavelle
	President

Accepted and Agreed:

/s/ Mark Ivie

Mark Ivie

8

EX-10.20

Exhibit 10.20

June 2, 2005

Ms. Kathleen Donovan
1250 Taylor Drive
Langhorne, PA 19047

Dear Kathleen:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes the terms of your new employment as the Company’s Senior Vice President and Chief Financial Officer, which must commence on a date mutually agreed to in writing by you and the Company (the “Employment Commencement Date”).  For purposes of this Agreement, you are referred to as the “Employee.” Other capitalized terms used in this Agreement have the meanings defined in Section 7, below.

1.             Term.  The Company shall employ Employee hereunder for a three (3) year term commencing on the Employment Commencement Date hereof (the “Term”), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Employment Commencement Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days prior written notice of its intention not to renew this Agreement unless terminated earlier pursuant to Sections 3 or 5 of this Agreement.

2.             Consideration.

a.             Compensation.  As consideration for all services rendered by Employee to the Company and for the Covenants contained herein, Employee will be entitled to:

(1)           base salary at an annual rate of $375,000;

(2)           a signing bonus of $200,000 with the following payment schedule: $50,000 to be paid within thirty (30) days of Employment Commencement Date, and $50,000 to be paid on the 12 month anniversary of the Employment Commencement Date, and $100,000 to be paid on the 24 month anniversary of the Employment Commencement Date.  In order to receive the installments of the signing bonus, you must be employed by the Company on the scheduled date of the applicable installment payment.  In the event that you voluntarily resign from the Company within your first 12 months of employment, the initial $100,000 signing bonus installment must be repaid on a pro rata basis and you will not be entitled to the remaining installments of the signing bonus;

(3)           participate in MedQuist’s Management Bonus Plan for 2005.  Your target bonus in this plan will be 45% of your base salary for 2005 and following years; provided, however that your bonus for 2005 shall be prorated based upon your Employment Commencement Date.  The target bonus is the payment amount that the Employee shall be eligible to receive if the Company and Employee both attain the pre-established bonus plan target objectives.  The actual bonus award may be higher or lower than the target bonus

amount based upon achievement of the objectives by Employee and the Company.  Management Bonus Plan target objectives shall be developed on or before February 28th of each year of the Management Bonus Plan;

(4)           participate in the same employee benefit plans available generally to other full-time employees of the Company, subject to the terms of those plans (as the same may be modified, amended or terminated from time to time); (benefits information package enclosed);

(5)           if Employee’s employment is terminated by the Company without Cause, the severance pay and benefits described below in Section 5.

b.             Long Term Incentives.  In addition, from time to time, the Board may review the performance of the Company and Employee and, in its sole discretion, may grant stock options, shares of restricted stock or other equity-based incentives to Employee to reward extraordinary performance and/or to encourage Employee’s future efforts on behalf of the Company.  The grant of any such equity incentives will be subject to the terms of the Company’s equity-based plans and will be evidenced by a separate award agreement by and between the Company and Employee.

(1)           Upon joining MedQuist, you will become entitled to a special stock option grant of 80,000 shares of non-qualified stock options (“Special Option Grant”) to purchase Company common stock, no par value (“Common Stock”), pursuant to the Company’s Stock Option Plan adopted May 29, 2002 (the “Option Plan”).  The grant date of the Special Option Grant will occur on the later of (i) the date the Company becomes current in its reporting obligations under the Securities Exchange Act of 1934; or (ii) the first date thereafter when the Form S8 Registration Statement for the Option Plan complies with the requirement of the Securities Exchange Commission provided that you are still an employee on the grant date.  The option price for the Special Option Grant shall be equal at least to the fair market value of the Company’s Common Stock as of the grant date.  The Special Option Grant will be subject to all of the terms and conditions of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes effective.  Your right to exercise the option will vest in equal 20% installments on each of the first five (5) anniversaries of the grant date.  In the event of a “Change of Control” (as defined below) of the Company while you are an employee, your Special Option Grant may, from and after the date which is six months after the Change of Control (but not beyond the expiration date of the option), be exercised for up to 100% of the total number of shares then subject to the Special Option Grant minus the number of shares previously purchased upon exercise of such option (as adjusted for any change in the outstanding shares of the Common Stock of the Company in accordance with the terms of the Option Plan) and your vesting date will accelerate accordingly.  A “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(i)            A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or

(ii)           Any other event deemed to constitute a “Change of Control” by the Company’s Board of Directors.

2

(2)           Contingent upon Employee’s continued attainment of performance objectives, the Company agrees to deliver a long term incentive value of $60,000 annually through one of the following, as determined in the Company’s sole discretion:  (i) a stock option grant pursuant to the Option Plan, (ii) a restricted stock grant or (iii) a cash-based long term incentive program to be developed.  The long term incentive value of Company stock will be calculated based on an industry accepted stock valuation methodology.

3.             Employment-At-Will.  Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee.  Employee’s employment by the Company may be terminated by Employee or the Company at any time; provided, however, that while employed by the Company, the terms and conditions of Employee’s employment by the Company will be as herein set forth; and provided further, that Section 4 of this Agreement will survive the termination of Employee’s employment.

4.             Covenants.

a.             Non-Solicitation.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee will not do any of the following without the prior written consent of the Company:

(1)           solicit, entice or induce, either directly or indirectly, any person, firm or corporation who or which is a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation;

(2)           influence or attempt to influence, either directly or indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company); or

(3)           influence or attempt to influence, either directly or indirectly, any person to terminate or modify any employment, consulting, agency, distributorship, licensing or other similar relationship or arrangement with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company).

b.             Non-Disclosure.  Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the business methods, business policies, policies, procedures, techniques, research or development projects or results, historical or projected financial information, budgets, trade secrets, or other knowledge or processes of, or developed by, Company or any other confidential information relating to or dealing with the business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public.  The foregoing provisions of this subsection shall apply during and after the period when the Employee is an

3

employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like.  At the termination of Employee’s employment with Company, Employee shall return to the Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

c.             Non-Competition.  While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business which is involved in business activities which are the same as or in direct competition with business activities carried on by the Company, or being definitively planned by the Company at the time of termination of Employee’s employment.  Nothing contained in this subsection shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

d.             Intellectual Property & Company Creations.

(1)           Ownership.  All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) at any time and at any place that relates directly or indirectly to the business of the Company, as then operated, operated in the past or under consideration or development or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

(2)           Assignment.  To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration.  Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations.  The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

4

(3)           Disclosure & Cooperation.  Employee shall keep and maintain adequate and current written records of all Company Creations and their development by Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company.  Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations.  Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations.  Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

e.             Acknowledgments.  Employee acknowledges that the Covenants are reasonable and necessary to protect the Company’s legitimate business interests, its relationships with its customers, its trade secrets and other confidential or proprietary information.  Employee further acknowledges that the duration and scope of the Covenants are reasonable given the nature of this Agreement and the position Employee holds or will hold within the Company.  Employee further acknowledges that the Covenants are included herein to induce the Company to enter into this Agreement and that the Company would not have entered into this Agreement or otherwise employed or continued to employ the Employee in the absence of the Covenants.  Finally, Employee also acknowledges that any breach, willful or otherwise, of the Covenants will cause continuing and irreparable injury to the Company for which monetary damages, alone, will not be an adequate remedy.

f.              Enforcement.

(1)           If any court determines that the Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, that court will have the power to modify such provision and, in its modified form, such provision will then be enforceable.

(2)           The parties acknowledge that significant damages will be caused by a breach of any of the Covenants, but that such damages will be difficult to quantify.  Therefore, the parties agree that if Employee breaches any of the Covenants, liquidated damages will be paid by Employee in the following manner:

(i)            any Company stock options, stock appreciation rights, restricted stock units or similar equity incentives then held by Employee, whether or not then vested, will be immediately and automatically forfeited;

(ii)           any shares of restricted stock issued by the Company, then held by Employee or her permitted transferee and then subject to forfeiture will be immediately and automatically forfeited; and

5

(iii)          any obligation of the Company to provide severance pay or benefits (whether pursuant to Section 5 or otherwise) will cease.

(3)           In addition to the remedies specified in Section 4(f)(2) and any other relief awarded by any court, if Employee breaches any of the Covenants:

(i)    Employee will be required to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any such breach; and

(ii)   the Company will be entitled to injunctive or other equitable relief to prevent further breaches of the Covenants by Employee.

(4)           If Employee breaches Section 4, then the duration of the restriction therein contained will be extended for a period equal to the period that Employee was in breach of such restriction.

5.             Termination.  Employee’s employment by the Company may be terminated at any time.  Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that subject to Section 4(f)(2)(iii), if Employee’s employment is terminated by the Company without Cause, Employee will be entitled to (a) continued payment of her base salary (at the rate in effect upon termination) for a period of 12 months; (b) a payment equal to the average of the last three bonuses from the MedQuist Management Bonus Plan received by Employee.  In the event that there are not three full years of employment, then the average of the last two years will apply.  If less than two years, the target bonus will be paid; and notwithstanding the foregoing, no amount will be paid or benefit provided under this Section 5 unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this Section 5 will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.

6.             Miscellaneous.

a.             Other Agreements.  Employee represents and warrants to the Company that there are no restrictions, agreements or understandings whatsoever to which she is a party that would prevent or make unlawful her execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Employee of her duties to the Company.

b.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the employment of Employee by the Company.  This

6

Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

c.             Waiver.  Any waiver of any term or condition hereof will not operate as a waiver of any other term or condition of this Agreement.  Any failure to enforce any provision hereof will not operate as a waiver of such provision or of any other provision of this Agreement.

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

e.             Severability.  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 the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been herein contained.

f.              Wage Claims.  The parties intend that all obligations to pay compensation to Employee be obligations solely of the Company.  Therefore, intending to be bound by this provision, Employee hereby waives any right to claim payment of amounts owed to her, now or in the future, from directors or officers of the Company in the event of the Company’s insolvency.

g.             Successors and Assigns.  This Agreement is binding on the Company’s successors and assigns.

h.             Section Headings.  The section headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation.

i.              Counterparts.  This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

j.              Indemnification.  Employee shall be indemnified for acts performed in good faith as an officer, director or employee of the Company in the manner provided in the Company’s charter and by-laws, and shall be covered by director and officer liability insurance coverage for such acts to the same extent that any such coverage is provided to the Company’s executive officers.

7

7.             Definitions.  Capitalized terms used herein will have the meanings below defined:

a.             “Business” means electronic transcription services and other health information management solutions services businesses in which the Company or its subsidiaries are engaged anywhere within the United States.

b.             “Cause” means the occurrence of any of the following:  (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) her employment duties or to follow the lawful directives of her superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

c.             “Covenants” means the covenants set forth in Section 4 of this Agreement.

To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within five (5) days of the date of this Agreement and return a signed copy to my attention.  If the Agreement is not signed and returned within (5) days, the terms and conditions of this Agreement will be deemed withdrawn.

Sincerely,
MEDQUIST INC.
By:	/s/ Frank W. Lavelle
	Frank W. Lavelle
	President

Accepted and Agreed:

/s/ Kathleen Donovan

Kathleen Donovan

8

EX-10.21

Exhibit 10.21

October 26, 2005

Via Overnight Mail and Facsimile
Mr.  R. Scott Bennett
6 Kenwood Court
Malvern, PA 19355

Dear Scott:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes the terms of your new employment as the Company’s Senior Vice President - Sales & Marketing, which must commence on a date mutually agreed to in writing by you and the Company (the “Employment Commencement Date”).  For purposes of this Agreement, you are referred to as the “Employee.” Other capitalized terms used in this Agreement have the meanings defined in Section 7, below.

1.             Term.  The Company shall employ Employee hereunder for a three (3) year term commencing on the Employment Commencement Date hereof (the “Term”), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Employment Commencement Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days prior written notice of its intention not to renew this Agreement unless terminated earlier pursuant to Sections 3 or 5 of this Agreement.

2.             Consideration.

a.             Compensation.  As consideration for all services rendered by Employee to the Company and for the Covenants contained herein, Employee will be entitled to:

i.              base salary at an annual rate of $240,000, subject to review and adjustment annually during the Term;

ii.             signing bonus of $150,000 to be paid within thirty (30) days of Employment Commencement Date.  In the event that you voluntarily resign from the Company within your first 12 months of employment, this signing bonus must be repaid on a pro rata basis.

iii.            participate in MedQuist’s Management Bonus Plan, commencing in 2006.  Your target bonus in this plan will be 45% of your base salary for 2006 and following years.  The target bonus is the payment amount that the Employee shall be eligible to receive if the Company and Employee both attain the pre-established bonus plan target objectives.  The actual bonus award may be higher or lower than the target bonus amount based upon achievement of the objectives by Employee and the Company.  Management Bonus Plan target objectives shall be developed on or before February 28th of each year of the Management Bonus Plan.  Payment of $54,000, which is equal to half of your annual target bonus for the year ending December 31, 2006, is guaranteed;

iv.            participate in the same employee benefit plans available generally to other full-time employees of the Company, subject to the terms of those plans (as the same may be modified, amended or terminated from time to time); (benefits information package enclosed);

v.             receive relocation support in accordance with the Company Relocation Policy.  This relocation offer will be in effect for the first twenty-four (24) months of your employment;

vi.            if Employee’s employment is terminated by the Company without Cause, the severance pay and benefits described below in Section 5.

b.             Long Term Incentives.  In addition, from time to time, the Board may review the performance of the Company and Employee and, in its sole discretion, may grant stock options, shares of restricted stock or other equity-based incentives to Employee to reward extraordinary performance and/or to encourage Employee’s future efforts on behalf of the Company.  The grant of any such equity incentives will be subject to the terms of the Company’s equity-based plans and will be evidenced by a separate award agreement by and between the Company and Employee.

i.              Upon joining MedQuist, you will become entitled to a special stock option grant of 60,000 shares of non-qualified stock options (“Special Option Grant”) to purchase Company common stock, no par value (“Common Stock”), pursuant to the Company’s Stock Option Plan adopted May 29, 2002 (the “Option Plan”).  The grant date of the Special Option Grant will occur on the later of (i) the date the Company becomes current in its reporting obligations under the Securities Exchange Act of 1934; or (ii) the first date thereafter when the Form S8 Registration Statement for the Option Plan complies with the requirement of the Securities Exchange Commission provided that you are still an employee on the grant date.  The option price for the Special Option Grant shall be equal at least to the fair market value of the Company’s Common Stock as of the grant date.  The Special Option Grant will be subject to all of the terms and conditions of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes effective.  Your right to exercise the option will vest in equal 20% installments on each of the first five (5) anniversaries of the grant date.  In the event of a “Change of Control” (as defined below) of the Company while you are an employee, your Special Option Grant may, from and after the date which is six months after the Change of Control (but not beyond the expiration date of the option), be exercised for up to 100% of the total number of shares then subject to the Special Option Grant minus the number of shares previously purchased upon exercise of such option (as adjusted for any change in the outstanding shares of the Common Stock of the Company in accordance with the terms of the Option Plan) and your vesting date will accelerate accordingly.  A “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(1)           A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or

2

(2)           Any other event deemed to constitute a “Change of Control” by the Company’s Board of Directors.

ii.             Contingent upon Employee’s continued attainment of performance objectives, the Company agrees to deliver a long term incentive value of $120,000 annually through one of the following, as determined in the Company’s sole discretion: (i) a stock option grant pursuant to the Option Plan, (ii) a restricted stock grant or (iii) a cash-based long term incentive program to be developed.  The long term incentive value of Company stock will be calculated based on an industry accepted stock valuation methodology.

3.             Employment-At-Will.  Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee.  Employee’s employment by the Company may be terminated by Employee or the Company at any time; provided, however, that while employed by the Company, the terms and conditions of Employee’s employment by the Company will be as herein set forth; and provided further, that Section 4 of this Agreement will survive the termination of Employee’s employment.

4.             Covenants.

a.             Non-Solicitation.  While employed by the Company and for the twelve (12) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee will not do any of the following without the prior written consent of the Company:

i.              solicit, entice or induce, either directly or indirectly, any person, firm or corporation who or which is a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation;

ii.             influence or attempt to influence, either directly or indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company); or

iii.            influence or attempt to influence, either directly or indirectly, any person to terminate or modify any employment, consulting, agency, distributorship, licensing or other similar relationship or arrangement with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company).

b.             Non-Disclosure.  Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the business methods, business policies, policies, procedures, techniques, research or development projects or results, historical or projected financial information, budgets, trade secrets, or other knowledge or processes of, or developed by,

3

Company or any other confidential information relating to or dealing with the business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public.  The foregoing provisions of this subsection shall apply during and after the period when the Employee is an employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like.  At the termination of Employee’s employment with Company, Employee shall return to the Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

c.             Non-Competition.  While employed by the Company and for the twelve (12) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business which is involved in business activities which are the same as or in direct competition with Business activities carried on by the Company, or being definitively planned by the Company at the time of termination of Employee’s employment.  Nothing contained in this subsection shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

d.             Intellectual Property & Company Creations.

i.              Ownership.  All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) at any time and at any place that relates directly or indirectly to the business of the Company, as then operated, operated in the past or under consideration or development or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

ii.             Assignment.  To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably

4

assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration.  Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations.  The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

iii.            Disclosure & Cooperation.  Employee shall keep and maintain adequate and current written records of all Company Creations and their development by Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company.  Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations.  Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations.  Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

e.             Acknowledgments.  Employee acknowledges that the Covenants are reasonable and necessary to protect the Company’s legitimate business interests, its relationships with its customers, its trade secrets and other confidential or proprietary information.  Employee further acknowledges that the duration and scope of the Covenants are reasonable given the nature of this Agreement and the position Employee holds or will hold within the Company.  Employee further acknowledges that the Covenants are included herein to induce the Company to enter into this Agreement and that the Company would not have entered into this Agreement or otherwise employed or continued to employ the Employee in the absence of the Covenants.  Finally, Employee also acknowledges that any breach, willful or otherwise, of the Covenants will cause continuing and irreparable injury to the Company for which monetary damages, alone, will not be an adequate remedy.

f.              Enforcement.

i.              If any court determines that the Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, that court will have the power to modify such provision and, in its modified form, such provision will then be enforceable.

ii.             The parties acknowledge that significant damages will be caused by a breach of any of the Covenants, but that such damages will be difficult to quantify.  Therefore, the parties agree that if Employee breaches any of the Covenants, liquidated damages will be paid by Employee in the following manner:

5

(1)           any Company stock options, stock appreciation rights, restricted stock units or similar equity incentives then held by Employee, whether or not then vested, will be immediately and automatically forfeited;

(2)           any shares of restricted stock issued by the Company, then held by Employee or his permitted transferee and then subject to forfeiture will be immediately and automatically forfeited; and

(3)           any obligation of the Company to provide severance pay or benefits (whether pursuant to Section 5 or otherwise) will cease.

iii.            In addition to the remedies specified in Section 4(f)(2) and any other relief awarded by any court, if Employee breaches any of the Covenants:

(1)           Employee will be required to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any such breach; and

(2)           the Company will be entitled to injunctive or other equitable relief to prevent further breaches of the Covenants by Employee.

iv.            If Employee breaches Section 4, then the duration of the restriction therein contained will be extended for a period equal to the period that Employee was in breach of such restriction.

5.             Termination.  Employee’s employment by the Company may be terminated at any time.  Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination.  All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that subject to Section 4(f)(2)(iii), if Employee’s employment is terminated by the Company without Cause, Employee will be entitled to (a) continued payment of his base salary (at the rate in effect upon termination) for a period of 12 months; (b) a payment equal to the average of the last three bonuses from the MedQuist Management Bonus Plan received by Employee.  In the event that there are not three full years of employment, then the average of the last two years will apply.  If less than two years, the target bonus will be paid; and notwithstanding the foregoing, no amount will be paid or benefit provided under this Section 5 unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, which release shall not conflict with any of the terms of this Agreement without the mutual written consent of Employee and Company, and (y) such release becomes irrevocable.  Any severance pay or benefits provided under this Section 5 will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.

6

6.             Miscellaneous.

a.             Arbitration.  Except a controversy or claim arising out or relating to Section 4 of this Agreement, any controversy or claim arising out of or relating to this Agreement or the breach of any covenant or agreement contained herein, shall be commenced by filing a notice (the “Notice”) for arbitration with the American Arbitration Association (“AAA.”), with a copy to the other party hereto.  Such controversy or claim shall be decided by arbitration in Philadelphia, Pennsylvania, in accordance with the Employment Arbitration Rules of the AAA. then obtaining.  The decision and the award of damages rendered by the Arbitrator shall be final and binding and judgment may be entered upon it in any court having jurisdiction thereof.

b.             Other Agreements.  Employee represents and warrants to the Company that there are no restrictions, agreements or understandings whatsoever to which he is a party that would prevent or make unlawful his execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Employee of his duties to the Company.

c.             Entire Agreement; Amendment.  This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the employment of Employee by the Company.  This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

d.             Waiver.  Any waiver of any term or condition hereof will not operate as a waiver of any other term or condition of this Agreement.  Any failure to enforce any provision hereof will not operate as a waiver of such provision or of any other provision of this Agreement.

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

f.              Severability.  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 the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been herein contained.

g.             Wage Claims.  The parties intend that all obligations to pay compensation to Employee be obligations solely of the Company.  Therefore, intending to be bound by this provision, Employee hereby waives any right to claim payment of amounts owed to him, now or in the future, from directors or officers of the Company in the event of the Company’s insolvency.

h.             Successors and Assigns.  This Agreement is binding on the Company’s successors and assigns.

7

i.              Section Headings.  The section headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation.

j.              Counterparts.  This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

7.             Definitions.  Capitalized terms used herein will have the meanings below defined:

a.             “Business” means electronic transcription services and other health information management solutions services businesses in which the Company or its subsidiaries are engaged anywhere within the United States.

b.             “Cause” means the occurrence of any of the following: (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) his employment duties or to follow the lawful directives of his superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

c.             “Covenants” means the covenants set forth in Section 4 of this Agreement.  To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within five (5) days of the date of this Agreement and return a signed copy to my attention.  If the Agreement is not signed and returned within (5) days, the terms and conditions of this Agreement will be deemed withdrawn.

Sincerely,
MEDQUIST INC.
By:	/s/ Frank W. Lavelle
	Frank W. Lavelle
	President

Accepted and Agreed:

/s/ R. Scott Bennett

R. Scott Bennett

8

EX-10.22

Exhibit 10.22

August 10, 2006

Linda Reino
c/o MedQuist Inc.
1000 Bishops Gate Blvd., Suite 300
Mt. Laurel, NJ 08054

Dear Linda:

On behalf of MedQuist Inc. (the “Company”), this Agreement describes the terms of your new employment as the Company’s Chief Operating Officer, which will commence on October 2, 2006 (the “Employment Commencement Date”). For purposes of this Agreement, you are referred to as the “Employee.” Other capitalized terms used in this Agreement have the meanings defined in Section 7, below.

1.             Term. The Company shall employ Employee hereunder for a three (3) year term commencing on the Employment Commencement Date hereof (the “Term”), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Employment Commencement Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days’ prior written notice of its intention not to renew this Agreement unless terminated earlier pursuant to Sections 3 or 5 of this Agreement.

2.             Consideration.

a.             Compensation. As consideration for all services rendered by Employee to the Company and for the Covenants contained herein, Employee will be entitled to:

(1)           base salary at an annual rate of $310,000;

(2)           participate in MedQuist’s Management Bonus Plan, commencing in 2007. Your target bonus in this plan will be 45% of your base salary for 2007 and following years. The target bonus is the payment amount that the Employee shall be eligible to receive if the Company and Employee both attain the pre-established bonus plan target objectives. The actual bonus award may be higher or lower than the target bonus amount based upon achievement of the objectives by Employee and the Company. Management Bonus Plan target objectives shall be developed on or before February 28th of each year of the Management Bonus Plan;

(3)           participate in the same employee benefit plans available generally to other full-time employees of the Company, subject to the terms of those plans (as the same may be modified, amended or terminated from time to time); (benefits information package previously provided to you);

(4)           receive relocation support in accordance with the Company Relocation Policy. This relocation offer will be in effect for the first twenty-four (24) months of your employment;

(5)           if Employee’s employment is terminated by the Company without Cause the severance pay and benefits are described below in Section 5.

b.             Long Term Incentives. In addition, from time to time, the Board may review the performance of the Company and Employee and, in its sole discretion, may grant stock options, shares of restricted stock or other equity-based incentives to Employee to reward extraordinary performance and/or to encourage Employee’s future efforts on behalf of the Company. The grant of any such equity incentives will be subject to the terms of the Company’s equity-based plans and will be evidenced by a separate award agreement by and between the Company and Employee.

(1)           Upon joining MedQuist, you will become entitled to a special stock option grant of 80,000 shares of non-qualified stock options (“Special Option Grant”) to purchase Company common stock, no par value (“Common Stock”), pursuant to the Company’s Stock Option Plan adopted May 29, 2002 (the “Option Plan”). The grant date of the Special Option Grant will occur on the later of (i) the date the Company becomes current in its reporting obligations under the Securities Exchange Act of 1934; or (ii) the first date thereafter when the Form S8 Registration Statement for the Option Plan complies with the requirement of the Securities Exchange Commission provided that you are still an employee on the grant date. The option price for the Special Option Grant shall be equal at least to the fair market value of the Company’s Common Stock as of the grant date. The Special Option Grant will be subject to all of the terms and conditions of the Option Plan and the Stock Option Agreement that will be issued if and when the grant becomes effective. Your right to exercise the option will vest in equal 20% installments on each of the first five (5) anniversaries of the grant date. In the event of a “Change of Control” (as defined below) of the Company while you are an employee, your Special Option Grant may, from and after the date which is six months after the Change of Control (but not beyond the expiration date of the option), be exercised for up to 100% of the total number of shares then subject to the Special Option Grant minus the number of shares previously purchased upon exercise of such option (as adjusted for any change in the outstanding shares of the Common Stock of the Company in accordance with the terms of the Option Plan) and your vesting date will accelerate accordingly. A “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

a.             A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of the Company; or

b.             Any other event deemed to constitute a “Change of Control” by the Company’s Board of Directors.

(2)           Contingent upon Employee’s continued attainment of performance objectives, the Company agrees to deliver a long term incentive value of $60,000 annually through one of the following, as determined in the Company’s sole discretion: (i) a stock option grant pursuant to the Option Plan, (ii) a restricted stock grant or (iii) a cash-based long term incentive program to be developed. The long term incentive value of Company stock will be calculated based on an industry accepted stock valuation methodology.

3.             Employment At-Will. Nothing contained in this Agreement is intended to create an employment relationship whereby Employee will be employed other than as an “at-will” employee. Employee’s employment by the Company may be terminated by Employee or the Company at any time; provided, however, that while employed by the Company, the terms and

conditions of Employee’s employment by the Company will be as herein set forth; and provided further, that Section 4 of this Agreement will survive the termination of Employee’s employment.

4.             Covenants

a.             Non-Solicitation. While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee will not do any of the following without the prior written consent of the Company:

(1)           solicit, entice or induce, either directly or indirectly, any person, firm or corporation who or which is a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation;

(2)           influence or attempt to influence, either directly or indirectly, any customer of the Company or its subsidiaries to terminate or modify any written or oral agreement or course of dealing with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company); or

(3)           influence or attempt to influence, either directly or indirectly, any person to terminate or modify any employment, consulting, agency, distributorship, licensing or other similar relationship or arrangement with the Company or its subsidiaries (except in Employee’s capacity as an employee of the Company).

b.             Non-Disclosure. Employee shall not use for Employee’s personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any “Confidential Information,” which term shall mean any information regarding the Business methods, Business policies, policies, procedures, techniques, research or development projects or results, historical or projected financial information, budgets, trade secrets, or other knowledge or processes of, or developed by, Company or any other confidential information relating to or dealing with the Business operations of Company, made known to Employee or learned or acquired by Employee while in the employ of Company, but Confidential Information shall not include information otherwise lawfully known generally by or readily accessible to the general public. The foregoing provisions of this subsection shall apply during and after the period when the Employee is an employee of the Company and shall be in addition to (and not a limitation of) any legally applicable protections of Company interest in confidential information, trade secrets, and the like. At the termination of Employee’s employment with Company, Employee shall return to the Company all copies of Confidential Information in any medium, including computer tapes and other forms of data storage.

c.             Non-Competition. While employed by the Company and for the eighteen (18) month period following the cessation of that employment for any reason (and without regard to whether such cessation was initiated by Employee or the Company), Employee shall not directly or indirectly engage in (as a principal, shareholder, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business which is involved in business

activities which are the same as or in direct competition with Business activities carried on by the Company, or being definitively planned by the Company at the time of termination of Employee’s employment. Nothing contained in this subsection shall prevent Employee from holding for investment up to three percent (3%) of any class of equity securities of a company whose securities are publicly traded on a national securities exchange or in a national market system.

d.             Intellectual Property & Company Creations.

(1)           Ownership. All right, title and interest in and to any and all ideas, inventions, designs, technologies, formulas, methods, processes, development techniques, discoveries, computer programs or instructions (whether in source code, object code, or any other form), computer hardware, algorithms, plans, customer lists, memoranda, tests, research, designs, specifications, models, data, diagrams, flow charts, techniques (whether reduced to written form or otherwise), patents, patent applications, formats, test results, marketing and business ideas, trademarks, trade secrets, service marks, trade dress, logos, trade names, fictitious names, brand names, corporate names, original works of authorship, copyrights, copyrightable works, mask works, computer software, all other similar intangible personal property, and all improvements, derivative works, know-how, data, rights and claims related to the foregoing that have been or are conceived, developed or created in whole or in part by the Employee (a) at any time and at any place that relates directly or indirectly to the Business of the Company, as then operated, operated in the past or under consideration or development or (b) as a result of tasks assigned to Employee by the Company (collectively, “Company Creations”), shall be and become and remain the sole and exclusive property of the Company and shall be considered “works made for hire” as that term is defined pursuant to applicable statutes and law.

(2)           Assignment. To the extent that any of the Company Creations may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, Employee retains any interest in or to the Company Creations, Employee hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that Employee has or may have, either now or in the future, in and to the Company Creations, and any derivatives thereof, without the necessity of further consideration. Employee shall promptly and fully disclose all Company Creations to the Company and shall have no claim for additional compensation for Company Creations. The Company shall be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks, and service marks with respect to such Company Creations.

(3)           Disclosure & Cooperation. Employee shall keep and maintain adequate and current written records of all Company Creations and their development by Employee (solely or jointly with others), which records shall be available at all times to and remain the sole property of the Company. Employee shall communicate promptly and disclose to the Company, in such form as the Company may reasonably request, all information, details and data pertaining to any Company Creations. Employee further agrees to execute and deliver to the Company or its designee(s) any and all formal transfers and assignments and other documents and to provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Company Creations. Employee hereby designates and appoints the Company or its designee as Employee’s agent and attorney-in-fact to execute on Employee’s

behalf any assignments or other documents deemed necessary by the Company to perfect, maintain or otherwise protect the Company’s rights in any Company Creations.

e.             Acknowledgments. Employee acknowledges that the Covenants are reasonable and necessary to protect the Company’s legitimate Business interests, its relationships with its customers, its trade secrets and other confidential or proprietary information. Employee further acknowledges that the duration and scope of the Covenants are reasonable given the nature of this Agreement and the position Employee holds or will hold within the Company. Employee further acknowledges that the Covenants are included herein to induce the Company to enter into this Agreement and that the Company would not have entered into this Agreement or otherwise employed or continued to employ the Employee in the absence of the Covenants. Finally, Employee also acknowledges that any breach, willful or otherwise, of the Covenants will cause continuing and irreparable injury to the Company for which monetary damages, alone, will not be an adequate remedy.

f.              Enforcement.

(1)           If any court determines that the Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, that court will have the power to modify such provision and, in its modified form, such provision will then be enforceable.

(2)           The parties acknowledge that significant damages will be caused by a breach of any of the Covenants, but that such damages will be difficult to quantify. Therefore, the parties agree that if Employee breaches any of the Covenants, liquidated damages will be paid by Employee in the following manner:

a.             any Company stock options, stock appreciation rights, restricted stock units or similar equity incentives then held by Employee, whether or not then vested, will be immediately and automatically forfeited;

b.             any shares of restricted stock issued by the Company, then held by Employee or her permitted transferee and then subject to forfeiture will be immediately and automatically forfeited; and

c.             any obligation of the Company to provide severance pay or benefits (whether pursuant to Section 5 or otherwise) will cease.

(3)           In addition to the remedies specified in Section 4(f)(2) and any other relief awarded by any court, if Employee breaches any of the Covenants:

a.             Employee will be required to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any such breach; and

b.             the Company will be entitled to injunctive or other equitable relief to prevent further breaches of the Covenants by Employee.

(4)           If Employee breaches Section 4, then the duration of the restriction therein contained will be extended for a period equal to the period that Employee was in breach of such restriction.

5.             Termination. Employee’s employment by the Company may be terminated at any time. Upon termination, Employee will be entitled to the payment of accrued and unpaid salary through the date of such termination. All salary, commissions and benefits will cease at the time of such termination, subject to the terms of any benefit plans then in force or enforceable under applicable law and applicable to Employee, and the Company will have no further liability or obligation hereunder by reason of such termination; provided, however, that subject to Section 4(f)(2)(iii), if Employee’s employment is terminated by the Company without Cause, Employee will be entitled to (a) continued payment of her base salary (at the rate in effect upon termination) for a period of 12 months; (b) a payment equal to the average of the last three bonuses from the MedQuist Management Bonus Plan received by Employee. In the event that there are not three full years of employment, then the average of the last two years will apply. If less than two years, the target bonus will be paid; and notwithstanding the foregoing, no amount will be paid or benefit provided under this Section 5 unless and until (x) Employee executes and delivers a general release of claims against the Company and its subsidiaries in a form prescribed by the Company, and (y) such release becomes irrevocable. Any severance pay or benefits provided under this Section 5 will be in lieu of, not in addition to, any other severance arrangement maintained by the Company.

6.             Miscellaneous.

a.             Other Agreements. Employee represents and warrants to the Company that there are no restrictions, agreements or understandings whatsoever to which she is a party that would prevent or make unlawful her execution of this Agreement, that would be inconsistent or in conflict with this Agreement or Employee’s obligations hereunder, or that would otherwise prevent, limit or impair the performance by Employee of her duties to the Company.

b.             Entire Agreement; Amendment. This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the employment of Employee by the Company. This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

c.             Waiver. Any waiver of any term or condition hereof will not operate as a waiver of any other term or condition of this Agreement. Any failure to enforce any provision hereof will not operate as a waiver of such provision or of any other provision of this Agreement.

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

e.             Severability. 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 the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been herein contained.

f.              Wage Claims. The parties intend that all obligations to pay compensation to Employee be obligations solely of the Company. Therefore, intending to be bound by this provision, Employee hereby waives any right to claim payment of amounts owed to her, now or in the future, from directors or officers of the Company in the event of the Company’s insolvency.

g.             Successors and Assigns. This Agreement is binding on the Company’s successors and assigns.

h.             Section Headings. The section headings in this Agreement are for convenience only; they form no part of this Agreement and will not affect its interpretation.

i.              Counterparts. This Agreement may be executed in multiple counterparts, each of which will be deemed to be an original and all of which together will constitute but one and the same instrument.

7.             Definitions. Capitalized terms used herein will have the meanings below defined:

a.             “Business” means electronic transcription services and other health information management solutions services businesses in which the Company or its subsidiaries are engaged anywhere within the United States.

b.             “Cause” means the occurrence of any of the following: (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) her employment duties or to follow the lawful directives of her superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment; (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

c.             “Covenants” means the covenants set forth in Section 4 of this Agreement.  To acknowledge your agreement to and acceptance of the terms and conditions of this Agreement, please sign below in the space provided within five (5) days of the date of this Agreement and return a signed copy to my attention. If the Agreement is not signed and returned within five (5) days, the terms and conditions of this Agreement will be deemed withdrawn.

	Sincerely,
	MedQuist, Inc.
	By:	/s/ Frank W. Lavelle
			Frank W. Lavelle
			President
Accepted and Agreed:
/s/ Linda Reino
Linda Reino

EX-10.23

Exhibit 10.23

CONFIDENTIAL

REVISED — Hand Delivered

November 8, 2006

Mr. James Brennan
c/o MedQuist Inc.
1000 Bishops Gate Blvd.
Mount Laurel, NJ 08054

Dear Jim:

I am pleased to offer you the position of Principal Accounting Officer, Controller and Vice President with MedQuist Inc. (the “Company”) reporting to Kathleen Donovan, Chief Financial Officer.  We would like your employment start date to be on November 14, 2006 under the following general terms and conditions of our offer.

COMPENSATION

Your base salary will be $8,958.33 paid semi-monthly, which is equivalent to an annual amount of $215,000.00, earned on an annualized basis and will be subject to all applicable withholdings.  Payroll is processed on or about the 10th and 25th of each month, for time worked from the 1st through the 15th of the month, and the 16th through the last day of the month.

In addition, you will be eligible to receive a hiring bonus in the amount of $40,000.00, which will be paid within 30 days of your start date. This payment is subject to all applicable withholdings. This hiring bonus shall be reimbursed to MedQuist, within 30 calendar days, if you should voluntarily leave the company within 12 months of your hire date.

In this position, you are eligible to participate in the Company’s 2007 Management Incentive Plan and your target incentive under this Plan is 30% of your base salary.  You will be provided with a copy of this Plan once it is developed and approved.

When the Company creates a new Long-term Incentive Plan, your eligibility will be considered in accordance with your position.

If your employment is terminated by the Company without cause, you will be eligible for continued payment of your base salary (at the rate in effect at the time of termination) for a period of 12 months contingent upon the execution and delivery of a General Release of claims against the Company. However, if Philips employs you at any time as an employee or a contractor during the 12-month severance period, the severance payments will end.

“Cause” means the occurrence of any of the following: (1) Employee’s refusal, willful failure or inability to perform (other than due to illness or disability) his/her employment duties or to follow the lawful directives of his/her superiors; (2) misconduct or gross negligence by Employee in the course of employment; (3) conduct of Employee involving any type of disloyalty to the Company or its subsidiaries, including, without limitation: fraud, embezzlement, theft or dishonesty in the course of employment: (4) a conviction of or the entry of a plea of guilty or nolo contendere to a crime involving moral turpitude or that otherwise could reasonably be expected to have an adverse effect on the operations, condition or reputation of the Company, (5) a material breach by Employee of any agreement with or fiduciary duty owed to the Company; or (6) alcohol abuse or use of controlled drugs other than in accordance with a physician’s prescription.

BENEFITS

You and your qualified dependents will be eligible on the first day of employment for coverage under the Company’s group insurance benefits. The Human Resources department will provide information and enrollment forms for these benefits upon your eligibility.  These benefits have been enhanced to include the following:

1) Company-paid Life Insurance - 2x your base salary;

2) Short-term Disability - 6 months/100% salary continuation; and

3) Long-term Disability - 70% base salary replacement (maximum $15,000.00 per month).

After one year of service, you will also be eligible to enroll in the Company’s 401(k) retirement plan and an enrollment package will be provided to you at that time.

AT-WILL EMPLOYMENT

Your employment with the Company is “at-will.”  Accordingly, if you accept this offer, you may voluntarily leave the Company at any time, or be terminated at any time, with or without reason.  This letter merely memorializes the terms of your employment and does not create an employment agreement or contract.

RETURN OF MATERIALS

Upon termination of your employment with the Company for any reason, you must immediately return to the Company all documents, property, software, materials, information and other records of the Company, and all copies thereof, within your possession, custody or control, including but not limited to any materials containing trade secrets or confidential information of MedQuist.

2

GENERAL

Enclosed you will find a New Hire Kit with required payroll and employment process forms; a Confidentiality and Non-Solicitation Agreement that you must sign and date as a requirement for employment; and a copy of the MedQuist Employee Handbook for your use while employed with MedQuist.  Please complete and sign the forms in the New Hire Kit, sign and date the Confidentiality and Non-Solicitation Agreement, sign the Employee Handbook Acknowledgement form and return all of these completed forms to our Human Resources office on or before your first day of employment.

On your first day of work, you will also be required to present proof of employment eligibility and a picture ID, as explained on the Employment Eligibility Verification form provided in your New Hire Kit.

This offer is valid until Friday, November 10, 2006. Please sign and return one copy of this offer letter in the envelope provided no later than Friday, November 10, 2006.  Should you have any questions about this letter, please feel free to contact me at 856-206-4905.

Jim, we sincerely look forward to you officially joining the MedQuist team and the continued contributions that you will make to our organization.

Sincerely,

/s/	Donna M. Jack
Donna M. Jack
Vice President, Human Resources

The provisions of this offer of employment have been read, are understood, and the offer is accepted by the undersigned.

Signature:	/s/ James Brennan
	James Brennan
Date:	11/10/06

3

EX-10.24

Exhibit 10.24

July 29, 2004

MedQuist Inc.
Steve Rusckowski
Chief Executive Officer
1000 Bishops Gate Blvd.
Suite 300
Mt. Laurel, NJ  08054-4632

Dear Steve:

In response to our discussions, Nightingale is pleased to submit this Engagement Letter which sets forth our current understanding of the scope of services of the assignment as well as the general terms and conditions for the retention of Nightingale and Associates, LLC (“Nightingale”) by MedQuist Inc. (“MedQuist” or the “Company”).  It is our understanding that Nightingale will be engaged by MedQuist and will report its findings, conclusions and recommendations to the Company’s Board of Directors.

PHASE I

I.              SCOPE OF WORK:

1.Effective July 30, 2004 Nightingale Will Assign Howard S. Hoffman To Assume The Position Of Interim Chief Executive Officer of MedQuist For A Period Of Three Months.  While Mr. Hoffmann Will Devote The Vast Majority Of His Time During This Period To Medquist.  You Are Aware Of And Acknowledge That Mr. Hoffmann Has Committed Up To One Day Per Week Over The Next Six Weeks On Another Non-Conflicting Nightingale Engagement.  In Addition, Mr. Hoffmann Will Be Out On Vacation On August 13 And On August 27.  He Will, Of Course, Make Every Effort To Ensure That The Work Is Properly Delegated And Proceeds Smoothly During His Absence.

PHASE II

Any Phase II activities will be entirely dependent upon the scope of continuing activities and will be subject to specific request, approval and authorization of the Company in advance of commencement.

II.            discussion

Nightingale approaches all assignments such as the one under discussion as a team effort with the management and employees of the Company involved.  It would be our intention and practice to utilize Company management and employees to undertake fact finding and analysis on our mutual behalf to the greatest extent possible.

MedQuist Engagement Letter.max

In addition, we would utilize work done by the Company or its professionals and other consultants, to the extent it may be available, in order to avoid or minimize duplication of work.

III.           cost estimate

Nightingale will invoice for the utilization of Mr. Hoffmann’s time on an hourly basis at the rate of $525 per hour subject to a cap of $100,000 per month on a cumulative basis over the three month period.

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 confer with the Board of Directors 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 15% 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.

Invoices will be submitted bi-weekly for professional time fees plus expenses, and are due and payable upon presentation via wire transfer per Addendum A attached.  Prompt payment of Nightingale invoices is a prerequisite for Nightingale’s continued work on an engagement.

Exhibit I, attached, is a summary of Nightingale professional time billing rates, and terms and conditions for engagement of our firm, and is an integral part of this Engagement Letter.

Nightingale fully understands that the Company desires to keep costs to a minimum, commensurate with achieving the objectives of the assignment and given a reasonable degree of comfort relative to the judgments, conclusions, and recommendations involved.  Every effort will be made to keep costs to a minimum.

IV.           advance deposit

Nightingale requires an Advance Deposit for all assignments of the type described above.  Given this situation, Nightingale requires an Advance Deposit of $75,000 that must be paid simultaneously with beginning project work.  Separate wiring instructions for placing client’s funds in escrow are attached hereto as Addendum B.  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 Advance Deposit to the Company.

V.            performance fees

For information, Nightingale charges a Performance Fee, in addition to professional time fees, for selected types of assignments.  Assignments where performance fees are charged include acquisitions, divestitures, mergers, refinancings, operational turnarounds, interim management, and asset recovery management.

The rationale for requiring Performance Fees for the types of engagements noted above is that Nightingale, by virtue of our experience, skills, and capabilities, is usually in a position to provide unique and material “value-added” to our clients in these types of assignments.  In addition, Nightingale can usually materially assist in structuring, negotiating, and closing agreements, arrangements and transactions on more favorable terms for our clients than would otherwise be the case.

Nightingale’s Performance Fee potential for its Phase I activities is $300 thousand payable as follows:

Mandatory Payment:$150,000 due and payable on October 29, 2004

Discretionary Payment:Up to $150,000 due and payable by November 12, 2004.  The determination of the amount payable for this component of Nightingale’s Performance Fee will be at the complete discretion of the Company’s Board of Directors.

VI.           INDEMNIFICATION

Given the nature of this assignment, Nightingale will require a release in the form of a “Release and Indemnification” agreement from the Company prior to undertaking the project.  A copy of the “Release and Indemnification” agreement we require is attached as Exhibit II.

The rationale for this requirement is that, to the extent that any adversarial issues or proceedings occur between parties.  Nightingale, by its very presence and activities, could be caught in the “cross fire”.  Of course, the indemnity excludes gross negligence and/or willful misconduct on the part of Nightingale or any of its officers, associate or staff.

VII.         confidentiality of client information

Nightingale recognizes and acknowledges that the firm and its officers and staff have access to proprietary and confidential information in most, if not all, client assignments.  Nightingale agrees with the Company that all such non-public information received by the firm, its officers, and staff from the Company will be held and treated in strict

confidence, and will not knowingly be disclosed by Nightingale, its officers, and staff to third parties.

VIII.        advertising

Nightingale shall have the right to include MedQuist in the list of Nightingale’s clients in any business development materials or advertisements used by Nightingale in the normal course of business.

IX.           caveat

Given the nature and complexity of our work, there can be no assurance that unforeseen problems may not be encountered.  In addition, it is likely that difficult and complex judgments and conclusions will have to be made on a rapid basis without full and complete information and analysis readily available.  Accordingly, Nightingale undertaken its assignments on a “Best Efforts” basis only, and makes no representations, warranties or guarantees relative to outcome, performance or results.

*  *  *  *  *  *  *  *  *  *

Nightingale will be working on other client assignments and firm matters during the period we will be working on this assignment.  However, we fully expect to be able to arrange our schedules so that work on this matter will proceed at a mutually satisfactory pace.

If this Engagement Letter 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 Engagement Letter.

We look forward to working with the Company on this challenging assignment.

Sincerely,

/s/ Howard S. Hoffman

Howard S. Hoffman

Managing Partner

READ, UNDERSTOOD AND AGREED TO BY:

MedQuist Inc.

By:	/s/ Stephen H. Rusckowski
Title:	CEO
Date:	July 30, 2004

EXHIBIT I

NIGHTINGALE & ASSOCIATES, LLC

COMPENSATION AND FEE ARRANGEMENTS

I.              professional time fees and expenses

Nightingale & Associates, LLC charges professional time fees on an hourly basis for all assignments.  The prevailing Professional time fees for Principals range fro $450 - $525 per hour.  For Managing Directors the range is from $350 - $450 per hour and for Associates the range is from $250 - $375 per hour.

The rates quoted in the Engagement Letter are typically held throughout the life of the assignment.  However, on long-term assignments of six months or more, changing market conditions may require an adjustment to Nightingale’s billing rates.  Therefore, Nightingale reserves the right to adjust its rates during the performance of work on an assignment upon 30 days written notice to the client after six months of work on an assignment.

Out-of-pocket expenses are billed at cost, and generally range from 10% to 15% of professional time fees, depending on the amount of travel involved.  Out-of-pocket expenses consist primarily of travel and transportation, meals, lodging, telephone, secretarial and office assistance, report production and, in the case of some acquisition, divestiture, and related assignments, advertising, mailing, and related costs.  Out-of-pocket expenses also apply to Nightingale staff members who reside out of the area when working out of Nightingale’s office in Stamford, CT on a client project.  For assignments undertaken for clients domiciled in the State of Connecticut, a 6% professional services tax on professional time fees and Performance Fees also applies.

II.            CONTINGENT peRfORMANCe fees

For certain types of assignments, including divestitures, interim management, operational turnarounds, asset recovery management, licensing, acquisitions, mergers, joint ventures, and refinancings, Nightingale charges a Performance Fee in addition to hourly professional time fees.

The rationale for the Performance Fee is that Nightingale can usually materially assist a client achieve far more favorable results and returns than would otherwise be the case.  Nightingale brings unique skills and creativity, along with proven and highly successful experience, to those transaction, turnaround and interim management oriented assignments where Performance Fees are charged.  Nightingale’s performance and contribution in all such assignments undertaken to date has, to the best of our knowledge, exceeded the expectations of our clients and knowledgeable outside observers.

The Performance Fee is based upon the size, circumstances, and complexity of each particular situation, and is established and agreed to by mutual consent between the client and Nightingale prior to formal engagement.

III.           other engagement terms and conditions

·Nightingale works under a policy whereby the services of our firm can be terminated by the client, or by Nightingale, at any time upon oral notice, followed by written confirmation.

·The client is responsible for professional time fees and expense charges up to the time of notification of termination.  In addition, Performance Fee payments, if applicable, are due and payable on a pro rata basis in the event of unilateral termination by the client.

·Should Nightingale resign during the course of an assignment, we agree to remain active and provide reasonable assistance during a designated transition period to phase in, on an orderly basis, a replacement organization of the client’s choosing.

·For most types of assignments, including Company Viability Evaluations for third parties, Interim Management, Operational Turnaround, Crisis Management and Asset Recovery Management assignments.  Nightingale requires a broad Indemnity Agreement from the client or other financially responsible party.

·The rationale for requiring an Indemnity Agreement is that by their very nature, Viability Evaluations, Interim Management, Operational Turnaround, Crisis Management and Asset Recovery Management assignments require a great many decisions and operating judgments to be made on a day to day basis, and the firm necessarily acts as the Agent or representative of its client.  To the extent any real or potential adversarial issues or proceedings are related to the situation, Nightingale, by its very presence, could be caught in the “crossfire”.

*  *  *  *  *  *  *  *  *  *

EXHIBIT II

RELEASE AND INDEMNIFICATION

The undersigned, MedQuist Inc. (the “Company”), acknowledging that Nightingale 7 Associates, LLC (“Nightingale”) has been engaged to render services to the Company, for and on behalf of itself and its subsidiaries, and the successors and assigns of the Company and its subsidiaries, hereby waives and releases any and all claims or causes of action that it may now have or which may arise in the future against any “Consultant Party” (which shall consist of, collectively, Nightingale and each of its contractors and subcontractors, and all of the employees, officers, directors, shareholders and principals of Nightingale) arising out of or relating in any way to “Covered Services” (which shall consist of services rendered by any Consultant Party pursuant to the attached agreement relating to the Company or any aspect of its business or assets whether such services consist of consulting services, management services, or any other type of services) including, without limitation, any loss or claim thereof arising or allegedly incurred as a result of actions taken or omitted to be taken by the Company, its shareholders, or any other party, based in any way upon any recommendations or suggestions by any Consultant, Party relating to the Company or any aspect of its business or assets, but excluding from the foregoing waiver and release any claim or cause of action arising out of any act of gross negligence or willful misconduct of any Consultant Party.

The Company further hereby agrees to indemnify and hold harmless any Consultant Party from each of the judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever which may be imposed upon, incurred by or asserted against any of the Consultant Parties arising out of or relating in any way to Covered Services pursuant to the attached agreement including, without limitation, any loss or claim thereof arising or allegedly incurred as a result of actions taken or omitted to be taken by the Company, its shareholders, or any other party, based in any way upon any recommendations or suggestions by any Consultant Party relating to the Company or any aspect of its business or assets; but excluding from the foregoing indemnification obligation any matter arising out of any act of gross negligence or willful misconduct of any Consultant Party.

Dated: July	, 2004
MedQuist Inc.
/s/ Stephen H. Rusckowski
By
STEPHEN H. RUSCKOWSKI
Print Name
CEO
Title

EX-10.24.1

Exhibit 10.24.1

December 16, 2004

Mr. Gregory M. Sebasky
President
MedQuist Inc.
1000 Bishops Gate Blvd.
Suite 300
Mt. Laurel, NJ  08054-4632

Dear Greg:

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.  This Amendment describes our understanding of the scope of work of a proposed Phase II assignment as well as provides revisions to the cost structure for the additional work.  All other terms and conditions for the retention of Nightingale, as detailed in the July 29, 2004 Engagement Letter, including but not limited to the Release and Indemnification agreement, will remain in force and effect.  It is our continued understanding that Nightingale will be engaged by MedQuist and will report to the Company’s Board of Directors.

I.SCOPE OF WORK:

Effective November 1, 2004 Nightingale will extend the term of Howard Hoffmann’s role as MedQuist’s Interim Chief Executive Officer on a month to month basis for a period of up to six months.  Ongoing advisory work, if any, following termination of Mr. Hoffmann’s role as Interim Chief Executive Officer will be subject to negotiation of a mutually agreeable Scope of Work and Fee Structure.

II.COST ESTIMATE:

Nightingale will no longer invoice Mr. Hoffmann’s time on an hourly basis nor will there be a Performance Fee associated with Phase II work.  Instead, Nightingale’s fees for Mr. Hoffmann’s role as Interim Chief Executive Officer will be a fixed rate of $200,000 per month payable in arrears.  If the 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.

Nightingale will continue to make available the services of Mr. Eugene A. Reilly to perform selected services in connection with the Company’s remediation activities.  Mr. Reilly’s professional time fee services have been and will continue to be invoiced to MedQuist at his prevailing hourly rate of $350/hour.  Per your request, attached is an analysis of the Mr. Reilly’s time spent on the project to date as well as a recap of the tasks performed to date.  Mr. Reilly’s ongoing responsibilities include completion of the Work Type Cleanup in LINKS as well as the Account Number Rollup analysis.  Both of these projects should be completed in January 2005.  Ongoing work beyond that time will be a function of available, qualified resources within the Company and the nature of ongoing critical analysis requirements, if any.  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 confer with the Board of Directors 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, meats, lodging, telephone, specifically assignable secretarial and office assistance, and report production.

III.ADVANCE DEPOSIT

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.

*  *  *  *  *  *  *  *  *  *  *

2

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. Hoffman

Howard S. Hoffman

READ, UNDERSTOOD AND AGREED TO BY:

MedQuist Inc.

By:	/s/ Gregory M. Sebasky
Title:	President
Date:	1-7-2005

3

EX-10.24.2

Exhibit 10.24.2

September 12, 2006

Mr. Jouko Karvinen, Chairman of the Board of Directors
Mr. John Underwood, Chairman of the Compensation Committee
Mr. Frank Lavelle, President
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 (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 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 Chief Executive Officer and will continue to report to the Company’s Board of Directors.

I.SCOPE OF WORK:

Effective as of July 1, 2006 Nightingale will extend the term of Howard Hoffmann’s role as MedQuist’s Interim Chief Executive Officer until December 31, 2006.  Following termination of Mr. Hoffmann’s role as Interim Chief Executive Officer, Mr. Hoffmann and MedQuist agree that Mr.  Hoffmann, on a consultancy basis, shall be available to MedQuist one day a week, based on a ten-hour workday, for the period January 1, 2007 to through the week ending Friday, March 16, 2007.  Following March 16, 2007, 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.  It should be noted that Mr.  Hoffmann expects to be working on other engagements upon his departure as the full time Interim Chief Executive Officer of MedQuist, and thus his availability cannot be guaranteed (i) for more than one day a week for the period from January 1, 2007 through March 16, 2007, and (ii) following March 16, 2007.

II.FEE STRUCTURE:

Fixed Monthly Fee:

Effective as of July 1, 2006, Nightingale’s fees for Mr.  Hoffmann’s role as Interim 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 Chief Executive Officer of MedQuist will be billed at his current hourly rate of $525/hour.

Discretionary Bonus:

Nightingale may be entitled to an additional discretionary bonus payment of up to $240,000, which will be paid no later than March 16, 2007 (the “2006 Discretionary Bonus”) in connection with Mr. Hoffmann’s service in 2006 as Interim Chief Executive Officer.  The amount, if any, of the 2006 Discretionary Bonus that Nightingale is to receive will be decided upon by a special committee of the Board of Directors of MedQuist (the “Committee”), made up of the Chairman of the Board, the Chairman of the Compensation Committee and the Chairman of the Audit Committee.  It is understood by the parties that the determination of whether to pay all or a portion of the 2006 Discretionary Bonus shall be at the sole discretion of the Committee and is not a function of the attainment of any particular objectives.  The Committee will inform Nightingale of its determination by January 31, 2007.  If the Committee’s decision is that Nightingale will be paid all or a portion of the 2006 Discretionary Bonus, said bonus will be paid by wire transfer no later than March 16, 2007; which is the date the filing of the Company’s Form 10-K for the year ended December 31, 2006 is due.

Performance Bonus:

If the Company has become current in its Forms 10-Q and Forms 10-K filing requirements with the Securities Exchange Commission (“SEC”) by a mutually agreed upon date with the Company’s Board of Directors, Nightingale will be entitled to a bonus payment of $240,000 (the “SEC Filing Performance Bonus”).  If earned, the SEC Filing Performance Bonus will be paid by wire transfer within ten (10) days of the date on which the Company becomes current in its Forms 10-Q and Forms 10-K filing requirements.

2

Availability Guaranty Fee:

By December 29, 2006, MedQuist will pay a non-refundable fee to Nightingale in the amount of $57,750 (the “Availability Guaranty Fee”), guaranteeing the availability of Mr. Hoffmann for one day a week, based on a ten-hour workday, during the period from January 1, 2007 to March 16, 2007 (the “Guaranteed Availability Period”).  During the Guaranteed Availability Period, Nightingale will invoice MedQuist in accordance with its normal billing practices for reimbursement of out of pocket expenses as well as for Professional Time Fees generated by Mr. Hoffmann for his services to MedQuist to the extent that such Professional Time Fees exceed the Availability Guaranty Fee and are incurred at the direction of the Company’s Board of Directors.

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 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, which shall be conveyed by the Board of Directors to Frank Lavelle, 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

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.

*  *  *  *  *  *  *  *  *  *  *

3

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/ Jouko Karvinen
	Jouko Karvinen
	Chairman of the Board of Directors of MedQuist Inc.
Date:		September 18, 2006
By:	/s/ John Underwood
	John Underwood
	Chairman of the Compensation Committee of the Board of Directors of MedQuist Inc.
Date:		September 19, 2006
By:			/s/ Frank W. Lavelle
			Frank W. Lavelle, President
Date:			September 25, 2006

4

EX-10.24.3

Exhibit 10.24.3

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

Senior Principals

Pierre Benoit

January 8, 2007

Mr. Stephen H. Rusckowski, Chairman of the Board of Directors

Mr. John Underwood, Chairman of the Compensation Committee

Mr. Frank Lavelle, President

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 and on September 25, 2006 (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 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 Chief Executive Officer and will continue to report to the Company’s Board of Directors.

I.SCOPE OF WORK:

Effective as of January 1, 2007 Nightingale will extend the term of Howard Hoffmann’s role as MedQuist’s Interim Chief Executive Officer until June 30, 2007.  Following termination of Mr. Hoffmann’s role as Interim 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.  It should be noted that Mr. Hoffmann expects to be working on other client engagements upon his departure as the full time Interim Chief Executive Officer of MedQuist, and thus his availability for work beyond June 30, 2007 cannot be guaranteed.

II.FEE STRUCTURE:

Fixed Monthly Fee:

Effective as of January 1, 2007, Nightingale’s fees for Mr. Hoffmann’s role as Interim 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 Chief Executive Officer of MedQuist will be billed at an hourly rate of $525/hour.

2007 Performance Bonus:

Nightingale may be entitled to an additional performance related bonus payment of up to $480,000, which will be paid no later than July 16, 2007 (the “2007 Performance Bonus”) in connection with Mr. Hoffmann’s service in 2007 as Interim Chief Executive Officer.  The amount, if any, of the 2007 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.

2006 Discretionary Bonus:

Nightingale remains eligible for the 2006 Discretionary Bonus as described in the September 12, 2006 amendment to our Engagement Letter (the “September 2006 Amendment”).  Nightingale agrees to extend the date by which the Committee will inform Nightingale of its determination of the amount, if any, of the 2006 Discretionary Bonus that is to be paid until fourteen days following completion of the filing of the Company’s periodic filings covering the years 2003, 2004 and 2005 and its forms 10-Q for the first three quarters of 2006 with the Securities and Exchange Commission.  All other terms associated with the 2006 Discretionary Bonus are as described in the September 2006 Amendment.

Availability Guaranty Fee:

Given that this amendment extends Mr. Hoffmann’s role as MedQuist’s full time Interim Chief Executive Officer, the Availability Guaranty Fee requirement described in the September 2006 Amendment is no longer in force and effect.

2

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, which shall be conveyed by the Board of Directors to Frank Lavelle, 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

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

3

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 H. Rusckowski
		Stephen H. Rusckowski
		Chairman of the Board of Directors of MedQuist Inc
	Date: January 8, 2007
By:		/s/ John Underwood
		John Underwood
		Chairman of the Compensation Committee of the Board of Directors of MedQuist Inc.
	Date: January 8, 2007
By:		/s/ Frank W. Lavelle
		Frank W. Lavelle, President
	Date: January 8, 2007

4

EX-10.25

Exhibit 10.25

GOVERNANCE AGREEMENT

Among

MEDQUIST INC.

and

KONINKLIJKE PHILIPS ELECTRONICS N.V.

Dated as of May 22, 2000

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS	1
Section 1.1. Definitions	1
ARTICLE II PURCHASES AND SALES OF EQUITY SECURITIES	2
Section 2.1. Purchases of Equity Securities.	2
Section 2.2. Transfer of Common Stock.	3
Section 2.3. Co-Sale Right.	4
ARTICLE III CORPORATE GOVERNANCE	4
Section 3.1. Composition of the Board of Directors.	4
Section 3.2. Election and Removal of Directors	6
Section 3.3. Solicitation and Voting of Shares.	6
Section 3.4. Committees.	6
Section 3.5. Certificate of Incorporation and By-Laws.	7
ARTICLE IV REPRESENTATIONS AND WARRANTIES	8
Section 4.1. Representations of Purchaser and the Company	8
Section 4.2. Required Filings and Consents	8
ARTICLE V DIRECTORS AND OFFICERS LIABILITY INSURANCE	9
Section 5.1. Insurance	9
ARTICLE VI MISCELLANEOUS	9
Section 6.1. Notices	9
Section 6.2. Amendments; No Waivers.	10
Section 6.3. Severability	10
Section 6.4. Entire Agreement; Assignment	10
Section 6.5. Parties in Interest	10
Section 6.6. Governing Law and Venue; Waiver of Jury Trial; Specific Performance.	10
Section 6.7. Headings	11
Section 6.8. Counterparts; Facsimile	11
Section 6.9. Effective Time; Termination	11
Section 6.10. Combinations or Divisions of Equity Securities	12

i

GOVERNANCE AGREEMENT

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

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

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

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

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

ARTICLE I
DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE II
PURCHASES AND SALES OF EQUITY SECURITIES

Section 2.1.  Purchases of Equity Securities.

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

2

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

Section 2.2.  Transfer of Common Stock.

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

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

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

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

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

3

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

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

Section 2.3.  Co-Sale Right.

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

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

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

ARTICLE III
CORPORATE GOVERNANCE

Section 3.1.  Composition of the Board of Directors.

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

4

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

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

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

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

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

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

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

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

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

5

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

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

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

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

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

Section 3.3.  Solicitation and Voting of Shares.

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

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

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

6

Section 3.4.  Committees.

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

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

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

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

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

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

Section 3.5.  Certificate of Incorporation and By-Laws.

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

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

7

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

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

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

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

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

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

8

ARTICLE V
DIRECTORS AND OFFICERS LIABILITY INSURANCE

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

ARTICLE VI
MISCELLANEOUS

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

if to Purchaser, to:

Koninklijke Philips Electronics N.V.
Rembrandt Tower
Amstelplein 1
1096 HA Amsterdam,
The Netherlands
Attention:  General Secretary
Facsimile:  (011) 31-20-597-7150

with a copy to:

Sullivan & Cromwell
125 Broad Street
New York, NY  10004
Attention:  Stephen M. Kotran
Facsimile:  212-558-3588

if to the Company, to:

MedQuist Inc.
Five Greentree Centre, Suite 311
Marlton, New Jersey 08053

Attention:  Chief Executive Officer; and

Senior Vice President and General Counsel

Facsimile:  856-596-3351

9

with a copy to:

Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA  19103-2799
Attention: James D. Epstein
Facsimile: 215.981.4750

Section 6.2.  Amendments; No Waivers.

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

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

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

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

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

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

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

10

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

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

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

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

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

11

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

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

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

KONINKLIJKE PHILIPS ELECTRONICS NV
By:	/s/ A. Baan
	Name: A. Baan
	Title:	Executive Vice President
		Philips Electronics
By:	/s/ J.H.M. Hommen
	Name: J.H.M. Hommen
	Title:	Executive Vice President
		Philips Electronics
MEDQUIST INC.
By:	/s/ David A. Cohen
	Name: David A. Cohen
	Title: Chairman & CEO

12

EX-10.26

Exhibit 10.26

CONFIDENTIAL

LICENSING AGREEMENT

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

W I T N E S S E T H

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

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

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

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

Section 1.

Definitions

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

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

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

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

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

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

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

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

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

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

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

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

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

2

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

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

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

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

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

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

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

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

Section 2.

Scope of License Grant, Ownership and Proprietary Rights

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

3

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

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

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

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

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

4

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

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

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

Section 3.

Delivery.

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

5

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

Section 4.

Pricing

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

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

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

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

6

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

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

Section 5.

Warranties, Indemnity and Liability Limitations

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

Section 6.

Further obligations of the Parties

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

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

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

7

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

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

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

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

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

Section 7.

Term and Termination

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

8

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

7.2.This Agreement can be terminated as follows:

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

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

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

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

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

9

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

Section 8.

Confidential Information

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

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

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

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

Section 9.

Publicity

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

10

Section 10.

General Terms

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

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

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

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

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

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

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

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

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

If to Philips:
Philips Speech Processing GmbH
Computerstrasse 6
A-1101 Vienna, Austria
Facsimile: + 43.1.602-3359 If to MedQuist:
MedQuist Inc.
Five Greentree Centre, Suite 311
Marlton, NJ 08053
Facsimile: (856) 596-3351

11

with a copy to:
Office of the General Counsel Philips Speech Processing 64 Perimeter Center East, Atlanta, Georgia 31146-467300 Facsimile: (770) 821-2700	Office of the General Counsel MedQuist, inc. Five Greentree Centre, Suite 311 Marlton, NJ 08053 Facsimile: (856)797-5949

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

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

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

Section 11.

Dispute Resolution

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

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

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

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

12

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

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

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

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

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

13

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

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

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

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

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

PHILIPS SPEECH PROCESSING GmbH		MedQuist Inc.
By:	/s/ C. Vohringer	By:	/s/ David A. Cohen
Name:C. Vohringer		Name:David A. Cohen
Title:General Manager		Title:Chief Executive Officer

14

SCHEDULE “A”

List of Licensed Product, Contexts and Documentation

SpeechMagic 4.0 and future Major Releases

All Philips proprietary Contexts

The Context Customization Tool

15

SCHEDULE “B”

Description of Philips Trademarks

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

16

SCHEDULE “C”

Warranties, Indemnification and Limitation on Liability Provisions

1.             Warranties of Both Parties.

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

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

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

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

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

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

2.             Additional Philips’ Warranties.

2.1Philips further warrants that:

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

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

17

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

3.             Indemnification.

3.1Philips Indemnification.

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

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

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

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

18

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

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

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

19

5.             Limited Product Warranty.

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

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

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

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

20

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

21

SCHEDULE “D”

Pricing and Fees

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

15 x 150k US$ = 2.25 M US$

payable:  500k$ on 20 September 2000
500k$ on 20 December 2000
500k$ on 20 March 2001
250k$ on 20 June 2001
250k$ on 20 September 2001
250k$ on 20 December 2001

2/nd/ and 3/rd/ level Support

2000:  0
2001:  1 person at 200k US$ / year
2002:  2 persons at 400k US$ / year
2003  (and onwards)-3 persons at 600k US$ / year

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

License Fees

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

Note:

PAYROLL lines are the lines that serve as basis to pay the transcriptionists
(Payroll-Line is 65 black/white characters)

22

	Year 2000		Year 2001		Year 2002		Year 2003		Year 2004		Year 2005 and  beyond
Estimated Penetration of SR applied as a percentage of Pay-roll lines (A)	0	%	4	%	13	%	25	%	45	%

Cost per Pay-roll line via Speech Recognition from MedQuist to PSP (equals revenue to PSP) * 500 Million Payroll Lines via Speech Recognition in a year at 0,012 US$ per Line (a new count starts each year as from Jan. 1st) and for each Payroll Line via Speech Recognition in such year ** 500 Million Lines at 0,010 US$ per Line

Guaranteed License fees 0% 75% of Estimated Penetration (A) x Total Volume in Pay-roll lines (both via Speech Recognition and directly to trancriptionist) in Year 2001 x Cost per line formula (B) 75% of Estimated Penetration (A) x Total Volume in Pay-roll lines (both via Speech Recognition and directly to transcriptionist) in Year 2002 x Cost per line formula (B) 50% of Estimated Penetration (A) x Total Volume in Pay-roll lines (both via Speech Recognition and directly to transcriptionist) in Year 2003 x Cost per line formula (B) 25% of Estimated Penetration (A) x Total Volume in Pay-roll lines (both via Speech Recognition and directly to transcriptionist) in Year 2004 x Cost per line formula (B) No Guarantee.

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

*   less than

** more than

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

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

23

This payment is for three kind of services:

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

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

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

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

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

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

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

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

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

3)Start-up services.

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

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

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

24

Schedule E

SUPPORT

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

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

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

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

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

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

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

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

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

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

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

25

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

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

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

6.             Severity:

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

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

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

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

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

26

EX-10.26.1

Exhibit 10.26.1

AMENDMENT NO. 1 TO LICENSING AGREEMENT

This Amendment No. 1 (“Amendment No. 1”) to Licensing Agreement is made as of January 1, 2002 by and between MedQuist Inc. (“MedQuist”), a New Jersey corporation with its principal place of business at Five Greentree Centre, Suite 311, Marlton, NJ 08053, acting on its own behalf and on behalf of its wholly owned subsidiaries (direct and indirect) and Philips Speech Processing GmbH (“Philips), an Austrian corporation, with its registered place of business at Computerstrasse 6, 1101 Vienna, Austria (MedQuist and Philips, each a “Party” and, collectively, the “Parties”).

WITNESSETH

WHEREAS, the Parties entered into a Licensing Agreement, dated as of May 22, 2000 (the “Original Licensing Agreement”) relating to the integration and use of certain Philips speech recognition technology into MedQuist’s business; and

WHEREAS, the Parties desire to amend the Original Licensing Agreement by modifying the pricing and fees and expanding the license to include additional applications subject to the terms and conditions of this Amendment No. 1; and

WHEREAS, simultaneously with, and as a condition to, entering into this Amendment No. 1, the parties are entering into a Support Agreement (the “Support Agreement”).

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

1.             Section 1. - Definitions.

(i)            Unless otherwise defined in this Amendment No. 1, capitalized terms used in this Amendment No. 1 shall have the meanings given to them in the Original Licensing Agreement.

(ii)           The following definitions set forth in Section 1 of the Original Agreement are deleted: Level 2 Support and Level 3 Support.

(iii)          The definition of Licensed Product set forth in Section 1 of the Original Agreement is modified by deleting “and (ii)” and inserting, “(ii) the correction SDK and (iii)”.

(iv)          The following definition shall be added to Section 1 of the Original Agreement: “Service Bureau Services” shall mean the licensing of remote access to Licensee’s software and hardware dictation and transcription systems (e.g., SpeechMachines).

2.             Section 2. - Scope of License Grant, Ownership and Proprietary Rights.

(i)            The first paragraph of Section 2.1 of the Original Licensing Agreement is deleted in its entirety and replaced with the following:

Subject to the terms and conditions set forth in this Agreement, Philips grants to MedQuist during the term of this Agreement: (i) a personal, non-assignable, non-transferable, indivisible, non-exclusive (except as provided herein) license, without right to sub-license, to use the Licensed Product in Object Code and Documentation only (except as provided in Section 6) for MedQuist’s internal use at its sites anywhere in the world, solely in connection with MedQuist’s network and in connection with providing Services; and (ii) a personal, non-assignable, non-transferable, indivisible, non-exclusive (except as provided herein) license, without right to sub-license, to use the Licensed Product in Object Code and Documentation only (except as provided in Section 6) for use in connection with providing Service Bureau Services anywhere in the world.

The words “in the USA” in the first sentence of the second paragraph of Section 2.1 of the Original Licensing Agreement are hereby deleted and replaced with “in North America. With respect to the Service Bureau Services, Philips hereby grants to MedQuist a right of first refusal for any sales opportunity that Philips has in North America to sell the Licensed Product to a third party for Service Bureau Services.”

3.             Section 4 - Pricing.

(i)            The second sentence of Section 4.1 of the Original Licensing Agreement is hereby deleted in its entirety and replaced with the following:

From and after January 1, 2002, the license fess for the Licenses Product payable by MedQuist to Philips are set forth in Schedule D (the “Fees”). “Fees”) attached to Amendment No. 1. All license fees prior to January 1, 2002 shall be as set forth in Schedule D attached to the Original Agreement.

(ii)           Upon execution of this Agreement, MedQuist shall pay to Philips all amounts due and owing under the Original License Agreement through December 31, 2001 (i.e., $US 716,000).

(iii)          Section 4.5 of the Original Licensing Agreement is hereby deleted in its entirety.

4.             Schedule C- Warranties, Indemnification and Limitation on Liability Provisions. Any reference to the United States, USA or similar shall be changed to North America.

5.             Schedule E - Support. Schedule E (“Support”) of the Original Licensing Agreement is hereby deleted in its entirety. Simultaneous with the execution of this Amendment No. 1, the Parties shall enter into an SLA Agreement in the form attached to this Amendment No. 1.

2

6.             Software Escrow. In the event that: (i) Philips seeks to sell or transfer the Licensed Products to a third party that is not a direct or indirect majority owned subsidiary of Koninklijke Philips Electronics N.V. (an “affiliate”), or (ii) Philips seeks to sell or otherwise transfer all or substantially all of its business or assets to a non-affiliate or if beneficial ownership of a controlling interest in its capital stock is to be sold or otherwise transferred to a non-affiliate, it shall first give MedQuist at least 60 days prior written notice and the parties shall enter into a software escrow agreement and place the Licensed Products in escrow on commercially reasonable terms prior to completing any such sale or transfer. MedQuist shall be responsible for the fees to the escrow agent.

7.             HIPPA Business Associate. At the request of MedQuist, Philips shall execute a business associate, chain of trust and other confidentiality agreement to the extent reasonably required under the terms of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Notwithstanding the foregoing, Philips shall not be responsible for MedQuist’s failure to comply with HIPAA as a result of the manner in which MedQuist uses the Licensed Product.

8.             Miscellaneous. The Original Licensing Agreement shall continue in full force and effect, except for the amendments set forth in this Amendment No. 1.  Reference to the Agreement in the Original Licensing Agreement shall mean the Original Licensing Agreement as amended hereby. In the event of any inconsistency or conflict between this Amendment No. 1 and the Original Agreement, the provisions of this Amendment No. 1 shall govern and control. This Amendment No. 1 may be executed in several counterparts, all of which taken together shall constitute one single agreement between the Parties. The Parties agree to accept facsimile signatures with originals being exchanged afterwards.

IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be duly executed by their authorized representatives.

PHILIPS SPEECH PROCESSING GmbH		MedQuist Inc.
By:	/s/ Tom Stock	By:	/s/ David A. Cohen
Name: Tom Stock		Name: David A. Cohen
Title: General Manager		Title: Chairman & CEO

3

SCHEDULE “D “

Pricing and Fees

From and after January 1, 2002, License fees shall be based on a per payroll line basis. A payroll line is 65 black/white characters. MedQuist shall pay $US .024 per payroll line for the first 500 million payroll lines per calendar year and $US .01 per payroll line for all lines in excess of 500 million in that calendar year. MedQuist shall only be charged for lines produced using the Licensed Product that are used to produce a final report billable by MedQuist to its client (e.g., MedQuist will not be charged for testing and developing the Licensed Products or adapting a system to a dictator). If MedQuist sends a report to a Medical Editor along with text produced by SpeechMagic and the Medical Editor deletes this text before producing a final report billable by MedQuist, MedQuist must still pay the License fees to PSP.

MedQuist shall pay a one time licensing fee of $US 150,000 for unlimited seat licenses for its use of the Correction SDK, which shall be due upon execution of Amendment No. 1. After the termination of the Agreement: (i) MedQuist and its end users of the software may continue to use installed copies of the Correction SDK software; (ii) PSP shall no longer be obligated to support the Correction SDK software unless the parties mutually agree upon the terms and conditions of a new support agreement and (iii) MedQuist may not install any new copies of the Correction SDK software unless the parties mutually agree upon the terms and conditions of a new licensing agreement for such additional installations.

ALL CHARGES FOR ADDITIONAL SERVICES shall be on commercial terms and conditions that are reasonably acceptable to both parties.

EX-10.26.2

Exhibit 10.26.2

CONFIDENTIAL PORTIONS OF THIS DOCUMENT

HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE

 SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 2 TO LICENSING AGREEMENT

This Amendment No. 2 (“Amendment No. 2) to Licensing Agreement is made as of 2002, December 10th by and between MedQuist Inc. (“MedQuist”), a New Jersey corporation with its principal place of business at Five Greentree Centre, Suit 311, Marlton, NJ 08053, acting on its own behalf and on behalf of its wholly owned subsidiaries (direct and indirect) and Philips Speech Processing GmbH (“Philips”), an Austrian corporation, with its registered place of business at Computerstrasse 6, 1101 Vienna, Austria (MedQuist and Philips, each a “Party” and, collectively, the “Parties”).

WITNESSETH

WHEREAS, the Parties entered into a Licensing Agreement, dated as of May 22, 2000, as amended by Amendment No. 1 of January 2002 (as amended, the “Licensing Agreement”) relating to the integration and use of certain Philips speech recognition technology into MedQuist business; and

WHEREAS, the Parties desire to amend the Licensing Agreement by modifying the pricing and fees and expanding the license to include additional applications subject to the terms and conditions of this Amendment No. 2;

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

Section.Definitions.

(i)Unless otherwise defined in this Amendment No. 2, capitalized terms used in this Amendment No. 2 shall have the meanings given to them in the Licensing Agreement.

The following definitions are added to Section 1 of the Licensing Agreement:

(ii)Service Bureau Services as defined in Amendment No. 1 will be further defined as:

“Service Bureau Services including Correction Services,” where the correction activity is part of the Service and is done by MedQuist; and “ASP with Speech Recognition,” where MedQuist does not do the Correction.

(iii)“In-house solution” is the total software solution including Speech Recognition software that helps customers to increase the efficiency of the document creation process. Currently MedQuist sells XXXX and YYYYY as the in-house solution for Radiology. As part of this Amendment No. 2, Philips shall develop an “In-house” solution (iii) that is functionally equivalent to those products.

(iv)“In house licenses business” is the business model where MedQuist sells and implements the in-house solution with the integrated Licensed Product within the IT environment of Customer.

(v)“Transfer Price” is the price for a product or service to be paid by MedQuist to Philips.

Schedule D - Pricing

The first paragraph of Schedule D to Amendment No. 1 is hereby deleted and replaced with the following:

(i)All License fees shall be based on a per payroll line basis. A payroll line is defined as 65 black/white characters. From and after December 1, 2002, the license fees for the Licensed Product will be as follows:

·Service Bureau Service including Correction Services:

·For 2002, the lines fee will be free of charge, and Philips acknowledges that it shall not be entitled to payment for the invoice of $231,000 previously submitted.

·For 2003, the lines fee will be free of charge under the  express condition that MedQuist, related to providing  Service Bureau Services with Correction Services, achieves  its forecast of lines going through its New Transcription Platform (“NTP”) using automated speech recognition (“ASR”).

·If MedQuist does not meet its forecast, then MedQuist will pay $1,056,000. Payment will be made at end of the year 2003.

·For 2004 the same is valid as in 2003. Therefore, if the forecast amount is not met, MedQuist will pay Philips at the end of 2004 the amount of $3,600,000.

·If, in 2003 or in 2004, MedQuist does not meet its forecasted lines, then right of first refusal as said in section 2 of Amendment No. 1 and related to Service Bureau Service including Correction Services, will be cancelled.

·For 2005 and thereafter, a line fee of [***] is agreed for all lines.

·The foregoing is subject to the Licensed Product scaling and functioning as part of the NTP in a commercially viable manner at the volume levels set forth in the above contemplated forecasts. If scaling issues inhibit MedQuist’s ability to achieve the forecasts, the parties will negotiate in good faith to reach a mutually acceptable compromise.

***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

2

·ASP with Speech Recognition:

·For 2003 and 2004 the line fee will be [***] per line. In 2005, the line fee will be [***] for all lines.

·MedQuist has the right to provide promotional pricing to any client for up to 90 days for ASP with Speech Recognition services. During this time, MedQuist will not be subject to paying Philips a minimum line rate. Instead, for clients receiving promotional pricing, MedQuist will pay Philips 50% of the revenues that it collects as a result of ASP with Speech Recognition. The promotional period for any specific client should not exceed 90-days without Phillips’ approval.

·“In house licenses business”:

·Philips will, in cooperation with MedQuist and Philips Medical Systems, develop a Philips in-house solution for the Radiology business based on the requirements and specifications of MedQuist.

·Delivery of this in-house solution is planned in Q4 2003.  Upon signing of this Agreement, MedQuist and Philips will work in good faith to establish reasonable terms and conditions of a development agreement (“Development Agreement”) including milestones, deliverables and other customary terms and conditions for the in-house radiology solution and a payment schedule for any amounts due after the signing of this Agreement.

·MedQuist will pay Philips $1.2M in 2003 in installments based upon the delivery by Philips on jointly agreed milestones.

·On signing of this Agreement, MedQuist will pay Philips 35% of that amount. The balance shall be payable as agreed upon in the Development Agreement.

·Until the Philips In-house solution (the replacement for [***]) is available, the Philips Speech engine will be for free under the express condition that it is bundled with [***]. (This special arrangement does NOT apply to any other vendor solutions.). For every user license, MedQuist will pay upfront per quarter, the Quarterly maintenance of $73.50 per user.

·Upon delivery of the Philips In-house solution, MedQuist gets exclusivity for distribution only for this solution in North America for 1 (one) year after the product is commercially usable. The exclusivity will be reviewed annually based on business results (meeting the forecast) in that year. If the exclusivity is cancelled

***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

3

within 36 months after a commercially usable product is delivered, then Philips will pay to MedQuist (as liquidated damages for loss of exclusivity and not as a penalty) an early termination fee equal to US $33,333.33 for each month remaining in the 36 month term after the effective date of termination. By way of example, if Philips terminates the exclusivity at the end of 24 months after delivery, then Philips will pay a termination fee equal to 12 times US $33,333.33.

·Transfer Price of the “In-house solution” needs to be agreed, and it is hereby agreed that this will be lower than the Transfer Price of [***] including a Speech Recognition engine.

The Fees do not include sales, use, excise and similar taxes, or the cost of shipping or insurance, for which MedQuist is responsible.

All charges for additional services shall be on commercial terms and conditions that are reasonably acceptable to both parties.

All dollar amounts specified in this agreement are US dollars.

PHILIPS SPEECH PROCESSING GmbH		MedQuist Inc.
By:	/s/ Marcel Wassink	By:	/s/ Ethan H. Cohen
Name: Marcel Wassink		Name: Ethan H. Cohen
Title: Managing Director		Title: EVP & CTO
PSP SRS

***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

4

EX-10.26.3

Exhibit 10.26.3

CONFIDENTIAL PORTIONS OF THIS DOCUMENT

HAVE BEEN REDACTED AND FILED SEPARATELY WITH

THE SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 3 TO LICENSING AGREEMENT

This Amendment No. 3 (“Amendment No. 3”) to Licensing Agreement is made as of 2003, August 10th by and between MedQuist Inc. (“MedQuist”), a New Jersey corporation with its principal place of business at Five Greentree Centre, Suit 311, Marlton, NJ 08053, acting on its own behalf-and on behalf of its wholly owned subsidiaries (direct and indirect) and Philips Speech Processing GmbH (“Philips”), an Austrian corporation, with its registered place of business at Triesterstrasse 64, 1101 Vienna, Austria (MedQuist and Philips. each a “Party” and, collectively, the “Parties”).

WITHNESSETH

WHEREAS, the Parties entered into a Licensing Agreement, dated as of May 22, 2000, as amended by Amendment No. 1 of January 2002 and Amendment No. 2 of December 2002 (as so amended, the “Licensing Agreement”) relating to the integration and use of certain Philips speech recognition technology into MedQuist business; and

WHEREAS, the Parties desire to amend the Licensing Agreement by modifying the pricing and fees and expanding the license to include additional applications subject to the terms and conditions of this Amendment No. 3;

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

Section. Definitions.

(1)Unless otherwise defined in this Amendment No. 3, capitalized terms used in this Amendment No. 3 shall have the meanings given to them in the Licensing Agreement.

Schedule D - Pricing

The first clause and bullet of Schedule D as amended by Amendment No. 2 is hereby deleted and replaced with the following:

(i)            All License fees shall be based on a per payroll line basis using the same counting algorithm as that used to calculate the pay of medical transcriptionists, except that the

count may be taken after the document has emerged from the Speech Recognition engine and prior to The delivery of the document to a medical editor. A payroll line is defined as 65 black & white characters, defined as ASCII 0-126, within the unformatted document. This includes a maximum of two consecutive spaces from and after December 1, 2002, the license fees for the Licensed Product will be as follows:

·Service Bureau Service including Correction Services:

·For 2003, the lines fee will be free of charge under the express condition that MedQuist, related to providing Service Bureau Services with Correction Services, achieves its forecast of [***] going through its New Transcription Platform (“NTP”) using automated speech recognition (“ASK”). If MedQuist does not meet its forecast, then MedQuist will pay a penalty fee of [***]. Payment will be made at end of the year 2003.

·For 2004 the same is valid as in 2003. The target for 2004 is an annual run rate of [***] to be reached no later than in the month of December 2004.  If this amount is not met, MedQuist will pay Philips at the end of 2004 the amount of [***].

·If in 2003 or in 2004, MedQuist does not meet its forecasted lines, then right of first refusal as said in section 2 of Amendment No. 1 and related to Service Bureau Service including Correction Services, will be cancelled.

·For 2005 and thereafter, a line fee of [***] is agreed for all lines.

·The foregoing is subject to the Licensed Product scaling and functioning as part of the NTP in a commercially viable manner at the volume levels set forth in the above contemplated forecasts, if scaling issues inhibit MedQuist’s ability to achieve the forecasts, the parties will negotiate in good faith to reach a mutually acceptable compromise.

In addition, Schedule D is amended by adding the following:

·MedQuist will pay [***] to incorporate the features in Appendix A into SpeechMagic V6.0, which is the next major release of SpeechMagic.  Payment is to be made in installments in 2003 based on and subject to achieving the mutually agreed upon milestones set forth on Appendix B.

·From the date PSP delivers a commercially released product to MedQuist, MedQuist will get a 1-year exclusivity in the North American market for the use of SpeechMagic V6.0.

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

2

·On a monthly basis, MedQuist will continue to pay separately for Philips’ a consulting services.

·Philips is responsible for maintenance and support SpeechMagic.

·Subject to applicable law, rules and regulations, including, without limitation, HIPAA. MedQuist will continue to supply voice and text files to Philips during 2003 and 2004.

Except as amended by this Amendment No. 3, the Agreement shall remain in full force and affect including, without limitation, the “bullets” in Amendment No. 2 describing “ASP with Speech Recognition” and “In house business licenses.”

PHILIPS SPEECH PROCESSING GmbH		MedQuist Inc.
By:	/s/ M.H. Wassink	By:	/s/ Ethan H. Cohen
Name:	M.H. Wassink	Name:
Title:	Managing Director	Title:

3

APPENDIX A

#	Feature
1	Wrong speaker detection
2	Show occurrences of UGIs (unknown grammar items)
3	Fast job propagation in Context Adaptation Server
4	The same ‘tagging –This phrase would be tagged for adaptation
5	Provide enumeration tag
6	Context Upgrade
7	Increase number of users in one cluster (4,000-12,000 users)
9	Improvement stability, reliability
12	Support of subheadings (study only)*
13	On-going maintenance & consulting (MedQuist)
	Total

* PSP and MedQuist may mutually agree to substitute this feature with a different one.

Note:  Feature numbers are not consecutive as they are derived from an earlier list provided by PSP.

4

APPENDIX B

The following is the schedule for delivery milestones for SMV6.0.

Ml 29/8 2003: Functional Spec:	deliverable: Functional Spec Document
M2 26/9 2003: Technical Spec:	deliverable: Technical Spec Document
M3 22/12 2003; Alfa version	deliverable: the Alfa version software

Payment shall be made as follows upon completion of each milestone:

[***]

[***]

[***]

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

5

EX-10.26.4

Exhibit 10.26.4

CONFIDENTIAL PORTIONS OF THIS DOCUMENT

HAVE BEEN REDAcTED AND FILED SEPARATELY

WITH THE SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 4 TO LICENSING AGREEMENT

This Amendment No. 4 (“Amendment No. 4”) to Licensing Agreement is made as of September 1, 2004, by and between MedQuist Inc. (“MedQuist”), a New Jersey corporation with its principal place of business at 1000 Bishops Gate Blvd., Suite 300, Mount Laurel, NJ USA 08054, acting on its own behalf and on behalf of its wholly owned subsidiaries (direct and indirect) and Philips Speech Processing GmbH (“Philips”), an Austrian corporation, with its registered place of business at Trieslerstrasse 64, 1101 Vienna, Austria (MedQuist and Philips, each a “Party” and, collectively, the “Parties”).

WITNESSETH

WHEREAS, the Parties entered into a Licensing Agreement, dated as of May 22, 2000, as amended by Amendment No. 1 dated as of January 1, 2002, Amendment No 2 dated as of December 10, 2002 and Amendment No. 3 of dated as of August 10, 2003 (as so amended, the “Licensing Agreement”) relating to the integration and use of certain Philips speech recognition technology into MedQuist business; and

WHEREAS, the Parties desire to amend the Licensing Agreement as set forth herein:

NOW, THEREFORE, in consideration of the mutual promises contained herein, the Parties agree to amend the terms and condition of the Licensing Agreement as follows:

1.             Amendments to Section 1. - Definitions.

i.              Unless otherwise defined in this Amendment No. 4, capitalized terms used in this Amendment No. 4 shall have the meanings given to them in the Licensing Agreement.

ii.             The term “Licensed Product,” as defined in Section 1.13 of the Licensing Agreement, shall be amended by deleting the Term “SpeechMagic 4.0” and replacing it with “SpeechMagic 6.0”.

2.             Amendments to Section 4. - Pricing (and to Schedule D).

i.              Section 4.1 of the Licensing Agreement is amended by adding the following at the end thereof:

From and after September 1, 2004, the license fees for the Licenses Product payable by MedQuist to Philips shall be as set forth in Schedule D (the “Fees”) attached to this Amendment No. 4. In consideration of Philips delivery to MedQuist of the Licensed Product (i.e., SpeechMagic 6.0) and the other promises set forth herein MedQuist shall pay to Philips, within 30 days after the execution

of Amendment No. 4, [***] as a pre-payment for future License Fees for the Licensed Product.  Thereafter, any amounts due as per the statements to be delivered to Philips pursuant to Section 4.2 of the Licensing Agreement shall be credited against such pie-payment until the amount of the pre-payment equals [***].  All License Fees prior to September 1, 2004 shall be as set forth in Schedule D of the Licensing Agreement as in effect prior to the date of this Amendment No. 4.

3.             Delivery of SpeechMagic 6.0.; Exclusivity.

i.              Philips shall deliver the Licensed Product (i.e., SpeechMagic Version 6.0) to MedQuist subject to all of the terms and conditions of the Licensing Agreement.  The Licensed Product shall satisfy the final functional specifications and technical specifications previously delivered in writing to MedQuist by Philips pursuant to the requirements of Amendment No. 3, and shall also include the additional features set forth in Appendix A of Amendment No. 3, gender recognition and the crossword recognizer.  MedQuist shall be entitled to continued exclusive use of the Licensed Product in North America pursuant to Section 2.1 of the Licensing Agreement through 2005 and thereafter for successive one (1) year periods as long as it pays (including pre-paid fees) the cumulative minimum License Fees to Philips as of the dates indicated below:

Year	Minimum Cumulative License Fees
2004	[***]
2005	[***]
2006	[***]
2007	[***]
2008	[***]

If the cumulative License Fees incurred and paid by MedQuist by December 20th of any given year set forth above fail to meet the minimum cumulative License Fee amount due by such time, MedQuist can make up this difference through the purchase of prepaid licenses.

It is hereby agreed that the PSP’s line fees to MedQuist are as follows:

(1)           [***] for all lines in 2004.

(2)           [***]  per line for the first [***]  processed starting in 2005.

(3)           [***]  per line for all lines processed after the first [***]  up to [***] .

(4)           [***]  per line for all lines processed after the first [***] .

MedQuist does NOT pay line fete for evaluation lines since these are not delivered to the client.

 ***   Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

2

4.             Generally

Except as amended by this Amendment No. 4, the Licensing Agreement shall remain in full force and affect, unamended hereby.

PHILIPS SPEECH PROCESSING GmbH		MedQuest Inc.
By:	/s/ M. Wassink	By:	/s/ Gregory M. Sebasky
Name:	M. Wassink	Name:	Gregory M. Sebasky
Title:	Managing Director	Title:	President

3

SCHEDULE D

Pricing and Fees
Amendment No. 4

From and after September 1, 2004:

·All License fees shall be based on a per payroll line basis using the same counting algorithm as that used to calculate the pay of medical transcriptionists that are paid by the line, except that the count may be taken after the document has emerged from the Speech Recognition engine and prior to the delivery of the document to a medical editor.  A payroll line is defined as sixty-five black & white characters, defined as ASCII codes 0-255, within the unformatted document.  This includes a maximum of two consecutive spaces or tabs.  This count includes heading symbols (e.g. <(1234/> equals 8 characters), but it excludes tags (e.g., </red-s/> equals 0 characters).  The count does not include any characters in the header, footer or cc: lists, nor does it include any ADT data. (MedQuist reserves the right to limit the payroll count to ASCII’ codes 0 – 126 so long as it also places this restriction on its Medical Transcriptionists.) The license fees for the Licensed Product will be as follows:

·Service Bureau Service including Correction Services:

·For 2004, the lines Fee will be free of charge under the express condition that MedQuist, related to providing Service Bureau Services with Correction Services, achieves an annual run rate of [***] (inclusive of evaluation lines) during any month m 2004 and in no event later than December 31, 2004.  If this amount is not met, MedQuist will pay Philips at the end of 2004 the amount of [***] .

·For 2005 and thereafter, a line fee of [***]  is agreed for all lines; provided, however, the line Fee shall be [***]  until such time as the entire amount of the pre-payment is satisfied in full.

·The foregoing is subject to the Licensed Product scaling and functioning as part of the NTP in a commercially viable manner at the volume levels set forth in the above contemplated forecasts.  If scaling issues inhibit MedQuist’s ability to achieve the forecasts, the parties will negotiate in good faith to reach a mutually acceptable compromise. (Due to the delay of the delivery of 6.0 SM, MedQuist has already encountered some scalability issues that have delayed the rollout of ASR.  Although MedQuist is not requesting a change in the [***] target at this time, this may be an issue if we find that this delay prevents MedQuist from achieving its target for 2004.)

·ASP with Speech Recognition:

·For 2004 the line fee will be [***] per line.  Starting in 2005, MedQuist will include these line counts in the calculations for Service Bureau Service including Correction Services.  Accordingly, starting in 2005 the line fees for ASP with

 ***   Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

Speech Recognition will be based on the tiers noted in Section 3i, and these lines will contribute towards achieving the targets in Section 3i.

·MedQuist has the right to provide promotional pricing to any client for up to 90 days for ASP with Speech Recognition services.  During this time, MedQuist will not be subject to paying Philips a minimum line rate.  Instead, for clients receiving promotional pricing, MedQuist will pay Philips [***] of the revenues that it collects as a result of ASP with Speech Recognition.  The promotional period for any specific client should not exceed 90-days without Phillips’ approval.

·“In house licenses business”:

Philips and MedQuist are currently negotiating a separate agreement relating to the licensing of SpeechQ for Radiology, which agreement shall govern and control the terms of such relationship.

In addition:

·On a monthly basis, MedQuist will pay separately for Philips’s consulting services at a rate of [***] per hour. hi connection with Philips obligations under Section 6.3 of the Licensing Agreement, Philips will make a good faith effort to provide any future enhancements requested by MedQuist so long as such requests are reasonable.

·Philips shall continue to be responsible for maintenance and support of the Licensed Product through 2005 and, thereafter, so long as MedQuist meets the minimum Fees set forth in Section 3 of Amendment No. 4. In addition to Philips obligations with respect to new releases under the Licensing Agreement, if Philips releases a new version of SpeechMagic, Philips will ensure that MedQuist can migrate to the new release without a major disruption to MedQuist’s operations.

·Subject to applicable laws, rules and regulations, including, without limitation, HIPAA, MedQuist will continue to supply voice and text files to Philips until the grant of the license hereunder expires.

 ***   Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

5

EX-10.26.5

Exhibit 10.26.5

CONFIDENTIAL PORTIONS OF THIS DOCUMENT

HAVE BEEN REDACTED AND FILED SEPARATELY

WITH THE SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 5 TO LICENSING AGREEMENT

This Amendment No. 5 (“Amendment No. 5”) to Licensing Agreement is made as of December 30, 2005, by and between MedQuist Transcription, Ltd. (“MedQuist”), a New Jersey corporation with its principal place of business at 1000 Bishops Gate Blvd., Suite 300, Mount Laurel, NJ USA 08054, acting on its own behalf and on behalf of its wholly owned subsidiaries (direct and indirect) and Philips Speech Recognition Systems GmbH (“Philips”), and Austrian corporation, with its registered place of business at Triesterstrasse 64, 1101 Vienna, Austria (MedQuist and Philips, each a “Party” and, collectively, the “Parties”).

WITNESSETH

WHEREAS, the Parties entered into a Licensing Agreement, dated as of May 22, 2000, as amended by Amendment No. 1 dated as of January 1, 2002, Amendment No 2 dated as of December 10, 2002, Amendment No. 3 dated as of August 10, 2003, and Amendment No. 4 dated as of September 1, 2004 (as so amended, the “Licensing Agreement”) relating to the integration and use of certain Philips speech recognition technology into MedQuist business; and

WHEREAS, the Parties desire to amend the Licensing Agreement as set forth herein

NOW, THEREFORE, in consideration of the mutual promises contained herein, the Parties agree to amend the terms and condition of the Licensing Agreement as follows:

1)             Amendments to Section 4. Pricing (and to Schedule D).

i.              Section 4.1 of the Licensing Agreement is amended by adding the following at the end thereof:

From and after January 1, 2006, the license fees for the Licenses Product payable by MedQuist to Philips shall be as set forth in Schedule D (the “Fees”) attached to Amendment No. 4, as amended by Amendment No. 5. In consideration of Philips delivery to MedQuist of the Licensed Product (i.e., SpeechMagic 6.0) and the other promises set forth herein, MedQuist shall pay to Philips, in the same day as the execution of Amendment No. 5, US$1 million as a prepayment for future License Fees for the Licensed Product Thereafter, any amounts due as per the statements to be delivered to Philips pursuant to Section 42 of the Licensing Agreement shall be credited against such pre-payment until the amount of the prepayment equals $0  All License Fees prior to January 1,2006 shall be as set forth in Schedule D of the License Agreement as in effect prior to the date of the Amendment No. 5.

2)             It is hereby agreed that the Philips’ line fees to MedQuist, commencing January 1, 2006 shall be as follows:

a)             [***] per line in 2006, until the cumulative lines processed exceeds [***] .

b)            [***]  per line for all lines processed after the first [***]

Consistent with this change, the Parties agree and acknowledge that the following bullet point under Schedule D to Amendment No. 4 under the heading “Service Bureau Service including Correction Services”:

For 2005 and thereafter, a line fee of [***] is agreed for all lines; provided, however, the line Fee shall be [***] until such time as the entire amount of the pie-payment is satisfied in full.

is removed in its entirety, and replaced with the following:

For 2006 and thereafter, a line fee of [***] is agreed for all lines; provided, however, the line Fee shall be [***] until such time as the entire amount of the pre-payment is satisfied in full.

3) Generally

Except as amended by this Amendment No 5, the Licensing Agreement shall remain in full force and effect, unamended hereby.

IN WITNESS WHEREOF, the Parties have caused this Amendment No. 5 to be duty executed by their authorized representatives.

PHILIPS SPEECH RECOGNITION SYSTEMS		MedQuist Transcriptions Ltd.
By:	/s/ Gerald Strausberger	By:
Name:	Gerald Strausberger	Name
Title:	CFO	Title
By:	/s/ Robert E. Thornton
Name:	Robert E. Thornton
Title:	Commercial Director

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

2

EX-10.26.6

Exhibit 10.26.6

CONFIDENTIAL PORTIONS OF THIS DOCUMENT

HAVE BEEN REDACTED AND FILED SEPARATELY

WITH THE SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 6 TO LICENSING AGREEMENT

THIS AMENDMENT NO. 6 TO LICENSING AGREEMENT (this “Amendment”), by and between MedQuist Inc. (“MedQuist”), acting on behalf of its wholly owned subsidiaries (direct and indirect), and Philips Speech Recognition Systems GmbH (“PSP”), is effective as of January 1, 2007 (the “Effective Date”).  Capitalized terms not otherwise defined in this Amendment shall have the meanings given to them in the Agreement (as that term is defined below).

BACKGROUND

WHEREAS, MedQuist and PSP entered into that certain Licensing Agreement dated as of May 22, 2000 (as amended by that certain Amendment No. 1 to Licensing Agreement dated as of January 1, 2002, that certain Amendment No. 2 to Licensing Agreement dated as of December 10, 2002 (“Amendment No. 2”), that certain Amendment No. 3 to Licensing Agreement dated as of August 10, 2003, that certain Amendment No. 4 to Licensing Agreement dated as of September 1, 2004 (“Amendment No. 4”), and that certain Amendment No. 5 to Licensing Agreement dated as of December 30, 2005 (“Amendment No. 5”) (as so amended, the “Agreement”)); and

WHEREAS, the parties desire to amend the Agreement as set forth herein.

AGREEMENT

NOW THEREFORE, in consideration of the mutual agreements and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, it is mutually agreed and covenanted by and between the parties to this Amendment, as follows:

Article I

Amendment to Licensing Agreement

Paragraph 1.1.The following paragraph of Section 2.1 of the Agreement shall be deleted in its entirety:

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

department or a doctor uses their own employees or independent contractors or so-called statutory employees for their own transcriptions and the transcription service is performed with technology owned by or licensed to the hospital or doctor, the service is not outsourced).”

Paragraph 1.2.The following sentence of Section 2 of Amendment No. 1 shall be deleted in its entirety:

“The words “in the USA” in the first sentence of the second paragraph of Section 2.1 of the Original Licensing Agreement are hereby deleted and replaced with “in North America.  With respect to the Service Bureau Services, Philips hereby grants to MedQuist a right of first refusal for any sales opportunity that Philips has in North America to sell the Licensed Product to a third party for Service Bureau Services.”

Paragraph 1.3.The following sentences of Section 3 of Amendment No. 4 shall e deleted in their entirety:

“MedQuist shall be entitled to continued exclusive use of the Licensed Product in North America pursuant to Section 2.1 of the Licensing Agreement through 2005 and thereafter for successive one (1) year periods so long as it pays (including pre-paid fees) the cumulative minimum License Fees to Philips as of the dates indicated below:

Year	Minimum Cumulative License Fees
2004	[***]
2005	[***]
2006	[***]
2007	[***]
2008	[***]

If the cumulative License Fees incurred and paid by MedQuist by December 20th of any given year set forth above fail to meet the minimum cumulative License Fee amount due by such time, MedQuist an make up this difference through the purchase of prepaid licenses.”

Paragraph 1.4.Section 6.1 of the Agreement shall be amended and restated in its entirety as follows:

“In order that the relationship contemplated by this agreement shall be mutually advantageous, and in recognition of the particular expertise and commitment necessary to properly use and support the Licensed Product, MedQuist agrees during the Term to comply with the following requirements:  MedQuist shall (i) conduct business sin a manner that does not reflect negatively at any time on the good name, goodwill and reputation of Philips; (ii) avoid deceptive, misleading or unethical

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

2

practices that are or might be determined to Philips, its product or the public; and (iii) make no false or misleading representations with regard to Philips or its products.  Furthermore, during the Term, MedQuist shall not use a competing Product (defined below) in production use to replace the Licensed Product in the DocQment Enterprise Platform unless MedQuist complies with the Philips Notification and Response Process (defined below).  “Competing Product” means a third party product competing with the Licensed Product; provided that the Licensed Product is competitive in technological performance and commercial terms and compared on a like-for-like basis, in light of current industry standards, with such third party product.  “Philips Notification and Response Process” means that prior to MedQuist replacing the Licensed Product in the DocQment Enterprise Platform with production use of a Competing Product, MedQuist shall inform Phillips in writing of its intentions with reasonably detailed reasons for such determination and shall give Phillips a minimum period of three (3) months from such notice to submit a technologically and commercially competitive offer before replacing the Licensed Product.”

Paragraph 1.5.Effective as of the Effective Date, Schedule D to the Agreement shall be of no further force or effect. Notwithstanding anything in the Agreement to the contrary (including without limitation Sections 1 and 2 of Amendment No. 5), MedQuist shall, until the termination or expiration of the Agreement, pay PSP license fees for use of the Licensed Product in accordance with the following table:

ASR Lines in calendar month (“Subject Lines”)	ASR Line rate applicable to all Subject Lines
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]
[***]	[***]

For purposes of this Paragraph 1.5, the term “ASR Lines” shall be defined as the aggregate number of ASR lines processed by the Licensed Product as reported by MedQuist’s DocQment Enterprise Platform.  MedQuist shall provide PSP with no less than fifteen (15) days prior written notice

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

3

of any change in the coursing algorithms or setting used to calculate ASR Lines.

For the avoidance of doubt, the following are illustrations of the license fees payable pursuant to the foregoing table:

Calendar  month	Subject Lines	Applicable ASR Line rate	License fees payable to PSP for use of use of the Licensed Product
3/1/07 to 3/31/07	[***]	[***]	[***]
6/1/07 to 6/30/07	[***]	[***]	[***]
10/1/07 to 10/31/07	[***]	[***]	[***]

PSP shall be responsible for the maintenance and support of the Licensed Product until the termination or expiration of the Agreement.  In addition to PSP’s obligations with respect to new releases under the Agreement, if PSP releases a new version of SpeechMagic, PSP will ensure that MedQuist can migrate to the new release without a major disruption to MedQuist’s operations.

Subject to applicable laws, rules and regulations, including, without limitation, HIPAA, MedQuist will continue to supply voice and text files to PSP until the grant of the license under the Agreement expires.

Article II

MISCELLANEOUS

Paragraph 2.1.Entire Agreement.  This Amendment contains the entire agreement and understanding between the parties with respect to the subject matter of provisions of the Agreement amended hereby.

Paragraph 2.2.Full Force and Effect.  Except as modified by this Agreement, the Agreement shall remain in full force and effect unmodified.  To the extent the terms of the Agreement are inconsistent with the terms of this Amendment, the terms of this Amendment shall control.

Paragraph 2.3.No Waiver.  Except as specifically set forth herein, the execution, delivery and performance of this Agreement shall not operate as a waiver of any right, power of remedy of the parties hereto under the Agreement and the related agreements executed in connection therewith or constitute a waiver of any provision thereof,

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

4

Paragraph 2.4.Governing Law.  The Amendment shall be governed by the laws of the State of New York.

Paragraph 2.5.Facsimile Signature; Counterparts.  This Agreement may be executed by facsimile and in two or more counterparts, each of which shall constitute one and the same instrument.

[The remainder of this page was intentionally left blank]

5

IN WITNESS WHEREOF, MedQuist and PSP have executed this Amendment as of the dates set forth below by their duly authorized representatives.

MEDQUIST, INC.			PHILIPS SPEECH RECOGNITION SYSTEMS GMBH
By:	/s/ Linda L.E. Reino		By:	/s/ illegible
	Name:	Linda L.E. Reino		Name:
	Title:	C.O.O.		Title:	Managing Director
	February 13, 2007			January 31, 2007

6

EX-10.27

Exhibit 10.27

CONFIDENTIAL PORTIONS OF THIS DOCUMENT

HAVE BEEN REDACTED AND FILED SEPARATELY

WITH THE SECURITIES AND EXCHANGE COMMISSION

OEM SUPPLY AGREEMENT

THIS OEM SUPPLY AGREEMENT (the “Agreement”) is made and entered into as of the 23rd day of September, 2004 (the “Effective Date”), by and between Philips Austria GmbH, PHILIPS SPEECH PROCESSING, a Republic of Austria corporation (hereinafter “PSP”), and MEDQUIST INC., a New Jersey, USA corporation (hereinafter “MedQuist”)

RECITALS

WHEREAS, PSP is engaged in creating, developing, or marketing certain computer programs and software collectively, the “Programs”) which Programs may incorporate certain third party software products (the Programs and such third party software products being referred to collectively in this Agreement as the “Software”); and

WHEREAS, MedQuist desires to acquire from PSP the right and license to offer for sale, sell, deliver and service, and to authorize others to offer for sale, sell, deliver, and service, the Products (as defined in Section 1.4 of this Agreement), and to incorporate the Software into its own products, within the territory identified in Schedule A to this Agreement (the Territory”), in accordance with the terms and conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of foregoing and the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt, adequacy, and sufficiency of all of which are hereby acknowledged, PSP and MedQuist hereby agree as follows:

1.             Definitions.

1.1.          “Amendment No 2” means that certain amendment titled “Amendment No 2 to Licensing Agreement” between PSP and MedQuist dated as of December 10, 2002 References in Amendment No 2 to indefinite dates which references use terms such as “upon delivery of the Philips in house solution” and “[the time] the product is commercially usable,” shall mean “June 25, 2004.”

1.2.          “Documentation” means user manuals, training materials, product descriptions, product specifications technical manuals, license agreements, supporting materials, and like information related to the Products, which Documentation may be distributed in print, electronic, video, or other formats

1.3.          “End User” means the means final retail purchasers or licensees at the clinical sites where the Products are installed.

1.4.          “Products” means, individually or collectively as appropriate, the Software, Documentation, developed products and hardware, supplies accessories, and other commodities related to any of the foregoing, provided or to be provided by PSP pursuant to this Agreement, as described in Schedule B attached to this Agreement, as modified from time to time.

1.5.          “Affiliate” means any person or entity controlling. controlling, by, or under common control with, a party to this Agreement.

1.6.          Trademarks” means, the wordmark PHILIPS in its characteristic typeface and colors.

2.             Grant of License.

2.1.          Subject to the terms of this Agreement, PSP hereby grants to MedQuist, and MedQuist hereby accepts from PSP, an exclusive and non-transferable license to offer for sale, sell, deliver and service the Products, and to authorize others to offer for sale, sell, deliver, and service the Products, directly and through one or more tiers of distributors, dealers, and resellers (collectively, the “Dealers”), within the Territory  set forth on Schedule A to this Agreement, during the Term of this Agreement, provided that the license granted under this Section may become a non-exclusive license during the Term of this Agreement pursuant to the terms of Section 2.2 below.

2.2.          This Agreement does not grant MedQuist any area, market, territorial, development, or other rights except as set forth in this Agreement.  PSP reserves all rights related to the Products that PSP does not expressly grant MedQuist in this Agreement.  Outside MedQuist’s Territory, PSP may offer for sale, sell, deliver, and service the Products and may authorize others to offer for sale, sell, deliver, and service the Products, without providing any rights or compensation to MedQuist.  Inside MedQuist’s Territory, PSP and any Affiliate (i) may not offer for sale sell, deliver or service the Products, or (ii) authorize others to offer for sale, sell, deliver, or service the Products, but if PSP elects to change the license from exclusive to non-exclusive pursuant to Section 2.2.1, this sentence becomes null and void.

2.2.1.       During the Initial Term of this Agreement, MedQuist will meet the sales forecasts set forth on Schedule D to this Agreement, PSP and MedQuist will review the status of MedQuist’s compliance with such forecasts annually, with the first review being for results for the period June 1, 2004 through June 30 2005, the second being for the period July 1, 2005 through June 30, 2006, and the third being for the period July 1, 2006 through June 30, 2007.  If MedQuist fails to meet such sales forecast, PSP may convert the license granted in Section 2.1 above from exclusive to non-exclusive by delivering within thirty (30) days’ after the end of the applicable review period, written notice of PSP’s intent to do so.

2.2.2.       If PSP elects to convert the license to a non-exclusive license due to MedQuist’s failure to meet the sales forecasts set forth in Section 2.2.1 of this Agreement, PSP will: (i) pay MedQuist, as liquidated damages for such loss of exclusivity and not as a penalty, an early termination fee equal to [***] for each month remaining in the Initial Term after the date PSP terminates such Territorial exclusivity within ten (10) days after MedQuist’s demand for such reimbursement.  The amount of such reimbursement will be reduced by the cumulative

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

2

amounts of any discounts earned by MedQuist as described in Table 2 of Schedule C.  MedQuist’s right to this termination payment is PSP’s only obligation and MedQuist’s sole and exclusive remedy for any claim it may have against PSP relating to the conversion of the license from exclusive to non-exclusive.

2.2.3.       On the conversion of the license to a non exclusive license, if any, all provisions of this Agreement shall remain in effect (i) except as otherwise set forth in this Section 2.2, and (ii) except for PSP’s Development Services set forth in Section 7 of this Agreement.

2.3.          MedQuist is authorized to appoint Dealers within the Territory defined in Schedule A to offer for sale, sell, deliver and service the Products at its discretion and without approval from PSP On PSP’s request, MedQuist will give PSP written notice of the identity of any Dealer that MedQuist has appointed.

3.             Initial Term and Renewal.

3.1.          Initial Term.  This Agreement will be deemed to have commenced on June 1, 2004, and will continue in effect through June 30, 2007, subject to earlier termination as set forth in this Agreement (the “Initial Term”).

3.2.          Renewal.  Subject to Philips’ right to terminate below, this Agreement will automatically renew for two (2) additional three (3) year terms (each such renewal term being referred to in this Agreement as a “Renewal Term,” and the Initial Term, together with the Renewal Terms, if any, being referred to collectively in this Agreement as the “Term”), provided that MedQuist is, at the end of the Initial Term or the first Renewal Term, in compliance with the agreement.  If PSP decides to discontinue all business relating to the Products in the Territory, PSP may terminate this Agreement by providing MedQuist 6 months prior written notice of such termination.  If PSP terminates the Agreement due to the discontinuation of its business relating to the Products, PSP agrees to negotiate in good faith with MedQuist the terms and conditions under which it would provide training and access to the source code of the Products that would be reasonably necessary for MedQuist to continue development and support the installed base of Products in the Territory.  Otherwise, this Agreement will automatically expire at the end of the second Renewal Term.

3.2.1.       If at the time of each such renewal, MedQuist has met all its forecasts as mentioned in Schedule D to the Territory, then such exclusivity will continue throughout the applicable Renewal Term, provided: (i) MedQuist’s annual sales forecast is at least (15%) higher than its actual sales for the immediately-preceding twelve (12) month period as measured for the 12 months per each end of June 30,; and (ii) MedQuist meets such sales forecast.

3.2.2.       If at the time of each such renewal MedQuist does not have exclusive rights to the Territory, then MedQuist will not have exclusivity for the applicable Renewal Term.  In such event, pricing will be at the lower of Schedule C or pricing that is equivalent to the pricing PSP offers other OEM, Dealer, Distributor, or like reseller conducting business in the Territory and doing similar volumes of business.

3

4.             Fees.

4.1.          Development Fee. In consideration of PSP’s Development, Maintenance and Support Services for the first version of the Products, MedQuist will pay PSP a development fee in the amount of [***] (the “Development Fee”), as follows: (1) 50% on the date PSP delivers a duly-executed original of this Agreement to MedQuist, (ii) 25% on or by September 24, 2004; and (iii) the balance on or by December 20, 2004.

4.2.          License Fee.  MedQuist will pay PSP sums owed for the License Fees set forth on Schedule C to this Agreement on a calendar monthly basis, within thirty (30) days of the end of each such month.

4.3.          Software Maintenance Fee.

4.3.1.       MedQuist will use reasonable commercial efforts to sell its End Users a software maintenance agreement (an “SMA”).  Such SMA will provide that the subscribing End User will obtain, directly from PSP or from PSP through MedQuist, as MedQuist deems appropriate:

4.3.1.1.    Software Releases.  As used in this Agreement, “Software Release” means a change PSP makes to the basic design, structure, or functionality of the Software.  Software Releases are typically numbered sequentially (e.g., Release 4.x, Release 6.x).  Such Software Releases will be subject to the charge set forth in Section 11.5 of this agreement.

4.3.1.2.    Patch Releases.  As used in this Agreement, “Patch Release” means a change PSP makes to a Software Release, which is an internal change designed to correct minor anomalies or defects in the Software (colloquially referred to as “bugs”), or otherwise to provide minor improvements to performance without changing the Software’s basic design, structure, or functionality.  Patch Releases are typically numbered to signify modifications to a version of Software Release (e g, Version 4.1.05, Version 4.1.06).

4.3.1.3.    Point Releases.  As used in this Agreement, “Point Release” means a modification or enhancement (colloquially referred to as an “upgrade”) to a Software Release that (i) enables the Software Release to perform new or different functions (ii) increase the capability of the Software, or (iii) enables the Software to function on new or different hardware or in a new or different software environment without changing its basic design, structure or functionality.  Point Releases are typically numbered as versions of a Software Release (e.g., Version 4.1, Version 4.2, etc.).

4.3.1.4.    Technical Support to resolve technical issues that are more practicably resolved by PSP than by MedQuist.

4.3.2.       SMA contracts MedQuist sells will begin at the end of PSP’s Warranty Period (as set forth in Section 8.1 of this Agreement) and will be renewable on an annual basis.  In the event that MedQuist allows an End User to terminate or cancel an SMA before the end of the term of such SMA, MedQuist will provide notice of such termination to PSP, and PSP will

***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

4

refund to MedQuist the pro-rata portion of fees paid to PSP for such SMA within thirty (30) days after MedQuist provides such notice.

4.3.3.       For each SMA contract that MedQuist sells, it will pay PSP the following sums within 30 days after conclusion of such Contracts.

4.3.3.1.    For sums owed for the period beginning with the Effective Date of this Agreement through June 30, 2006 [***] of the License Fee set forth on Schedule C to this Agreement.

4.3.3.2.    For sums owed for the period beginning July 1, 2006, through the remainder of the Initial Term and all Renewal Terms of this Agreement [***] of the License Fee Set forth on Schedule C to this Agreement.

4.3.4.       All sums owed set forth in Section 4.3.3 of this Agreement: (i) will be calculated based on the License Fee and without regard to any discounts available to MedQuist; and (ii) will be amortized on a straight-line basis for each month over the term of the SMA.

5.             Order Placement.

5.1.          PSP will provide MedQuist with the Products as described in this Agreement, including without limitation the accompanying Schedules.

5.2.          PSP will deliver to MedQuist a “gold master” of the then-current version of the Software (i) within seven (7) days after the execution and delivery of this Agreement by both parties to this Agreement, and (ii) promptly on the commercial availability of each Software Release.  Software MedQuist distributes under this Agreement will be copies of the gold master PSP most recently furnished to MedQuist pursuant to this Agreement.  PSP will have no obligation under this Agreement to provide to MedQuist any Software source code.

6.             Payment.

6.1.          MedQuist will pay such sums owed free and clear of, and without offset or deduction for, any and all state and local use, sales, property, and similar taxes, levied or assessed on or in respect of such payments (other than any tax measured by or attributable to MedQuist’s gross or net income), as and when the same are due.

6.2.          By thirty (30) days after the end of each calendar month, MedQuist will furnish to PSP a written statement showing, in such detail as PSP may reasonably request, the quantities of Software actually licensed, and the quantities of Products actually sold and delivered, during the immediately-preceding month.

6.3.          MedQuist will, throughout the term of this Agreement and for one (1) year following the expiration or termination of this Agreement, maintain a full and accurate record of the number of copies of the Software sublicensed in such detail as may enable PSP to verify the amount of license fees due under this Agreement.  So as to permit verification, MedQuist will permit PSP to examine such records on reasonable advance written notice, during normal business hours at MedQuist’s offices at reasonable intervals no more frequently than two (2)

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission.

5

times per calendar year.  PSP will beat all costs and expenses for such an examination, except in those cases in which the examining accountant ascertains a discrepancy of more than five percent (5%) during the audited period to the disadvantage of PSP between payments actually made and payments due, in which event MedQuist will reimburse PSP all reasonable costs and expenses for such audit.

6.4.          PSP reserves the right to charge an interest rate of the lesser of eight percent (8%) per annum the maximum amount permitted by applicable law on past-due sums MedQuist owes under this Agreement.  In the event of non payment by MedQuist, PSP will have the right to suspend or terminate MedQuist’s license granted pursuant to this Agreement, and terminate this Agreement after having provided MedQuist at least 30 days written notice to cure the past-due sum.

7.             Development Services.

7.1.          Provided that MedQuist meets its sales forecast for each six (6) month period beginning with the period ended June 30, 2005, PSP will use commercially reasonable efforts to perform the following development services and provide the product support set forth in this Section 7 (collectively, the “Development Services”):

7.1.1.       PSP will use commercially reasonable efforts to continue to upgrade version 1 of the Products, including without limitation the integration of the Products to all PACS, RIS, and HIS vendors MedQuist designates.  MedQuist and PSP will work together to mutually agree on which integrations with which PACS, RIS, and HIS vendors will be developed on a quarterly basis.  MedQuist will provide all technical and contact information needed to implement such integrations.  PSP will strive to develop as many integrations as possible with a goal of 4 per quarter.  PSP and MedQuist understand that it is in their mutual best interest to do more integrations per quarter if resources allow.

7.1.2.       Integration shall be defined as follows:

7.1.2.1.    1) Interfacing with the other application (exchange of standard HL7-like information via XML) or

7.1.2.2.    2) Desktop integration, where the front end modules of SpeechQ and the integrating application (PACS, RIS, and HIS) interact with each other: which definition specifically includes the login function from the interfacing application to the product or vice versa and the capability for the end-user to control the product to directly create, show, and work on a certain report.

7.1.3.       PSP will provide one (1) individual (the “Support Technician”) to support MedQuist and its Dealers in the Territory with End User implementation and other service requirements, for the period June 25, 2004, through June 30, 2005.  MedQuist will pay the return air fare of such Support Technician to such Support Technician’s from Support Technician’s resident location in the Territory point of departure, plus such Support Technician’s work-related travel expenses in the Territory and cost of living expenses in the United States, including without limitation the cost of such Support Technician’s apartment.  PSP will be responsible for

6

all other costs of such Support Technician not enumerated in this Section 7.1.3, including such Support Technician’s wage and benefit costs.

7.1.4.       PSP will use commercially reasonable efforts to release an additional Software Release of the Products.  PSP and MedQuist will work together to determine the requirements and specifications of such Software Release.

7.1.5.       PSP will use commercially reasonable efforts to release a minimum of two (2) Service Releases per year.  As used in this agreement, “Service Release” means a Software Release or Point Release.  MedQuist acknowledges that PSP can support only two Software Releases at the same time, which Software Releases will be the current release and its next most previous release.

7.1.6.       PSP will use commercially reasonable efforts to release a Point Release of the of the Radiology product during 2004.  PSP will also make efforts to release a Version 2 of the Software during calendar year 2004.  If Version 2 is not completed in 2004, then PSP and MedQuist will review and agree on the amount of extra costs to be incurred in 2005, and will agree on an arrangement for sharing costs, before PSP makes any expenditures.  All sums MedQuist incurs related to such arrangement will be added to the liquidated damages calculation as described in Article 2.2.2.

7.1.7.       Based on requirement needs and market demand for the Product, PSP and MedQuist will work together to determine the development path for future versions of the Radiology Product in 2005, however, if the Parties cannot agree, PSP will make the final determination, which determination will be based on reasonable analysis of the needs, market demands, and other such factors.

7.1.8.       PSP will use commercially reasonable efforts to release the Software for End Users in the medical fields of:  [***] provided however, PSP and MedQuist may agree to change the order of the additional modalities set forth in clauses (i) through (iii) of this Section 7.1.6.

7.2.          If any of the Development Services set forth in Section 7.1 of this Agreement are delayed by more than thirty (30) days, except where MedQuist requests such delay or such delay is due solely to MedQuist’s inaction, the exclusivity of MedQuist’s rights in the Territory, as set forth in Section 2.2 et seq. of this Agreement, will be extended by the amount of such delay.  The obligations of PSP described above are PSP’s only obligations and MedQuist’s sole and exclusive remedy for any such delay.

8.             Limited Warranty.

8.1.          PSP warrants that, for a period of ninety (90) days after the delivery date (the “Warranty Period”), the Software will perform in all material respects in accordance with the Documentation accompanying the Software.  If any copy of the Software is found not to perform materially in accordance with the Documentation, PSP will correct such error or malfunction or (at PSP’s sole option) replace such Software free of charge as soon as is reasonably practicable, provided that: (i) the Software has been used in accordance with instructions for use; (ii) no alteration, modification or addition has been made to the Software without PSP’s prior written

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

7

consent; and (iii) PSP has been promptly notified of the alleged non-conformity within the Warranty Period specified.

8.2.          MedQuist will send each claim of MedQuist under this warranty to PSP in accordance with the notice provisions of this Agreement.  Each such claim will state generally the nature of the alleged non-conformity.  If PSP determines in its sole discretion to repair the Software (or such portion of it as is giving rise to the non-conformity), MedQuist will afford PSP a reasonable time in which to do so.  Any Software so repaired or replaced will be warranted for such period of time as is remaining in the original Warranty Period.

8.3.          This Limited Warranty is subject to the terms of Section 12 below.  This Limited Warranty is PSP’s only obligations and the exclusive remedy of MedQuist and the End User with respect to the Products, and PSP’s entire liability and only warranty with respect to the Products.  PSP will have no responsibility whatsoever with respect to the Products if the failure is due to accident, abuse, or misapplication on the part of MedQuist or the End User.

8.4.          MedQuist may offer any warranty that PSP makes hereunder to any End Users provided that warranty claims by MedQuist’s End Users will be made solely against MedQuist and not PSP. The warranties contained in this Agreement are solely for the benefit of MedQuist.

9.             Notification of Upgrades and Updates.

9.1.          PSP will notify MedQuist of any revisions and updates to the Software that affect its operation, performance, or cost.

9.2.          MedQuist will apply any revisions or updates to the Software as soon as reasonably practicable after receipt of notification from PSP.

10.           MedQuist’s Representations and Undertakings.  MedQuist represents and undertakes with PSP that:

10.1.        It will use commercially reasonable efforts to promote, market, and sell the Products during the term of this Agreement;

10.2.        It has the resources, facilities, and financial ability to market, distribute and provide first line customer support for the Product and fulfill all of its obligations under this Agreement;

10.3.        It will, in all correspondence and other dealings related directly or indirectly to the Products, clearly indicate that it is acting as MedQuist and not as the author or developer of the Products;

10.4.        It will not incur any liability on behalf of PSP, pledge or purport to pledge PSP’s credit, or purport to act as an agent of PSP or make any contract binding on PSP;

10.5.        It will not alter, obscure, remove, conceal, or otherwise interfere with any eye-readable or machine-readable marking on the Products or packaging that refers to PSP as author

8

or developer of the Products, or that otherwise refers to PSP’s copyright or other intellectual property rights in the Products;

10.6.        It will permit PSP or any independent third party PSP retains to enter MedQuist’s premises at a time MedQuist agrees to for the purpose of reviewing records related to this Agreement (including, without limitation, verifying the number of Software sublicenses granted by or through MedQuist and obtaining information concerning any Product complaints);

10.7.        It will not modify, amend, make copies, add to, or in any way alter any Product supplied to it under this Agreement without PSP’s prior written consent, or disassemble, decompile, or reverse engineer the Software; provided, however, that MedQuist may make copies of the Documentation solely for purposes of using the Documentation in connection with its sublicensing and sales efforts hereunder;

10.8.        Third party software, as defined in Schedule E to this Agreement (the “Third Party Software”), that is distributed with the Programs will not be used in conjunction with any other programs or software whatsoever;

10.9.        It will obtain and maintain at its sole risk, cost, and expense, all governmental approvals requited for or applicable to its distribution and other activities contemplated by this Agreement, and will be responsible at its sole risk, cost, and expense for complying with all applicable governmental statutes, regulations, and ordinances (collectively, the “Laws”) related to such activities;

10.10.      It will, before the delivery of the Products to an End User, ensure that such End User enters into a software license agreement with MedQuist that will accompany each copy of the Software in substantially the form set forth on Schedule F to this Agreement (the “End User License Agreement”).

11.           PSP’s Obligations.  PSP covenants, warrants, and agrees that it:

11.1.        Has the necessary approvals and licenses to grant to MedQuist the right to use, sublicense and distribute the Software in accordance with the terms of this Agreement.

11.2.        Has the resources, facilities, and financial ability to develop and provide second line support for the Products and to fulfill all of its obligations under this Agreement.

11.3.        Will provide initial 2 days of training in the use of the Products to technical staff of MedQuist at no additional charge, at the place agreed on by both parties.  PSP and MedQuist will mutually limit the number of personnel participating in training sessions.  On MedQuist’s request, PSP will provide a similar training program for all upgrades to the Software.  Each first technical training for a new version will be done free of charge; for any subsequent training, PSP and MedQuist will agree on a reasonable price.

11.4.        Will at all times during the Term of this Agreement and where applicable, following termination hereof, observe and perform the terms and conditions set out in this Agreement.

9

11.5.        Will provide Software Releases at an upgrade charge for End Users.  The parties acknowledge and agree that the amount of such upgrade charge cannot be determined as of the Effective Date of this Agreement, as such charge will ultimately be based on the features and functionality of that specific Software Release.  As such, the pricing for any Software Release will be determined by MedQuist based on relative market conditions at the time.  MedQuist will pay PSP [***] of the amount actually received from the End User.

12.           Exclusion Of Warranties.  EXCEPT AS EXPRESSLY SET FORTH IN SECTION 8 OF THIS AGREEMENT, PSP MAKES NO WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, WHATSOEVER, AS TO THE PRODUCTS AND THE DOCUMENTATION.  PSP EXPRESSLY DISCLAIMS, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSES, ACCURACY, SATISFACTORY QUALITY, NON-INFRINGEMENT, COURSE OF DEALING, OR COURSE OF PERFORMANCE.

13.           Limited Liability.  IN NO EVENT WILL EITHER PARTY OR ANY OF ITS AFFILIATES, SUBSIDIARIES, OR LICENSORS BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL, MULTIPLIED, ENHANCED, OR PUNITIVE DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF REVENUE, PROFITS, OR GOODWILL, BUSINESS INTERRUPTION, OR LOST IN CONNECTION WITH THIS AGREEMENT OR THE PRODUCT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY, OR OTHERWISE, EVEN IF SUCH PARTY, ITS AFFILIATES, ITS SUBSIDIARIES, OR ITS LICENSORS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND EVEN IF ANY LIMITED REMEDY SPECIFIED IN THIS AGREEMENT IS DEEMED TO HAVE FAILED ITS ESSENTIAL PURPOSE.  SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, SO THIS LIMITATION MAY NOT APPLY IN THOSE JURISDICTIONS.  IF ANY CLAIM IS MADE AGAINST A PARTY, INCLUDING WITHOUT LIMITATION CLAIMS AS A RESULT OF THE SUBSTANTIAL NON-CONFORMANCE OF THE SOFTWARE TO THE DOCUMENTATION OR OTHERWISE, THE PARTY’S TOTAL LIABILITY FOR DAMAGES WILL BE LIMITED, IN THE AGGREGATE, TO ITS ACTUAL DIRECT DAMAGES, AND IN ANY EVENT WILL NOT EXCEED THE TOTAL OF ALL AMOUNTS MEDQUIST IS OBLIGATED TO PAY PSP UNDER THIS AGREEMENT.  SOME JURISDICTIONS MAY NOT ALLOW LIMITATIONS OF LIABILITY FOR CERTAIN TYPES OF DAMAGE OR CERTAIN CLAIMS, SO SUCH LIMITATION MAY NOT APPLY IN SUCH JURISDICTION.

14.           Intellectual Property Indemnification.  PSP will indemnify, defend, and hold harmless MedQuist, and MedQuist’s directors, officers, shareholders, employees, agents, and attorneys, and MedQuist’s affiliates and their directors, officers, shareholders, partners, members, employees, agents, and attorneys, and the End Users, and the successor, and assigns of any or all of them, from all third-party Claims for infringement, misappropriation or violation of copyrights, trademarks, trade secrets, or other proprietary rights associated with any portion of the Product, or any other material delivered under this Agreement; provided that: (i) MedQuist promptly notifies PSP in writing of the Claim; (ii) PSP has sole control of the defense and all related settlement negotiations with respect to the Claim; provided however, that MedQuist has

***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

10

the right, but not the obligation, to participate in the defense of any such Claim through counsel of its own choosing (at MedQuist’s sole expense), which right will not detract from PSP’s sole right to control such defense; and (iii) MedQuist cooperates fully to the extent reasonably necessary, and executes all documents reasonably necessary for the defense of such Claim. “Claim” will mean all loss, losses, liabilities, damage, damages, claims, taxes, and all related costs and expenses; including, without limitation, reasonable attorneys’ fees and costs of investigation, litigation, settlement, judgment, interest, and penalties.  If MedQuist provides PSP with notice of a Claim, MedQuist may withhold any further payments due to PSP pursuant to this Agreement, and deposit the same in an interest-bearing escrow account with a commercial bank.  On the resolution of any claim, the amounts in escrow, including accrued interest thereon, will be distributed to PSP after deductions of amounts PSP is required to pay MedQuist under this Section 14.  If MedQuist’s or its End Users’ use of any portion of the Product or any other material delivered under this Agreement is enjoined in an action by reason of a Claim of infringement, violation or misappropriation of any third party’s patents, copyrights, trademarks, trade secrets or other proprietary rights, or MedQuist reasonably believes that it will be so enjoined, then PSP will, at its sole, option and expense, in addition to its other obligations in this Section 14: (i) procure for MedQuist and its End Users the right to continue using the Product or any portion thereof; (ii) replace the same with software of equivalent functions and efficiency that is not subject to an action described in this section; or (iii) modify the applicable Software so that there is no longer any infringement or breach, provided that such modification does not adversely affect the functional capabilities of the Product as set out in this Agreement.  If neither (i), (ii), or (iii) may be accomplished despite PSP’s reasonably diligent efforts, MedQuist may terminate this Agreement with regard to the portion of the Product that is alleged to infringe, violate, or misappropriate a third party’s rights.  PSP will have no liability respecting any claim of infringement or breach as aforesaid to the extent such claim is based on the combination, operation, or use of the Software with other equipment, software, apparatus, devices, or things not supplied by PSP or in a manner not substantially consistent with PSP’s specifications and instructions.  This Section 14 states the entire liability of PSP for any type of infringement or breach whatsoever of intellectual property rights of third parties related to the manufacture, sale, operation, or use of the Product.

15.           Product Ownership.  PSP is the sole owner of the Products and all derivatives, modifications, enhancements, corrections, additions, and extensions of end to the Products.  MedQuist acknowledges that the Software (other than the third-party software) (such Software, excluding any third-party software, being referred to in this Agreement as the “PSP Software”) is a valuable trade secret of PSP.  PSP will be the sole and exclusive owner of the PSP Software, and MedQuist agrees to do nothing inconsistent with such ownership.

16.           Legal Compliance.

16.1.        MedQuist may not download or otherwise export or re-export the Software or any underlying information or technology except in full compliance with all United States and other applicable laws and regulations.  In particular, but without limitation, none of the Software or underlying information or technology may be downloaded or otherwise exported or re-exported: (i) into (or to a national or resident of) Cuba, Iran, Iraq, Libya, North Korea, Syria, or Sudan; or (ii) to anyone on the U.S. Treasury Department’s list of Specially Designated Nationals or the US Commerce Department’s Table of Deny Orders.

11

16.2.        In accordance with the Federal Center for Devices and Radiological Health regulations, in order to permit tracing in the event of recall, MedQuist will retain distribution records for the Products for a period of five (5) years from the date of termination or expiration of this Agreement.

16.3.        MedQuist is aware of and will advise its End Users to comply with Section 112B(b) of the Social Security Act (42 U.S.C. 1320a-7b) (the “Act”) when seeking reimbursement from any governmental entity for products supplied under this Agreement.  Specifically, MedQuist acknowledges that the Act may require proper disclosure of any discounts, rebates, credits, reimbursements, and other programs PSP or MedQuist provide in connection with delivery of the Products.

16.4.        MedQuist will not ship, transfer, or export any of the Products, or any derivative thereof, directly or indirectly, into any country except as permitted by the U.S. Export Administration Act and the regulations thereunder, or use any of the Products for any purpose prohibited by the U.S. Export Administration Act.

17.           Intellectual Property Rights.

17.1.        Any and all of PSP’s and its Affiliate’s copyright, trademark, trade secret, and other proprietary rights subsisting in or used in connection with the Products (whether or not patentable or registered under copyright, trademark, trade secret or similar legislation, or subject to analogous protection) are and will remain the property of PSP its Affiliate and its licensors.

17.2.        Such copyright, trademark, trade secrets, and other rights belonging to PSP and its Affiliate may only be used by MedQuist with the consent of PSP and its Affiliate as granted pursuant to, and during the Term of, this Agreement.

17.3.        MedQuist will, at as own expense, defend, indemnify and hold harmless PSP and its Affiliate from and against any damages, cost, loss, liability, expenses or claims (including reasonable legal fees) arising out of (i) MedQuist’s unauthorized use of the Product or any part thereof, or (ii) MedQuist’s willful or negligent acts.

17.4.        PSP and its Affiliate grants MedQuist a limited, nonexclusive right to use PSP’s and its Affiliate’s trademarks and trade names (the “Marks”) in connection with the advertising, marketing and sale of the Products.  MedQuist will not make or permit alterations or removal of tags, labels, or identifying marks placed by PSP and its Affiliate on or within the Products.  MedQuist will not use PSP’s and its Affiliate s trade names or abbreviations (with the exception of a logo or mark or graphic design PSP and its Affiliate provide which indicates MedQuist is an authorized value-added reseller of PSP) in MedQuist’s corporate title or name, or in any manner that may result in confusion as to separate and distinct identities of PSP with its Affiliate and MedQuist.  MedQuist agrees that it has no right, title, or interest in or to the Marks except the limited right of use set forth in this Agreement.  MedQuist will not use any Mark in any way except as PSP and its Affiliate may authorize.  MedQuist will submit to PSP and its Affiliate representative samples of all labels, advertising, promotional and marketing materials and other items that use or bear any Mark for PSP’s and its Affiliate’s approval prior to publication or distribution.  MedQuist will use the Marks only in the forms PSP and its Affiliate designate, will

12

not alter or modify any Mark, and will include an appropriate trademark notice (® or ™) with each use of any Mark.  Under no circumstances will MedQuist remove or cover the logo, insignia, serial numbers or lettering that may be on the Products at the time of delivery.  On expiration or termination of this Agreement, the license granted under this Section 17.4 will automatically terminate and MedQuist will immediately cease and desist all use of the Marks licensed under this Agreement.

17.5.        MedQuist intends to market the Products described in this Agreement under the trademark “SpeechQ™” and certain trademarks trade names, service marks, logotypes, and other commercial symbols related thereto (collectively, the “SpeechQ Marks”).  PSP further acknowledges and agree that (i) there is substantial and valuable goodwill in the SpeechQ Marks; (ii) as between PSP and any of its affiliates on the one hand, and MedQuist and any of its affiliates on the other, MedQuist owns all rights to the SpeechQ Marks and all goodwill related to them; (iii) neither PSP nor any of its affiliates will contest MedQuist’s ownership of the SpeechQ Marks, or the validity of the SpeechQ Marks, at any time during or after the Term of this Agreement; and (iv) neither PSP nor any of its affiliates will misappropriate the SpeechQ Marks, infringe on MedQuist’s rights in the SpeechQ Marks, or use the SpeechQ Marks without MedQuist’s prior written consent, at any time during or after the Term of this Agreement.

17.6.        Any advertising, publicity, release or other disclosure of information concerning this Agreement should be released only after receiving a prior written approval by both parties except as required by law.

18.           Confidential Information.  Each party to this Agreement has imparted and may from time to time impart to the other certain confidential information related to the performance of this Agreement and the Products or the marketing or support thereof (including specifications therefor), and each party may otherwise obtain confidential information concerning the business and affairs of the other pursuant to this Agreement.  Each party hereby agrees that it will use such confidential information solely for the purposes of this Agreement and that it will not disclose, whether directly or indirectly, to any third party such information other than as required to carry out the purposes of this Agreement.  In the event of and prior to such disclosure, the disclosing party will obtain from such third parties duly binding agreements to maintain in confidence the information to be disclosed to the same extent at least as such party is so bound hereunder.  The foregoing provision will not prevent the disclosure or use by a party of any information which is or hereafter, through no fault of such party becomes public knowledge or to the extent permitted by law, provided that each party has a reasonable opportunity to prevent or limit such disclosure.  MedQuist will return to PSP all confidential information received pursuant to this Agreement or otherwise in its possession or control on termination of this Agreement, or forthwith on the request of PSP.

19.           Remedies On Breach.  Each party acknowledges that the unauthorized use or disclosure of any confidential information will cause irreparable harm to the other for which damages will be an inadequate remedy, and the each party hereby agrees that, in additional to all other remedies available to it at law and in equity, it will have the right to obtain injunctive relief.

13

20.           Termination.

20.1.        Either party may terminate this Agreement on written notice to the other if any of the following events occur:

20.1.1.     If any proceeding in bankruptcy, receivership, liquidation or insolvency is commenced against the other party or its property, and the same is not dismissed within ninety (90) days; or

20.1.2.     If the other party makes any assignment for the benefit of its creditors, becomes insolvent, commits any act of bankruptcy, ceases to do business as a going concern, or seeks any arrangement or compromise with its creditors under any statute or otherwise.

20.2.        PSP may terminate this Agreement on written notice to MedQuist if any of the following events occur:

20.2.1.     In the event that a material breach by MedQuist remains uncured for more than thirty (30) days following PSP’s delivery of written notice to MedQuist specifying the nature of the breach; or

20.2.2.     If MedQuist assigns this Agreement without PSP’s consent or if MedQuist undergoes a change of control, whether by means of a sale or issuance of shares or otherwise and the control changes to a third party doing business in the dictation market or in the speech recognition market.

20.3.        MedQuist may terminate this Agreement on written notice to PSP in the event that a material breach by PSP remains uncured for more than thirty (30) days following MedQuist’s delivery of written notice to PSP specifying the nature of the breach.

21.           Obligations On Termination.  On the expiration or termination of this Agreement:

21.1.        PSP will be under no obligation to refund to MedQuist any licensing fees paid pursuant to this Agreement so long as PSP has fulfilled all of its obligations under this Agreement related to such licensing fees, including, without limitation, delivery of the Software license and fulfilling the warranty obligations for such Software license;

21.2.        PSP will continue to perform its support obligations to MedQuist for the duration of all service agreements between MedQuist and the End Users entered into before such expiration or termination, where support fees have been paid to PSP;

21.3.        Any End User licenses granted before the expiration or termination of this Agreement will continue to survive after the effective date of termination provided that MedQuist has paid all amounts owing hereunder; and

21.4.        MedQuist will return or destroy (as PSP instructs), no later than fourteen (14) days after the effective date of termination, all Products and any and all copies made of such Products in its possession or control.  MedQuist will furnish PSP with a certificate, stating that the same has been done, except with respect to such material as is necessary to enable MedQuist

14

to continue to support the Products beyond the date of expiration or termination where PSP permits or requires MedQuist to do so.

22.           Miscellaneous.

22.1.        Force Majeure.  The term “Force Majeure” will be defined as an act of God, severe weather conditions, strikes, war, terror or other violence, law or proclamation, demand, or requirement of any governmental agency, or any other similar act or condition whatsoever, beyond the reasonable control of the parties to this Agreement.  If the performance of this Agreement by either party or any obligation under this Agreement is prevented, restricted, or interfered with by reason of a Force Majeure event, the party whose performance is so affected, on giving prompt notice to the other party, will be excused from such performance to the extent of such Force Majeure event provided, however that the party so affected will take all reasonable steps to avoid or remove such causes of nonperformance and will continue performance tinder this Agreement with dispatch whenever such causes are removed.

22.2.        Relationship of MedQuist to PSP.  Neither party is an agent, employee, fiduciary, partner, or representative of the other, and has no authority or power to bind or contract in the name of or to create any liability against the other in any way for any purpose.  It is understood that MedQuist is an independent contractor with rights confirmed by this Agreement to market, distribute, and support the Product on its own accord and responsibility in the Territory.

22.3.        Waiver.  Failure or neglect by either party to enforce at any time any of the provisions of this Agreement will not be construed nor will be deemed to be a waiver of either party’s rights under tins Agreement nor in any way affect the validity of the whole or any part of tins Agreement nor prejudice either party’s rights to take subsequent action.

22.4.        Agreement.  This Agreement, including the Schedules attached to this Agreement, states the completed agreement between the parties concerning this subject and supersedes earlier oral and written communications between the patties concerning this subject.  No addition amendment to, or modification of this Agreement will be effective unless it is in writing and signed by both parties.  This Agreement takes precedence over and supersedes any previous agreements between the parties regarding the subject matter hereof, even if such agreements are still in effect as of the Effective Date hereof.

22.5.        Assignment.  This Agreement is personal to MedQuist, and therefore, it may not be assigned by MedQuist whether voluntarily or involuntarily or by operation of law, in whole or in part to any party without the prior written consent of PSP, which consent will not be unreasonably withheld.  No such assignment by MedQuist, howsoever occurring, will relieve either party of its obligations under this Agreement.  Notwithstanding the foregoing, MedQuist may assign this Agreement to any of its affiliates or to any purchaser of substantially all of the assets or the business of MedQuist.

22.6.        Notices.  Any notice required or permitted under the terms of this Agreement or required by Law will, unless otherwise provided, be in writing and will be delivered in person, sent by registered mail or air mail as appropriate, properly posted and fully prepaid, in an

15

envelope properly addressed, or sent by next-day delivery via a courier that has the ability to track deliveries and confirm receipts to the respective parties, as follows:

To PSP:Managing Director
                              
                              
Triester Strasse 64
1101 Vienna, Austria

To MedQuist:MedQuist Inc.
100 Bishops Gate Blvd. #300
Mount Laurel, NJ 08054
Attn Chief Legal Officer

with simultaneous copy, which will constitute notice, to:

Richard E. Johnson, Esq.
Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592

or to such other address as may from time to time be designated by written notice hereunder.  Any such notice will be in the English language and will be considered to have been given at the time when actually delivered if delivered by hand, on the next business day following sending by courier or in any other event within seven (7) days after it was mailed in the manner provided in this Section 22.6.

22.7.        Headings.  The headings of the sections of this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

22.8.        Severability.  In the event that any or any part of the terms, conditions, or provisions contained in this Agreement are determined by any competent authority to be invalid, unlawful, or unenforceable to any extent, such term, condition, or provision will to the extent be severed from the remaining terms conditions, and provisions, which will continue to be valid and enforceable to the fullest extent permitted bylaw.

22.9.        Governing Law.  The parties hereby agree that this Agreement will be governed by and construed and interpreted in accordance with the laws of the State of New York and the laws of the United States applicable in the State of New York.  The parties agree that the U.N. Convention on Contracts for the International Sale of Goods does not apply to this Agreement.

22.10.      Dispute Resolution.

22.10.1.   All disputes arising under this Agreement will be settled, if possible, by good faith negotiation of the parties, which negotiations will not terminate until the President of MedQuist and the President of PSP have considered the dispute.

16

22.10.2.   If such negotiations fail to resolve any dispute within thirty (30) days after a party has given written notice of the dispute to the other party or parties, then such dispute will be resolved, if possible, by a process of mediation agreed on by the parties (acting reasonably), which mediation will be conducted by a mediator agreed on by the parties (acting reasonably).  Such mediator will be an individual with significant experience in and understanding of the software industry.  Such mediation will be held within 30 days after cessation of negotiations as described in Section 22.10.1 of this Agreement.

22.10.3.   If the dispute has not been settled within ten (10) days of the commencement of the mediation described in Section 22.10.2 of this Agreement, then the dispute will be finally settled by arbitration and this Agreement specifically excludes the power of the Court to refuse to stay judicial proceedings.  The arbitration will take place in New York, New York unless otherwise agreed.  Within twenty (20) days after the party requesting arbitration has given written notice of such request to the other party, the parties (acting reasonably) will jointly appoint a single arbitrator who will be an individual (other than the mediator selected pursuant to Section 22.10.2 of this Agreement, with significant experience in and understanding of the software industry.  If the parties are unable to appoint a single arbitrator within the such twenty (20) day period, then MedQuist will appoint one arbitrator and PSP will appoint one arbitrator, both such arbitrators to be appointed within ten (10) days after the end of the aforementioned twenty (20) day period, with a third arbitrator then being selected by those two arbitrators (none of these three being the mediator selected pursuant to Section 22.10.2 within five (5) days following their appointment.  Such third arbitrator will alone conduct the arbitration.  The arbitration will be final and binding and not subject to appeal and the procedures and substance of the arbitration will be governed by the U.S. Federal Arbitration Act.  The arbitrator may, in addition to any other remedies, grant injunctive relief.  The non prevailing party will pay all costs of the arbitration.

22.11.      No Damages for Termination or Expiration.  PSP WILL NOT BE LIABLE TO MEDQUIST FOR DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO INCIDENTAL OR CONSEQUENTIAL DAMAGES, SOLELY ON ACCOUNT OF PSP’S TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS.  MEDQUIST WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION OR REPARATIONS ON TERMINATION (OTHER THAN IN THE CASE OF A TERMINATION OF THIS AGREEMENT BY MEDQUIST FOR CAUSE UNDER SECTION 20.3 OF THIS AGREEMENT) OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS UNDER THE LAW OF ANY TERRITORY, STATE, OR OTHERWISE.  PSP will not be liable to MedQuist on account of termination (other than in the case of termination of this Agreement by MedQuist for cause under Section 20.3 of this Agreement) or expiration of this Agreement in accordance with its terms for reimbursement or damages for the loss of goodwill, prospective profits, or anticipated income, or on account of any expenditures, investments, or commitments made by MedQuist, or for any other reason whatsoever, based on or growing out of such expectation or termination.

22.12.      Authority.  Each of the parties hereby represents that it has full power and authority to enter into and perform its respective obligations under this Agreement, and does not know of any contracts, agreements, promises, or undertaking, that would prevent the full performance and compliance with this Agreement.

17

IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the Effective Date.

MEDQUIST:		PSP:
MEDQUIST INC.		PHILIPS AUSTRIA GMBH
By:	/s/ Gregory M. Sebasky	By:	/s/ M. Wassnik
Title: President		Title: Managing Director

18

SCHEDULE A

TERRITORY.

Description of Territory:

MedQuist’s Territory shall be all that area within North America.

“North America” shall specifically include, without limitation (i) the United States of America, (ii) the Dominion of Canada, (iii) those islands m the Caribbean Basin beginning with Bermuda to the north and extending to Grenada and Barbados in the south, as the borders of such countries are configured as of the Effective Date of this Agreement.

The United States of America shall expressly include (i) the following dependent areas of the United States of America American: Samoa, Baker Island, Guam, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, the Midway Islands, Navassa Island, the Northern Mariana Islands, Palmyra Atoll, Puerto Rico, the U S Virgin Islands, and Wake Island, (ii) those areas leased by the United States from separate sovereign nations, including without limitation Guantanamo Bay, Cuba;

The Dominion of Canada shall expressly include Hans. Island, in the Kennedy Channel between Ellesmere Island and Greenland, which area is subject to a border dispute between the Dominion of Canada and the Kingdom of Denmark.

SCHEDULE B

PRODUCTS

Description of Products:

The Products that are the subject of this Agreement shall include, without limitation:

1.PSP’s in-house solution for Radiology products, as set forth in Amendment No., 2, together with all derivations and future versions thereof; plus

2.All multi-user solutions PSP develops that include the core functionality of front-end speech recognition software for the medical market in North America, which solutions shall specifically include solutions developed for the [***].

The Products shall specifically exclude software development kit (“SDK”) products that PSP develops, currently known as SpeechSDK and SpeechMagic.

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

20

SCHEDULE C

PRICING

Pricing may be adjusted from time to time based upon the mutual agreement of the need for such a change by both MedQuist and Philips Speech Processing.

The license fee for the Software (the “License Fee”) shall be as follows:

TABLE 1

Item	License Fee
Server	[***]
Link	[***]
Report Station Workstation Client*	[***]
Report Station Concurrent License*	[***]
Test Server Package	[***]

* For every transcription user or workstation, a Report Station needs to be purchased.

Upgrade pricing for Software Releases are subject to provision 11.5 of this agreement.

For end-customers who have no SMA contracts, PSP and. MedQuist will agree on a case by case basis on a recommended end-user upgrade price for patches and point releases, and PSP will get [***] of that price.

Each License Fee set forth above-shall be Subject to the following reductions:

TABLE 2

Description	Amount of Reduction
For all purchases until MedQuist meets its forecasted purchases for the applicable period	[***]
For all purchases after MedQuist meets its forecasted purchases for the applicable period	[***]
For large orders, as determined by PSP and MedQuist	As established by the agreement of PSP and MedQuist

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

21

Notwithstanding anything set forth in Table 2 to the contrary, once cumulative discounts MedQuist has earned reach [***] then the only discount available to MedQuist will be a [***] discount available on purchases that are in excess of MedQuist’s forecast for that year.

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

22

SCHEDULE D

SALES FORECASTS AND COMMITMENTS

MedQuist’s sales forecasts and commitments (the “Sales Forecasts and Commitments”) shall be as follows:

1.For the period June 1, 2004, through December 31, 2004:  Software purchases and payments in 2004 equal to [***].  If MedQuist has not granted software licenses to End Users prior to December 20, 2004, in quantities sufficient to generate such [***] forecast, then MedQuist will make a bulk purchase and payment on that date of licenses that are non-refundable but will be available for granting to End Users in future periods.

2.For the period January 1, 2005, through December 31, 2005: Software purchases equal to [***] which forecast anticipates sales of:  [***] for the period January 1, 2005, through June 30, 2005; and (ii) the remainder during the period July 1,2005, through December 31, 2005.

3.For the period January 1, 2006, through December 31, 2006:  Software purchases equal to [***] which forecast anticipates sales of: [***] for the period January 1, 2005, through June 30, 2005; and (ii) the remainder during the period July 1, 2005, through December 31, 2005.

4.For the period January 1, 2007, through June 30, 2007:  Software purchases equal to [***].

 ***  Confidential material which has been omitted and filed separately with the Securities and Exchange Commission

23

SCHEDULE F

END USER LICENSE AGREEMENT

END USER LICENSE AGREEMENT FOR MEDQUIST ‘Branded’ SOFTWARE

THIS END USER LICENSE AGREEMENT (“EULA”) is between MEDQUIST, INC. (“MEDQUIST”), having a business address of 5430 Metric Place, Suite 200, Norcross, Georgia 30092, and CUSTOMER.

1.Definitions

a.“Software” shall mean separate MedQuist ‘branded’ computer programs, (whether or not included within or separately from any data processing unit), provided now or later by MedQuist, its parent, subsidiaries affiliates and not otherwise so provided under a separate license agreement, which can be read and used directly by a machine or device, and shall include without limitation, data, instructions, and media. ‘Non-branded Software’ shall mean Software bearing a trademark other than MedQuist’s.

b.“Documentation” shall mean the separate MedQuist ‘branded’ operator, user, or installation instruction sets, provided now or later, and in whatever form, by MedQuist, its parent, subsidiaries, or affiliates and not otherwise provided wider a separate license agreement.  “Non-branded Documentation” shall mean Documentation beating a trademark other than MedQuist’s.

2.LICENSE OF RIGHTS.

a.Customer is granted a non-exclusive, non-assignable, non-transferable, permanent, revocable license of rights to me seal display each of the Software and Documentation, whether separately or combined, with others of the Software or Documentation, only in data processors which are in Customer’s exclusive possession and designated by Customer for such use in its internal business, with such Software or Documentation, or such continued Software or Documentation.

b.Customer is granted a non-exclusive, non-assignable, non-transferable, permanent, revocable license of rights to use the documentation only in direct connection with such Software or Documentation use and display, internally in its own business.

3.Customer acknowledges that the Software and Documentation, including without limitation all ideas, procedures, processes, systems, methods of operations, concepts, principles, discoveries, arid inventions, are the exclusive property of MedQuist or its licensees and acknowledges their exclusive rights to the application, manufacture, development, use, display, reproduction, modification, and the and the transfer of the Software and Documentation and to all worldwide patent and copyright rights to and in the Software or Documentation. Customer shall not prepare a derivative work or a compilation from web Software or Documentation, or modify, combine, or copy the

24

Software or Documentation in any manner, including without limitation decompiling or disassembling the Software or Documentation to any third party, in whole or part, in any font or in any manner, unless expressly permitted in writing by MedQuist. The sole exception allowed is the copying of the Software or Documentation when loading the Software or Documentation within the internal memory of Customers data processor, and when an essential step in the utilization of the Software or Documentation is conjunction with such data processor. No other manner of copying is permitted. Customer shall reproduce and include all copyright notices provided wish the Software or Documentation all copies, compilations, or derivative works of the Software or Documentation produced by the Customer, as may be authorized under this Paragraph 3.

4.Customer acknowledges the proprietary rights in the trademarks shown on the Software and Documentation delivered to the Customer, and Customer shall deal with and treat such trademarks according to applicable trademark law.

5.Customer shall limit access to the Software or Documentation so its authorized employees. Customer shall advice such employees of the Semis of ibis EULA and shall take all necessary steps to ensure compliance with the EULA terms, by such employees.

6.Customer shall defend, indemnify, and hold MedQuist harmless from any and all class actions, losses, damages, (including reasonable legal fees), obligations, liabilities and (including, without limitation, any of the foregoing arising out of or imposed in connection with latent or other defects, or under the doctrine of “strict liability”), arising out of the purchase, lease, possession, operation, condition, return or use of the Software or Documentation, or by operation of law, excluding, however, any of the foregoing resulting solely and directly from the acts of MedQuist.

7.This EULA is not assignable by Customer unless permitted in writing by MedQuist and any attempt at assignment without such permission shall be void. Thin EULA is assignable in whole or pail by MedQuist without consent of Customer.  Customer agrees to execute all documents and consents requested by MedQuist to complete any assignment by MedQuist.

8.Customer agrees to keep the Software and Documentation at the location(s) of its designated data processors, as set forth in Paragraph 2 above. Customer agrees to return the Software or Documentation delivered by MedQuist under this EULA immediately upon Customer relinquishing possession of any of said data processors, except to the extent that the Software or Documentation has been transferred to replacement data processors possessed by Customer or to third pasties in accordance with Paragraph 7 above.

9.MedQuist warrants that it has and conveys good title to the Software. MedQuist warrants that the Software will perform to the specifications identified within the user Documentation current at the time of Software sale. Documentation and media containing Software or Documentation are provided “AS IS” without warranty of any kind, either expressed or implied.  MedQuist does not warrant that the functions contained in the Software or Documentation will meet Customer’s requirements or that the operation of

25

the Software or Documentation will be uninterrupted or error free. Should the Documentation prove defective, Customer alone assumes the entire cost of all necessary corrections.

10.MedQuist’s warranty of Software shall be void and of no effect if: (a) the Software is not properly stored, installed, or maintained in accordance with MedQuist’s recommendations or standard industry practice; (b) the Software is not operated under normal conditions and in accordance with MedQuist’s recommendations or standard industry practice; (c) the defect has arisen from damages occurring to the Software subsequent to MedQuist’s delivery or is related to the use of unauthorized hardware or software; or (d) failure of the Software due to (i) inadequate electrical power, air-conditioning, or humidity-control, (ii) accident or disaster, including without limitation, fire, flood water, wind and lightning, (iii) neglect, including without limitation power transients, abuse or misuse, and failure of the Customer to follow MedQuist’s published operating instructions, (iv) unauthorized, modification or repair of Software by persons other than authorized, representatives of MedQuist, or (v) use of the Software for purposes other than those for which designed.

11.MedQuist’s warranty of Software does not include (a) performing services connected with relocation of Software or adding or removing interfaces, accessories, attachments or other devices, (b) repair of damage due to other than normal wear, (c) electrical work external to the Software, (d) any maintenance of interfaces, accessories, attachments, or other devices not furnished by MedQuist, or (e) any issues resulting from an unsupported service.

12.THE WARRANTY MADE BY MEDQUIST HEREIN IS EXCLUSIVE AND IS MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, AND IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND ANY WARRANTY ARISING OUT OF ANY COURSE OF DEALING CUSTOM, OR USAGE OF TRADE.  IN NO EVENT, SHALL MEDQUIST BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OR ECONOMIC LOSS UNDER ANY LEGAL THEORY ASSERTED, EVEN IF MEDQUIST HAS BEEN ADVISED OF THE POSSIBILITY THEREOF.

13.ALL NON-BRANDED SOFTWARE AND NON-BRANDED DOCUMENTATION ARE PROVIDED HEREUNDER ON AN “AS IS”.  NON-MEDQUIST MANUFACTURERS OR SUPPLIERS MAY PROVIDE WARRANTIES FOR THEIR SOFTWARE OR DOCUMENTATION AND ALL WARRANTY QUESTIONS OR PROBLEMS WITH RESPECT TO SUCH SOFTWARE OR DOCUMENTATION SHOULD BE ADDRESSED DIRECTLY TO SUCH NON-MEDQUIST MANUFACTURER OR SUPPLIER.  CUSTOMER EXPRESSLY ASSUMES ALL LIABILITY FOR ALL AND ANY LOSSES, DAMAGES, AND COSTS (INCLUDING COURT COSTS AND LEGAL FEES) IN CONNECTION WITH, OR RELATED TO, SUCH NON-BRANDED SOFTWARE OR NON-BRANDED DOCUMENTATION.  THE ENTIRE RISK AS OT THE QUALITY OR PERFORMANCE OF SUCH NON-BRANDED

26

SOFTWARE OR NON-BRANDED DOCUMENTATION IS WITH CUSTOMER.

14.LIMITATION OF REMEDY.

a.If any Software is found to be defective within the warranty period, MedQuist’s only obligation and Customer’s exclusive and sole remedy, as MedQuist may choose in MedQuist’s sole best judgment, shall be either (a) the repair or replacement of such defective Software by MedQuist, or (b) the return of such defective Software to MedQuist and a refund to Customer of its license fee.  Customer acknowledges and agrees that MedQuist’s right to refund Customer’s license fee shall not be diminished or restricted in any way or for any reason.  The provision of such remedy shall be conditioned upon notification, and substantiation as may be required by MedQuist, that such Software has been stored, installed, maintained, and operated in accordance with MedQuist’s recommendations or standard industry practice.  Unless other wise directed by MedQuist, all such defective Software shall be returned to MedQuist’s warehouse, or to such other location as MedQuist shall select, all at MedQuist’s expense.

b.Except for MedQuist’s obligations set out in Section 14 (a) above, MedQuist shall have no obligation, liability, or responsibility to Customer or any other party with respect to any claim or cause of action arising in connection with, or related to this EULA, whether legal or equitable, including, without limitation, any claim or cause of action in contract or in tort (whether in negligence or in strict liability).  Customer acknowledges and agrees MedQuist’s total obligation and liability for any such claim or cause of action shall be limited to an amount in the aggregate which shall not exceed the total price paid by Customer for the specific Software or Documentation which are the subject matter of an directly related to such claim or cause of action.  Customer expressly assumes all liability for all and any losses, damages, and costs (including court costs and legal fees) in excess of such amount.  No claim or causes of action, regardless of form, may be brought more than one (1) year after such claim or cause of action arises.

c.The purposes of the above stated remedy is to correct any defects or to refund the license fee paid.  Customer acknowledges and agrees that such exclusive remedy is an essential term in the bargain represented by this EULA and that such remedy shall, in view of the consideration paid to MedQuist, operate as a full satisfaction to Customer for any and all claims related thereto.  In further view of the foregoing, Customer acknowledges and agrees that in the event a court of competent jurisdiction or an arbitration panel rules this exclusive remedy does not give the Customer the benefit of its bargain or that such exclusive remedy fails for any reason, then any such ruling with regard to such exclusive remedy or any such failure of such exclusive remedy, shall not effect or modify in any way, an limitation or exclusion of warranties, and all such limitations and exclusions shall continue in full force and effect.

27

15.This Agreement shall be governed by the laws of the state listed in Customer’s address on the Final Terms of Sale referenced by the Product Sales Agreement within which this EULA is incorporated.  Any term or condition prohibited by law shall, to the extent prohibited, be ineffective without affecting the other terms and conditions.

16.All parties acknowledge and agree that in entering into this transaction, they have not relied upon any representation regarding this EULA, other than those explicitly set forth herein.  Further, the parties expressly admit that any term or condition which is, or may be asserted, as material by any party and which is not expressly stated in this EULA, shall not be part of this EULA and shall not be binding on any parties hereto.  Each party waives all defenses, with regard to any such asserted material, term, or conditions no expressly stated within this EULA.

17.If either party to this EULA is temporarily unable to perform its obligations because of causes reasonably beyond its control, then no liability to the other party or right to terminate shall exist for failure of that party to perform during such period.

18.MedQuist’s failure to insist on strict performance of this EULA or to enforce a default upon the occurrence of any single, repeated or continuing violation of any particular term or condition hereof shall not be considered and waiver of MedQuist’s right to insist on strict performance of this EULA or to enforce a default with respect to the violation of any other term or condition.

19.No waiver, change or amendment of any term or condition of this EULA is effective against MedQuist unless made in writing and signed by an authorized official of MedQuist.

28

EX-10.28

Exhibit 10.28

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is effective as of July 15, 2005 by and between MedQuist Inc. (the “Company”), and John Simmons (“Indemnitee”).

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its subsidiaries as directors, officers and in other capacities;

WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the directors, officers, employees and other agents of the Company, the significant increases in the cost of such insurance and the general reductions and limitations in the coverage of such insurance;

WHEREAS, the Company and the Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and other agents serving corporations to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, the Company has adopted bylaws (the “Bylaws”) providing for the indemnification of directors, officers, employees and other agents of the Company, including persons serving at the request of the Company in such capacities with other corporations or enterprises, as authorized by New Jersey law;

WHEREAS, the Bylaws and New Jersey law, by their non-exclusive nature, permit agreements between the Company and its directors, officers, employees and other agents with respect to indemnification of such persons; and

WHEREAS, in order to induce Indemnitee to accept a position with the Company as a director, officer or in another capacity or capacities and/or continue to provide services to the Company as a director, officer or in another capacity or capacities, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent now or hereafter permitted by law;

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows.

1.             Indemnification.

(a)           Third Party Proceedings.  The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or any arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other

enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b)           Proceedings By or in the Right of the Company.  The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the New Jersey court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the New Jersey court or such other court shall deem proper.

(c)           Mandatory Payment of Expenses.  To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1(a) or (b) hereof, or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

2.             Advancement of Expenses; Notice; Indemnification Procedure.

(a)           Advancement of Expenses.  The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action, suit or proceeding).  Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

2

(b)           Notice of Indemnification Claim; Cooperation by Indemnitee.  Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement.  Notice to the Company shall be directed to the General Counsel of the Company at the address indicated on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee).  Notice shall be deemed received as provided in Section 13 hereof.  Indemnitee also shall provide the Company such information and cooperation as the Company may reasonably require and as shall be within Indemnitee’s power.

(c)           Indemnification Procedure.  Any indemnification and/or advances provided for in Sections 1 and 2 hereof shall be made no later than thirty (30) days after receipt of the written request of Indemnitee.  If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may at any time thereafter bring an action against the Company to recover the unpaid amount of the claim.  It shall be a defense to any such action brought by Indemnitee (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed.  Notwithstanding the foregoing, Indemnitee shall be entitled to receive advancements of expenses pursuant to Section 2(a) hereof unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists.  It is the intention of the parties that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or other subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including it Board of Directors, any committee or other subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d)           Notice to Insurers.  If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurer in accordance with the procedures set forth in the applicable policy.  The Company shall thereafter take all action it deems reasonably necessary or advisable to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e)           Selection of Counsel.  In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee (such approval not to be unreasonably withheld), upon the delivery to Indemnitee of

3

written notice of its election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ his or her own counsel in any such proceeding at Indemnitee’s own expense, and provided further that Indemnitee shall have the right to employ his or her own counsel in any such proceeding at the Company’s expense if (i) employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding.

3.             Additional Indemnification Rights; Nonexclusivity.

(a)           Scope of Indemnification Rights.  Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, Bylaws or by statute.  In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a New Jersey corporation to indemnify a member of its board of directors or an officer or other agent, such changes shall be incorporated automatically into Indemnitee’s rights and the Company’s obligations under this Agreement without further action of the parties.  In the event of any change in any applicable law, statute or rule which narrows the right of a New Jersey corporation to indemnify a member of its board of directors or an officer or other agent, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the rights and obligations of the parties hereunder.

(b)           Nonexclusivity.  The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, Bylaws, any other agreement, any vote or approval of Company stockholders or disinterested Directors, New Jersey law, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office.

(c)           Continuing Right.  All agreements and obligations of the Company included herein shall continue during the period Indemnitee is a director, officer, employee or other agent of the Company and shall continue thereafter as long as Indemnitee is subject to any possible claim, action, suit, proceeding or any arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative, by reason of the fact that Indemnity was serving in the capacity referred to herein.

4.             Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him or her in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

4

5.             Mutual Acknowledgement.  Each of the Company and Indemnitee acknowledges that in certain instances, Federal law or applicable public policy may prohibit the Company from providing indemnification under this Agreement or otherwise.  In particular, the Company and Indemnitee acknowledge that the Securities and Exchange Commission believes that indemnification for liabilities arising under the Federal securities laws is against public policy and, therefore, is unenforceable.  Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination regarding the Company’s right, in view of such public policy considerations, to indemnify Indemnitee.

6.             Officer And Director Liability Insurance.  The Company may, from time to time, make a determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with insurance companies providing the directors and officers of the Company with coverage for losses in connection with acts or omissions by such directors and officers, or to ensure the Company’s performance of its indemnification obligations under this Agreement.  Among other considerations, the Company may weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage.  In all policies of director and officer liability insurance, Indemnitee will be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer.  Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance.

7.             Severability.  Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law.  The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.  If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

8.             Exceptions.  Notwithstanding any other provision herein to the contrary, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)           Claims Initiated by Indemnitee.  To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under 14A:3-5 of the New Jersey Business Corporation Act, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or

(b)           Lack of Good Faith.  To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material

5

assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or

(c)           Duplication of Payments.  To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which actually have been paid to Indemnitee under a valid and collectible insurance policy, a provision of the Company’s Certificate of Incorporation or Bylaws, or another valid and enforceable indemnity agreement; or

(d)           Claims Under Section 16(b) of 1934 Act.  To indemnify Indemnitee for expenses and an accounting of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any successor statute.

9.             Exceptions Under New Jersey Law.  Notwithstanding any other provision of this Agreement, pursuant to the New Jersey Business Corporation Act, no indemnification shall be made under this Agreement to or on behalf of the Indemnitee if a judgment or other final adjudication adverse to the Indemnitee establishes that the Indemnitee’s acts or omissions (a) were in breach of Indemnitee’s duty of loyalty to the Company or its shareholders (as defined in 14A:2-7(3) of the New Jersey Business Corporation Act), (b) were not in good faith or involved a knowing violation of law, or (c) resulted in receipt by the Indemnitee of an improper personal benefit.

10.           Construction Of Certain Phrases.  For purposes of this Agreement, the following terms and references shall have the following meanings:

(a)           References to the “Company” shall include, in addition to the resulting corporation in any consolidation, merger or similar business combination, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger or similar business combination which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b)           References to “other enterprises” shall include employee benefit plans;

(c)           References to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan;

(d)           References to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and

6

(e)           If Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

11.           Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12.           Successors And Assigns.  This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns.  The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to agree in writing to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

13.           Attorneys’ Fees.  In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous.  In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action were made in bad faith or were frivolous.

14.           Notice.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked.  Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15.           Consent To Jurisdiction.  The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New Jersey for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New Jersey.

16.           Choice Of Law.  This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of New Jersey, as applied to contracts between New Jersey residents entered into and to be performed entirely within New Jersey without regard to the conflict of law principles thereof.

7

17.           Period Of Limitations.  No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

18.           Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19.           Amendment; Termination.  No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver.

20.           No Construction as Employment Agreement.  Nothing contained in this Agreement shall be construed as giving Indemnitee any right to continue in the employment of the Company.

21.           Entire Agreement.  This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

[signatures on following page]

8

[signature page – Indemnification Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:
MEDQUIST INC.
By:	/s/ Howard S. Hoffmann
	Howard S. Hoffmann, CEO
Address for service:
MedQuist Inc.
Attn: General Counsel
1000 Bishops Gate Blvd., Suite 300
Mt. Laurel, NJ 08054
AGREED TO AND ACCEPTED:
INDEMNITEE:
JOHN SIMMONS
/s/ John Simmons
Signature
Address for service:

9

EX-10.29

Exhibit 10.29

OFFICE SPACE LEASE AGREEMENT

BETWEEN

ATLANTA LAKESIDE REAL ESTATE, LP.,

a Georgia Limited Partnership

AND

LANIIER HEALTHCARE, L.L.C.,

a Delaware limited liability company

BASIC LEASE INFORMATION

Lease Date	September 6, 2002
Landlord	Atlanta Lakeside Real Estate, L.P., a Georgia Limited Partnership
Tenant	Lanier Healthcare, L.L.C., a Delaware limited liability company
Building Address	5430 Metric Place, Suite 200 Norcross, Georgia 30092
Premises	Approximately 38,l13 square feet of Rentable Area.
Permitted Use	Office, Administrative, Healthcare, and related.
Lease Term	Approximately 66 months (Note: Base Rent waived for first 5 months following the Commencement Date and 50% of Base Rent waived for months 6-8 following the Commencement Date)
Commencement Date	The later of December 15, 2002 or the date of substantial completion of the Tenant Improvements
Expiration Date	That date which is sixty-six (66) months following the Commencement Date
Rentable Area of Building	58,000 square feet
Rentable Area of Premises	38,113 square feet
Tenant’s Percentage Share	65.71%
Base Rental	12/15/02 - 5/14/03 Free
(per annum per sq. ft of	5/15/03 - 8/14/03 $5.50
Rentable Area of Premises)	8/15/03 - 5/14/04 $11.00
(Note: The dates provided are	5/15/04 - 5/14/05 $11.33
subject to a day-for-day extension	5/15/05 - 5/14/06 $11.67
in the event Commencement Date	5/15/06 - 5/14/07 $12.02
occurs later than December 15, 2002)	5/15/07 - 5/14/08 $12.38

	5/15/08 - 6/14/08 $12.75
Security Deposit	$31,621
Landlord’s Address	For Notices: Atlanta Lakeside Real Estate, L.P. 2303 Cumberland Parkway Suite 100 Atlanta, Georgia 30339 ATTN: Scott D. Hawkins Fax Number 770-438-6424
Tenant’s Address	Lanier Healthcare, L.L.C. 5430 Metric Place Norcross, Georgia 30092 With a copy to: Smith, Gambrell & Russell, LLP Suite 3100, 1230 Promenade II 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 ATTN: Richard G. Greenstein, Esq.
Landlord’s Broker	Resource Real Estate Partners, L.L.C. Fax Number 770-436-3484
Tenant’s Broker	Thomas B. Tindall Cresa Partners of Georgia Fax Number: 404-256-6399
Exhibits	EXHIBIT “A”: Floor Plan(s) EXHIBIT “B”: Memorandum of Commencement of Rental EXHIBIT “C”: Rules and Regulations EXHIBIT “D”: Intentionally Omitted EXHIBIT “E”: Subordination, Non-Disturbance and Attornment Agreement EXHIBIT “F”: Additional Provisions EXHIBIT “G”: Work Agreement EXHIBIT “H”: Omitted EXHIBIT “I”:Standard Finishes EXHIBIT “J”: Antenna Specifications EXHIBIT “K”: Plans and Specifications

Where references to particular Basic Lease Information appear in the Lease, such references shall incorporate the applicable Basic Lease Information set forth herein.

LANDLORD:
ATLANTA LAKESIDE REAL ESTATE, L.P.,
a Georgia Limited Partnership
By:	/s/ Alexandra Logan
Name:	Alexandra Logan
Title:	Agent
TENANT:
LANIER HEALTHCARE, L.L.C.,
A Delaware limited liability company
Name:	/s/ Robert J. Duhoy
Title:	EVP and CFO

OFFICE SPACE LEASE AGREEMENT
TABLE OF CONTENTS

1.	Definitions	1
2.	Term; Completion of Improvements	2
3.	Rental	5
4.	Use	9
5.	Services	10
6.	Personal Property Taxes	11
7.	Alterations	12
8.	Liens	13
9.	Repairs	13
10.	Destruction or Damage	15
11.	Insurance	16
12.	Release and Subrogation	19
13.	Tenant’s Personal Property	19
14.	Indemnification	19
15.	Compliance with Legal Requirements	20
16.	Assignment and Subletting	20
17.	Signs	22
18.	Rules	23
19.	Entry by Landlord	23
20.	Environmental Matters	24
21.	Landlord’s Lien	26
22.	Events of Default	26
23.	Remedies	27
24.	Landlord’s Right to Cure Defaults	28
25.	Attorney’s Fees	29
26.	Landlord’s Defaults	29
27.	Eminent Domain	29
28.	Subordination	30
29.	No Merger	31
30.	Sale	31
31.	Estoppel Certificate	31
32.	No Light, Air or View Easement	31
33.	Holding Over	31
34.	Abandonment	32
35.	Security Deposit	32
36.	Waiver	32
37.	Notices	32
38.	Complete Agreement	33
39.	Corporate Authority	33
40.	Landlord Liability	33
41.	Quiet Enjoyment	34
42.	Force Majeure	34
43.	Certain Rights Reserved to Landlord	34

i

44.	Bankruptcy Matters	35
45.	Americans With Disabilities Act	35
46.	Miscellaneous	36
47.	Broker Representation	37
48.	Exhibits; Additional Provisions	37

ii

OFFICE SPACE LEASE AGREEMENT

THIS OFFICE SPACE LEASE AGREEMENT (hereinafter referred to as the “Lease”), dated September       , 2002 (for the purpose of reference only) is made and entered into by and between ATLANTA LAKESIDE REAL ESTATE, L.P., a Georgia limited partnership (hereinafter referred to as “Landlord”), and LANIER HEALTHCARE, L.L.C., a Delaware limited liability company (hereinafter referred to as “Tenant”);

WITNESSETH:

Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises for the term of this Lease and subject to the terms, covenants, agreements and conditions hereinafter set forth, to each and all of which Landlord and Tenant hereby mutually agree.

1.             Definitions.

For the purposes of this Lease and in addition to the terms defined elsewhere in this Lease, the following defined terms shall have the meaning ascribed thereto in this Paragraph 1:

1.01.  “Additional Rental” shall mean the sums payable pursuant to subparagraph 3.01(b) of this Lease.

1.02.  “Base Rental” shall mean the sums payable pursuant to subparagraph 3.01(a) of this Lease.

1.03.  “Building” shall mean the land and other real property located at the address set forth in the Basic Lease Information, the building constructed thereon, and all other improvements on or appurtenances to said real property.

1.04.  “Common Area” shall mean those areas and parts of the Building intended for the common use and/or benefit of all occupants of the Building, including among other facilities, shared use stairs, parking areas, shared use sidewalks, shared use driveways, shared use service areas, shared use trash dumpsters, common loading areas and landscaped areas.

1.05.  “Default Rate” shall mean a rate per annum equal to the lesser of (i) the Prime Rate plus two (2) percentage points or (ii) the highest rate of interest permitted by law.

1.06.  “Insurance Expenses” shall mean all premium costs and expenses incurred by Landlord for all hazard, public liability and rental loss and property damage insurance attributable to Building procured by Landlord in its commercially reasonable discretion.

1.07.  “Lease Year” shall mean each one (1) year period of the term of this Lease beginning on the Commencement Date, and each anniversary thereof, and ending on the day immediately prior to the next succeeding anniversary of the Commencement Date.

1.08.  “Premises” shall mean the portion of the Building which is highlighted or cross-hatched on the floor plans(s) attached hereto as Exhibit “A” and by this reference made a part hereof.

1.09.  “Prime Rate” shall mean the prime rate or its equivalent announced and in effect from time to time by the Atlanta office of the Wachovia Bank or its successors.

1.10.  “Rentable Area” of the Premises and of the Building is stipulated by Landlord and Tenant in the respective number of square feet set forth for each in the Basic Lease Information subject to mutual verification of space measurement as measured from dripline to dripline.

1.11.  “Real Estate Taxes” shall mean all real estate taxes and assessments whether general or specific other than any taxes resulting from a sale, transfer or refinancing of the Building or property levied against, in respect to, or attributable to the Building or any other tax levied against Landlord as substitute for, or in lieu of, any tax which would otherwise constitute a real estate tax or a specific tax on rentals from the Building, plus the commercially reasonable cost, including reasonable attorneys’, appraisers’ and tax consultants’ fees, of any negotiation, contest, or appeal pursued by Landlord in an effort to reduce the tax or assessment on which any tax provided for in this Paragraph-is based.  Notwithstanding the foregoing, in no event shall Real Estate Taxes include any federal, state or local income, franchise, small business, estate or inheritance tax.  With regard to any Real Estate Taxes that are payable in installments, the amount of such Real Estate Taxes for the purposes of this Lease shall be determined as if Landlord had elected to pay the same in installments.

1.12.  “Rental” shall mean, collectively, Base Rental, Additional Rental and all other sums payable by Tenant to Landlord which are deemed or designated Rental, additional rent or rent pursuant to the terms of this Lease.

1.13.  “Tenants Percentage Share” shall mean the percentage figure specified in the Basic Lease Information.  Landlord and Tenant acknowledge that Tenants Percentage Share has been obtained by  dividing the Rentable Area of the Premises by the total Rentable Area of the Building, and multiplying such quotient by 100.  In the event Tenant’s Percentage Share is changed during a calendar year by reason of a change in the Rentable Area of the Premises, Tenant’s Percentage Share shall thereafter mean the result obtained by dividing the new Rentable Area of the Premises by the total Rentable Area of the Building and multiplying such quotient by 100, and for the purposes of Paragraph 3 of this Lease, Tenant’s Percentage Share shall be determined on the basis of the number of days daring such calendar year at each such percentage share.

2.             Term; Completion of Improvements.

2.01.  The term of this Lease shall commence on the Commencement Date and, unless sooner terminated as hereinafter provided, shall end on the Expiration Date, as such dates are respectively specified in the Basic Lease Information and as they may be revised pursuant to Paragraph 2.02.  If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on or before December 15, 2002, this Lease shall not be void or voidable, nor

2

shall Landlord be liable to Tenant for any loss, cost, damage or expense resulting therefrom, but in that event, subject to the provisions of Exhibit G attached hereto and by this reference made a part hereof, all Base Rental and Additional Rental due hereunder shall be waived for the period between December 15, 2002 and the time when Landlord is deemed to have delivered possession pursuant to the terms of subparagraph 2.02 hereof.  Subject to the sentence immediately following, Tenant agrees that such waiver of Base Rental and Additional Rental shall be its sole and exclusive remedy for Landlord’s inability to deliver possession of the Premises by December 15, 2002 or any time thereafter.  If possession of the Premises has not been delivered to Tenant on or before March 15, 2003 for any reason whatsoever, Tenant at its option, at any time thereafter but prior to the delivery of possession, may terminate this Lease by notice to Landlord and Tenant shall thereupon be released from all obligations under this Lease; provided, however, in the case of termination by Tenant, said.  March 15, 2003 deadline shall be extended by any period of Tenant Caused Delays as defined in Exhibit G hereof.

2.02.  The Premises shall be deemed completed, Landlord shall be deemed to have delivered possession of the Premises, Tenant shall be deemed to have taken occupancy and Base Rental and Additional Rental shall begin to accrue on the Commencement Date, as specified in the Basic Lease Information.  Any Tenant Improvements in the Premises shall be deemed substantially complete in substantial accordance with the Approved Plans and Specifications on the earlier of (A) the date the Tenant Improvements are substantially completed so that Tenant is able to occupy the Premises for the conduct of its business without material interference thereto and a Certificate of Occupancy has been issued for the Premises, provided such date occurs not earlier than ten (10) business days following Landlord’s written notice to Tenant identifying such date, or (B) the date Tenant commences occupancy of the Premises for the purposes of conducting its business operations.  The fact that certain minor items commonly considered punchlist items in the construction industry remain to be corrected or finished shall not render any Tenant Improvements less than substantially complete so long as such unfinished items do not, in the aggregate, materially affect Tenant’s ability to conduct its business operations.  Landlord shall use reasonable speed and diligence to substantially complete the Tenant Improvements and have the Premises ready for occupancy on or before December 15, 2001. If the Premises are not deemed substantially complete by December 15, 2002, such failure to complete shall not in any way affect the obligation of Tenant hereunder except that the Commencement Date and Expiration Date shall be postponed one day for each day substantial completion is delayed beyond said December 15, 2002 date until the P remises are substantially complete.  No liability whatsoever shall arise or accrue against Landlord by reason of its failure to deliver or afford possession of the Premises and Tenant hereby releases and discharges Landlord from and of any claims for damage, loss, or injury of every kind whatsoever as if this Lease were never executed, Tenant’s sole remedy being its right to terminate pursuant to subparagraph 2.01.  In the event the Commencement Date and the Expiration Date and thus the dates on which Base Rental and Additional Rental commence are postponed pursuant to the provisions of this subparagraph 2.02, upon the request of Landlord, Tenant shall execute a memorandum confirming the Commencement Date, the Expiration Date and the commencement date of Base Rental and Additional Rental in the form attached hereto as Exhibit “B” and by this reference made a part hereof.

2.03.  Subject only to punchlist items identified by Tenant within thirty (30) days of the date of substantial completion and latent defects. taking of possession by Tenant for the

3

purpose of conducting its business operations shall be deemed conclusively to  establish that said Tenant Improvements have been completed in accordance with the Approved Plans and Specifications and that the Premises are in good and satisfactory condition, as of when possession was so taken.  Notwithstanding the foregoing, Tenant and/or Tenant’s vendors or subcontractors may enter and occupy the Premises for the purpose of installing fixtures and equipment during the thirty (30) day period prior to the Commencement Date and such occupancy shall not be deemed to be taking occupancy for the purposes of conducting Tenant’s business operations.  Landlord agrees to use commercially reasonable efforts to complete all punchlist items identified by Tenant within thirty (30) days after the date the subject punchlist is provided to Landlord.  Furthermore, Landlord acknowledges and agrees that it shall require the Tenant Improvements contractor to provide Landlord with a one (1) year warranty on all materials and workmanship utilized in connection therewith.  Although Landlord shall not warrant such items to Tenant, Landlord does agree to (i) procure a foresaid one (1) warranty as to workmanship materials and (ii) take any and all reasonable actions necessary to enforce such warranty against said Tenant Improvement contractor in the event and to the extent any of such workmanship and/or materials is found to be defective during said one (1) year.  Tenant acknowledges that no representations as to the repair of Premises have been made by Landlord, unless such are expressly set forth in this Lease.

2.04.  Intentionally Deleted

2.05.  Provided the Tenant is not then in default under this Lease beyond any applicable notice and cure period, Tenant shall have the option to renew this Lease as to the entire Premises for one (1) five (5) year term, such term commencing upon the expiration of the then current term hereof (the “Renewal Option”).  Tenant shall exercise the Renewal Option by giving Landlord one hundred twenty (120) days advance written notice of such election prior to the expiration of the original term.  The rental rate for the Renewal Option term shall be ninety-five percent (95%) of the then prevailing market rental rate received by landlords of comparable space in the Norcross, Georgia area at the time of exercise of subject Renewal Option.  The then prevailing market rental rate (hereinafter “fair market rent”) shall be determined as follows:

(a)   If the parties are unable to agree on the fair market rent within fifteen (15) days of the date of Tenant Renewal Option election notice, then each party may, at its election at its own cost and by giving notice to the other party each  appoint an MAI real estate appraiser with at least five (5) years full-time commercial appraisal experience in the geographical area in which the Premises are located, to appraise the then fair market rent.  If a party does not appoint an appraiser within ten (10) days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the fair market rent as provided herein.  For purposes of this Lease, “fair market rent” shall be deemed to mean the amount of rental which would typically be paid by a tenant under a lease such as this for premises of a similar type, size, design and quality in the same area under market leasing conditions existing at that time, including rent concessions and tenant improvements being offered on comparable properties.

(b)   The two appraisers appointed by the parties shall meet promptly and attempt to appraise and set the then fair market rent.  If they are unable to agree within twenty (20) days after the second appraiser has been appointed, they shall attempt to select a third

4

appraiser meeting the qualifications stated in this paragraph, within ten (10) days after the last day the two appraisers are given to set the fair market rent.  If they are unable to agree on a third appraiser, either of the parties to this Lease, by giving ten (10) days notice to the other party, may apply to the presiding or head judge of the court for Gwinnett County for the selection of a third appraiser who meets the qualifications stated in this paragraph.  Each of the parties shall bear one-half of the cost of appointing the third appraiser, and of paying the third appraiser’s fees.  The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party.

(c)   Within twenty (20) days after the selection of the third appraiser, a majority of the appraisers shall appraise and set the fair market rent.  If a majority of the appraisers are unable to so set the fair market rent within the stipulated period of time, the three appraisals of same shall be added together and their total divided by three.  The resulting quotient shall be considered the fair market rent.  If, however, the low appraisal and/or the high appraisal are more than ten percent (10%) lower or higher than the middle appraisal. the low appraisal and/or the high appraisal shall be disregarded.  If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided by two.  The resulting quotient shall be considered the fair market rent.

2.06.  Intentionally Deleted.

2.07.  Landlord grants to Tenant an ongoing Right of First Refusal on the contiguous adjacent 4,944 RSF of space.  In the event Landlord receives an offer from a third party prospective tenant for such space and if Landlord is willing to accept the offer, then Landlord shall provide Tenant with written notice detailing the terms of the offer and Tenant shall then have ten (10) business days to give Landlord written notice of its intent to exercise its Right of First Refusal.  Landlord and Tenant within five (5) business days of acceptance shall execute an amendment to the Lease reflecting the such addition of space to the Lease.  Such space shall be incorporated into the Premises on all of the same terms and conditions as the Premises including a prorata share of the Tenant Improvement Allowance and any concessions offered to the third party. If Landlord has not received timely written notice from Tenant of acceptance of the offer, Tenant shall lose all rights to the space as to that prospective tenant and Landlord shall be free to enter into a lease with the prospective tenant.  However, in the event Landlord fails to enter into a lease with the subject prospective tenant, then, Tenant shall have an ongoing Right of First Refusal with respect to any subsequent prospective tenant.

2.08.  Intentionally Deleted

2.09.  Intentionally Deleted.

3.             Rental.

3.01.  Tenant shall pay to Landlord throughout the term of this Lease, as rental for the Premises, the following sums:

(a)   The Base Rental payable per month shall be one-twelfth  (1/12th) of the product of (i) the number of square feet of Rentable Area of the Premises as specified in the

5

Basic Lease Information, and (ii) the applicable square foot rate specified in the Basic Lease Information as the “Base Rental.” Provided, however, that Base Rental (but not Additional Rent) shall be waived for the first 5 months of the Term and 50% of Base Rental (but not Additional Rent) Tenant shall continue to pay Tenant’s Percentage Share of Operating Expenses as set forth in Paragraph 3.01 (b) below, which Operating Expenses shall include proportionate common area maintenance, Insurance Expenses and Real Estate Taxes for the Premises.

(b)   In addition to the Base Rental payable pursuant to subparagraph 3.01(a), for each calendar year of the term of this Lease, Tenant, as Additional Rental, shall pay Tenant’s Percentage Share, as specified in the Basic Lease Information, of each of (i) the Common Area maintenance and operation expenses (the “CAM Expenses”) and (ii) Landlord’s Real Estate Taxes and Insurance Expenses for such calendar year.  CAM Expenses shall include all verifiable, reasonable third party costs of Landlord in the operation, management, and maintenance of the Common Area, the manner and expenditures thereof to be in the reasonable discretion of Landlord, generally consistent with comparable properties in the Atlanta Area and shall specifically include all management fees paid to Landlord’s affiliate that manages the Premises.  Such CAM Expenses shall include, but shall not be limited to, expenses incurred for water, sewer, gas and all other utilities, landscape maintenance and irrigation, trash dumpsters, general maintenance and services, lighting, painting, cleaning, policing, inspecting, repair and replacement, management fees, together with a reasonable allowance for overhead and depreciation of necessary equipment.  In relation to the foregoing, Landlord acknowledges and agrees that the management fees it may charge as a component of CAM Expenses shall not exceed three percent (3%) of the gross revenues it receives from leases for space within the Building.  Prior to the commencement of the term of this Lease, Landlord shall give Tenant written notice of Landlord’s estimate of the amount of Additional Rental per month payable pursuant-to this subparagraph 3.01 (b) for the period from the commencement of the term of this Lease through the immediately following December and Tenant shall commence such monthly payments of Additional Rent.  Thereafter, the Additional Rental payable pursuant to this subparagraph 3.01(b) shall be determined and adjusted in accordance with the provisions of subparagraph 3.02.

3.02.  The determination and adjustment of Additional Rental contemplated under subparagraph 3.01(b) shall be made in accordance with the following procedures:

(a)   During December of each calendar year during the term of this Lease or as soon after each such December as practicable, but in no event later than April 1 of the following year, Landlord shall give Tenant written notice of its estimate of Additional Rental payable under subparagraph 3.01(b) for the ensuing calendar year.  On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amount together with the Base Rental.

(b)   In the event Landlord’s notice set forth in subparagraph 3.02(a) is not given in December, until the calendar month after such notice is delivered by Landlord Tenant shall continue to pay to Landlord monthly during the ensuing calendar year estimated payments equal to the amounts payable during the calendar year just ended.  Upon receipt of any such post-December notice, Tenant shall (i) commence as of the immediately following calendar month, and continue for the remainder of the calendar year, to pay to Landlord monthly such new

6

estimated payments and (ii) if the monthly installment of the new estimate of such Additional Rental is greater than the monthly installment of the estimate for the previous calendar year, pay to Landlord within thirty (30) days of the receipt of such notice an amount equal to the difference of such monthly installment multiplied by the number of full and partial calendar months of such year preceding the delivery of such notice.

(c)   If at any time or times it appears to Landlord that the amount payable under subparagraph 3.01(b) for the current calendar year will vary from Landlord’s estimate by more than five percent (5%), Landlord may revise, by notice to Tenant, its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate.  Failure to deliver an estimate of Additional Rental payable under this Paragraph 3 or to make a revision contemplated by the immediately preceding sentence shall not prejudice Landlord’s right to collect the full amounts of Additional Rental.

(d)   Within one hundred fifty (150) days after the close of each calendar year, Landlord shall deliver to Tenant a statement of the adjustment to be made pursuant to subparagraph (b) for the calendar year just ended certified by Landlord.  Landlord’s failure to provide a statement of adjustment within one hundred and fifty (150) days following the end of a calendar year shall constitute Landlord’s waiver of its right to receive payment from Tenant of any deficiency in Additional Rental for such calendar year.  If on the basis of such statement Tenant owes an amount that is less than the estimated payments for the calendar year just ended previously made by Tenant, Landlord shall credit such excess to the next payments of Rental coming due or, if the term of this Lease is about to expire, refund such excess to Tenant if Tenant is not in default under this Lease (in the instance of a default such excess shall be held as additional security for Tenant’s performance, may be applied by Landlord to cure any such default, and shall not be refunded until any such default is cured).  If on the basis of such statement which was timely given Tenant owes, an amount that is more than the estimated payments for the calendar year just ended previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement.

(e)   For partial calendar years during the term of this Lease, the amount of Additional Rental payable pursuant to subparagraph 3.02(d) that is applicable to that partial calendar year shall be prorated based on the ratio of the number of days of such partial calendar year falling during the term of this Lease to 365.  The expiration or termination of this Lease shall not affect the obligations of Tenant and rights of Landlord pursuant to subparagraph 3.02(d) which remain to be performed after such expiration or termination, Landlord and Tenant agreeing that said obligations and rights shall survive such expiration or termination.

(f)    Landlord shall permit Tenant, at its sole cost and expense upon at least ten (10) days’ prior written notice to have an audit made of Landlord’s books, records and accounts relative to CAM Expenses.  Such inspection shall be made on such date and time reasonably set by Landlord in Landlord’s office during normal business hours.  Notwithstanding anything to the contrary contained herein, Tenant or Tenant’s authorized representative may conduct an audit no more than one (1) time during any lease year period.  If the examination made by Tenant discloses a discrepancy in the CAM Expenses charged to Tenant, Tenant shall contest shall charge within thirty (30) days after Tenant’s completion of examination of the CAM Expenses.  In the event that Tenant does not provide written notice to Landlord of

7

Tenant’s intent to dispute or contest such CAM Expenses within the thirty (30) day period, Tenant waives the right to dispute or contest the CAM Expenses.

(g)   The following items shall be excluded in computing Tenant’s share of CAM Expenses:

(i)            Any ground lease rental;

(ii)           Cost of capital repairs or capital replacement, capital improvements and equipment; except for the annual amortization of such costs which either reduce the annual CAM expenses otherwise anticipated to be incurred (but only to the extent of such reduction) or cause the Building to be in compliance with any legal requirement which was not applicable to the Building as of the Commencement Date;

(iii)          Costs incurred by Landlord for the repair or replacement of damage to the Building or its contents caused by fire or other casualty;

(iv)          Costs incurred with respect to the installation of tenant improvements made for tenants or other occupants in the Building;

(v)           Depreciation, amortization, lender’s fees and interest payments;

(vi)          Leasing commissions, attorneys’ fees, space planning costs, and other costs and expenses in connection with negotiations with this Lease and other present or ‘prospective tenants or other occupants of the Building;

(vii)         Interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building;

(viii)        Cost incurred in connection with upgrading the Building to comply with handicap, hazardous material, building, fire and safety codes which were in effect prior to the date of the Lease;

(ix)           Costs to repair defects in, or maintain the structural portions of the Building or of any of the Tenant Improvements installed by Landlord on the Premises;

(x)            Costs (including all related attorneys and costs of settlement judgments, any payments in lieu thereof) arising from claims, disputes or potential disputes between Landlord and Tenant and other tenants of the Building; and

(xi)           Landlord’s general corporate overhead and general and administrative expenses;

(xii)          Costs of an items for which Landlord is reimbursed by insurance proceeds actually received, or would have been reimbursed but for Landlord’s failure to obtain the insurance required of Landlord under this Lease.

8

(xiii)         Any and all costs arising from the presence of hazardous materials or substances (as defined by the applicable Federal, State and local laws) now or hereafter pertaining to the Building (“Hazardous Substances”) in or about the Building including, without limitation, Hazardous Substances in the ground water or soil except for any such items which are the responsibility of Tenant.

Notwithstanding any other provision contained herein to the contrary, Landlord acknowledges and agrees that for the purposes of determining Additional Rent, CAM Expenses for any calendar year shall not be increased over the amount of the annualized CAM Expenses during the calendar year in which the term of this Lease commences by more than five percent (5%) per year on a cumulative basis, compounded annually.  For example, if the annualized CAM Expenses charged to Tenant during the calendar year in which the term of this Lease commences was $5,000, the cap on the CAM Expense charged to Tenant for the fourth (4th) full calendar year thereafter would be $6,077.54 (5,000 x 1.05 x 1.05 x 1.05 x 1.05).  Furthermore, in no event shall the annualized CAM Expenses charged to Tenant during the first calendar year of the Lease Term exceed $1.40 per square foot of Rentable Area of the Premises.

3.03.  Base Rental and Additional Rental shall be paid to Landlord, in advance, on or before the first day of the term hereof and on or before the first day of each and every successive calendar month thereafter during the term of this Lease.  All other Rental shall be paid as provided elsewhere in this Lease.  In the event the term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, then the monthly rental for the first and last fractional months of the term hereof shall be appropriately prorated.

3.04.  Rental shall be paid to Landlord, without demand, deduction or offset except as expressly provided for in this Lease, in lawful money of the United States of America at Landlord’s address for notices hereunder or to such other person or at such other place as Landlord may from time to time designate in writing.  All Rental and other amounts of money payable by Tenant to Landlord under this Paragraph 3 or under this Lease, if not paid within ten (10) days of Tenant’s receipt of written notice that same is past due shall be subject to a late fee of two percent (2%) of the amount past due (which late fee represents an agreed upon charge for the administrative expense suffered by Landlord as the result of such late payment and not payment for the use of money) and shall bear simple interest from that date which is thirty (30) days following the subject due date until paid at the Default Rate, and Tenant agrees to pay said late fee and interest immediately and without demand.

4.             Use.

(a)   The Premises shall be used for the Permitted Use set forth in the Basic Lease Information and for no other purpose.  By entry hereunder.  Tenant accepts the Premises as being suited for the use intended by Tenant.

(b)   Tenant shall, subject to the Rules and Regulations of Landlord, have access with all other tenants of Landlord to the Common Area and agrees not to interfere with the use and access of the Common Area by other occupants of the Building.

9

(c)   Tenant will permit no lien to attach or exist against the Premises, and shall not commit any waste.

(d)   Tenant shall comply with all governmental laws, ordinances and regulations applicable to Tenant’s specific use of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the Premises, all at Tenants sole expense.  Notwithstanding the provisions of this Paragraph 4, except as may be required under Section 45 hereof, Tenant shall not be obligated to comply with any applicable statutes, ordinances, rules, regulations, orders, restrictions or other requirements that may require structural alternations, structural changes, structural repairs or structural additions to the Premises or that may require installation of additional fire or safety hazard apparatus unless same are required as a result of or are otherwise due to (i) Tenant’s specific use of the Premises as compared with other typical office tenants in general, (ii) damage to the Premises caused by Tenant or those for whom Tenant is responsible at law, or (iii) any alterations or additions to the Premises requested by Tenant following the Commencement Date.  In relation to the foregoing, Landlord acknowledges and agrees that except as expressly provided for herein to the contrary, Landlord shall at its sole cost and expense make all alterations, change, repairs or additions that are required to the Premises or Building to comply with applicable laws, ordinances and regulations.  Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action which would constitute nuisance or would unreasonably disturb or endanger any other tenants of the Building or unreasonably interfere with their use of their respective premises.  Subject to the provisions of Paragraph 20 hereof, without Landlord’s prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive, highly flammable or constitutes a Hazardous Substance, as defined in Paragraph 20 hereof.  Tenant will not permit the Premises to be used for any purpose or in any manner (including, without limitation, any method of storage) which would render the insurance thereon void or he insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits.  If any increase in the fire or extended coverage insurance premiums paid by Landlord or other tenants for the Building is caused by Tenant’s use and occupancy of the Premises, or if Tenant vacates the Premises and causes an increase in such premiums, then Tenant shall pay as additional rental the amount of such increase to Landlord.

5.             Services.

5.01.  Landlord, without cost to Tenant, shall maintain in good order and repair, subject to normal wear and tear, casualty and condemnation, the roof and roof membrane, the exterior walls, foundation and structural components of the Building as well as all sewer facilities, plumbing and electrical systems (excluding however, those portions of said sewer facilities and plumbing and electrical systems located within the Premises and other portions of the Building leased to other tenants and which are maintained by such other tenants).  In addition, Landlord agrees to maintain and keep clean the Common Area to a standard in keeping with first-class office projects in the Norcross, Georgia area.  Notwithstanding the foregoing obligation, the cost of any repairs or maintenance to the foregoing necessitated by the intentional acts or omissions, negligence or gross negligence of Tenant, or its agents, employees,

10

contractors, invitees, licensees, subtenants or assignees, shall be deemed Rental hereunder and shall be reimbursed by Tenant to Landlord upon demand.

5.02.  Landlord agrees to provide at its cost water, sewer, electrical and telephone service connections stubbed out to the exterior demising walls of the Premises in accordance with Exhibit G; Tenant agrees to pay directly to the provider (except as otherwise set forth below) all charges, fees (hook-up, installation and the like) and deposits incurred for any utility services used on the Premises.  Landlord shall in no event be liable for any interruption or failure of utility service to the Premises, but, if requested by Tenant, Landlord shall use reasonable efforts to cooperate with Tenant in securing speedy resumption of said interrupted service.  Notwithstanding the foregoing, excepting “force majeure”, in the event any interruption of services occurs which materially adversely affects the conduct of Tenant’s business operations. and such interruption continues for more than five (5) consecutive business days after Tenant gives written notice thereof to Landlord, then, in such event, the Rental due hereunder shall be abated for the period beginning on that date which is the date of such notice and shall continue until such interrupted utility is restored; provided, however, in the event Tenant continues to use any portion of the Premises during such period, then, in such event, the abatement of Rental during such period shall be prorated based on the square footage of that portion of the Premises not in use by Tenant versus the total square footage of the Premises.  Tenant shall promptly notify the proper public authorities and utility companies to provide service for water, sewer, gas, electricity and all other utilities required or desired by Tenant, which services are to be in Tenant’s name and all costs for such services shall be borne by Tenant as its sole responsibility.  In the event the water and sewer connections into the Premises are jointly metered with other premises, Tenant covenants and agrees to pay to Landlord on a monthly basis as additional rent, its pro rata share of such services as determined by Landlord in its reasonable discretion.  Unless the same is caused by the negligent action or inaction of Landlord, Landlord shall not be liable to Tenant or to any other person for any damage occasioned by failure in any utility system or by the breakage of any vessel or pipe in or about the Premises, or for any damage occasioned by water coming into the Premises or arising from the acts or omissions of occupants of adjacent property or the public.  Landlord agrees to provide overall property management services for the Building consistent with property management services for comparable single story first-class office buildings in the Norcross, Georgia market.

6.             Personal Property Taxes.

6.01.  Tenant covenants and agrees to be liable for and pay in a timely manner alt taxes and assessments levied or assessed against personal property, furniture and fixtures placed by Tenant in the Premises.  In addition to Base Rental, Additional Rental and other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand, as Rental, for any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within the contemplation of the Parties hereto: (a) upon, measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises or by the cost or value of any improvements made in or to the Premises by Tenant, other than Tenant Improvements made by Landlord, if any, regardless of whether title to such improvements shall be in Tenant or Landlord: upon or measured by the monthly rental payable hereunder. including, without limitation, any gross income tax or excise tax levied by any governmental entity of any other governmental body  with respect to the receipt of such

11

rental: (a) upon or with respect to the possession, leasing, operation. management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; (b) upon this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises.  In the event that it shall not be lawful for Tenant so to reimburse Landlord, the monthly Base Rental Payable to Landlord under this Lease shall be revised to net Landlord the same net Base Rental after imposition of any such tax upon Landlord as would have been payable to Landlord prior to the imposition of any such tax.

7.             Alterations.

7.01.  Except for any initial improvements of the Premises pursuant to Exhibit “G” hereof, which shall be governed by the terms and conditions of Exhibit G hereof, Tenant shall not make, suffer or permit to be made any alterations, additions or improvements to or of the Premises or any part thereof, or attach any fixtures or equipment thereto, without first obtaining Landlord’s written consent. such consent to be given or withheld by Landlord in Landlord’s reasonable discretion, provided that Tenant may undertake an alteration or improvement project costing $20,000.00 or less without first obtaining Landlord’s written consent.  Any such alterations, additions or improvements to the Premises shall be at Tenant’s sole cost and expenses and shall be made by Tenant, or by a contractor of Tenant approved in advance by Landlord, which approval will not be unreasonably withheld or delayed.  The Tenant Improvements and all such alterations, additions and improvements shall become Landlord’s property at the expiration or earlier termination of the term hereof and shall remain on the Premises without compensation to Tenant unless Landlord elects by notice to Tenant at or before the time of installation to have Tenant remove such alterations, additions and improvements, in which event, notwithstanding any contrary provisions respecting such alterations, additions and improvements contained in paragraph 9 hereof, Tenant shall promptly restore, at its sole cost and expense, the Premises to its condition prior to the installation of such alterations, additions and improvements, normal wear and tear excepted.

7.02.  All repairs, alterations, additions and improvements done by Tenant within the Premises shall be performed in a good and workmanlike manner, in compliance with all governmental requirements and at such times and in such manner as will cause a  minimum of interference with other construction in progress and with the transaction of business in the Building.  Whenever Tenant proposes to do any construction work within the Premises which requires Landlord’s prior consent, Tenant shall first furnish to Landlord plans and specifications covering such work in such detail as Landlord may reasonably request.  Such plans and specifications shall comply with such reasonable requirements as Landlord may from time to time prescribe for construction within the Building.  In no event shall any such construction work requiring Landlord’s approval be commenced within the Premises without Landlord’s prior written approval of such plans and specifications, such approval not to be unreasonably withheld or delayed.  Once Landlord has received Tenant’s plans and specifications, Landlord shall approve or disapprove within five (5) days.  In the case of disapproval, Landlord shall state the specific reason(s) for such disapproval.  In the event Tenant does perform any such construction work requiring Landlord’s approval without the prior written approval of Landlord, Landlord shall, in addition to all other remedies it might have hereunder or at law, have the right to require Tenant to immediately remove any unapproved additions or improvements and restore the Premises to the condition existing prior to such unauthorized construction normal wear and tear

12

excepted.  Without limiting the generality of the foregoing, Tenant shall under no circumstances make any penetration of the roof or walls of the Building without Landlord’s consent, which consent may be given or withheld by Landlord in its reasonable discretion.  In the event Landlord consents to a penetration of the roof or walls of the Building, all such work shall be performed by contractors designated or approved by Landlord in its reasonable discretion and shall be supervised by Landlord or its designees and performed under conditions and subject to such conditions and requirements as may be reasonably established by Landlord.  Tenant shall and hereby agrees to indemnify hold Landlord harmless from and against any and all loss, cost, damages, expenses or liability (including, without limitation, court costs and reasonable attorneys’ fees) suffered or incurred by Landlord as a result of any penetration of the roof or walls of the Building, including, without limitation, costs of repair, loss of income, claims for damages from other tenants of the Building and damages which result if any warranty on the roof held or maintained by Landlord is voided or impaired by such penetration.  The provisions hereof shall survive the termination of this Lease.

7.03.  Under no circumstances may Tenant penetrate the roof, roof membrane or floor slab of the Building without Landlord’s prior written consent, which consent may be given or withheld by Landlord in its reasonable discretion.  Tenant shall hold harmless Landlord from any loss, liability, any expenses arising out of such damage or repair caused by Tenant’s negligence or failure to comply with this paragraph.

8.             Liens.

Tenant shall at all times keep the Premises and the Building free from any known liens arising out of any work performed, materials furnished or obligations incurred by Tenant.  Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens.

9.             Repairs.

Subject to the provisions of Section 2.03 hereof, by entry hereunder unless Tenant provides Landlord with written notice to the contrary at the time of such entry, Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver the Premises.  Except as expressly set forth below, to the fullest extent permitted by law, Tenant hereby waives all rights to make repairs at the expense of Landlord-as may be provided by any law, statute or ordinance now or hereafter in effect.  Landlord has no obligation and has made no promise to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof, except as specifically and expressly herein set forth.  No representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant, except as specifically and expressly herein set forth.

(a)   Landlord shall use reasonable efforts to satisfy its repair maintenance obligations as set forth herein in a diligent and timely manner and, in any event within thirty (30) days from the date Landlord receives written notice that such repairs or maintenance are necessary or such shorter period as may be necessary under the circumstances in the event of any emergency.  Notwithstanding any other language contained herein to the contrary,.  Landlord

13

acknowledges and agrees that, in the event either (i) Landlord fails to perform its maintenance or repair obligations under this Lease within thirty (30) days of its receipt of notice from Tenant, or (ii) Landlord, after commencing such performance. thereafter fails to diligently and continuously pursue the completion of same, then in either such event, Tenant shall have the right to cure Landlord’s  nonperformance and charge Landlord for Tenant’s reasonable actual out of pocket cost thereof.  Furthermore, in addition to the rights set forth above, in the event of an emergency and immediate repairs are needed to elements for which Landlord is responsible under this Lease in order to prevent imminent damage or injury to Tenant’s employees, property or business operations, then, under such circumstances, if Landlord has failed to commence and thereafter diligently pursue such repairs within a reasonable period following its receipt of Tenant’s notice of the need thereof (which notice of an emergency may be by telephone, and the reasonableness of said period to be determined based upon the attendant facts and circumstances), Tenant shall have the right to cure Landlord’s nonperformance and charge Landlord Tenant’s reasonable actual out of pocket cost thereof.  In relation to the foregoing, Tenant acknowledges and agrees that even as to emergency repairs, Tenant’s notice to Landlord shall be in writing, if possible and, if not possible, may be oral, provided written confirmation of same is provided to Landlord within a reasonable period thereafter.  In relation to the above, Landlord acknowledges and agrees that in the event Tenant incurs costs or expenses as a result of its election to utilize its self help remedy set forth above, and such amounts are not reimbursed by Landlord to Tenant within thirty (30) days of demand therefor, Tenant shall have the right to deduct same from any installments of monthly Base Rental payable by Tenant under this Lease.  Such deduction by Tenant shall not be deemed a breach of Tenant’s covenant to pay rent.

9.02.

(a)   From and after the Commencement Date and throughout the term, Tenant shall, at its own cost and expense, maintain the interior of the Premises, in good condition and repair, including but not limited to the electrical systems, heating, air conditioning and ventilation systems serving the Premises, plate glass, windows and doors, sprinkler and plumbing systems, fixtures, interior walls, floors, ceilings, all electrical facilities and equipment including, without limitation, lighting fixtures, lamps, fans, and any exhaust equipment and systems, electrical motors, and all other appliances and equipment of any kind located in, upon or about the Premises.  Notwithstanding the foregoing, if Landlord or its agents or contractors are responsible for damage to any items for which Tenant has maintenance and repair obligations hereunder, then, Landlord shall be responsible for such repairs at its own costs and expense.  Landlord agrees to use commercially reasonable efforts to provide Tenant the benefit of any warranties applicable to any utility systems serving the Premises.  Except as described below, all glass. exterior and interior, is at the sole risk of Tenant: and any broken glass shall be promptly replaced at Tenant’s expense by glass of like kind, size and quality.  If such glass is damaged or broken because of manufacturing or installation defects or because of Landlord’s negligence or intentional acts (or Landlord’s employees, agents or contractors) or building settling, then the repair of such damage shall be the responsibility of Landlord.

(b)   Tenant agrees to enter into a service contract with a reliable certified heating and air conditioning company acceptable to Landlord, in its reasonable discretion, to maintain the heating and air conditioning units serving the Premises and keep them in good working order.  Tenant shall furnish Landlord a copy of the service contract and, upon request of

14

Landlord, Tenant shall also furnish copies of routine maintenance reports or invoices.  Tenant shall be responsible for pest and termite control and for the maintenance of the sprinkler valves and any alarm systems in the Premises.  Tenant shall not damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Tenant or its employees, agents or invitees.

(c)   Tenant shall not allow any damage to be committed on any portion of the Premises, and at the termination of this Lease, by lapse of time or otherwise, Tenant shall deliver the Premises to Landlord in as good condition as existed at the Commencement Date of this Lease, ordinary wear and tear and casualty and condemnation excepted.  The cost or expense of any repairs necessary to restore the condition of the Premises shall be borne by Tenant, and if Landlord undertakes to restore the Premises it shall have a right of reimbursement against Tenant.

(d)   All requests for repairs or maintenance that are the responsibility of Landlord pursuant to any provision of this Lease must be made in writing to Landlord at the address set forth below in the Basic Lease Information.

10.           Destruction or Damage.

10.01.  Destruction or Damage In the event the Premises or the portion of the Building necessary for Tenant’s occupancy are damaged by fire, earthquake, act of God. the elements or other casualty, Landlord shall promptly furnish Tenant (but in no event later than thirty (30) days after the date of such damage) with the written opinion of Landlord’s architect, contractor or construction consultant as to their estimate of the time frame required for the completion of all necessary repairs and restoration work.  If it is the opinion of such architect, contractor or construction consultant that such repairs can be made within one hundred fifty (150) days following the date of such fire or other casualty, then, subject to the provisions of this Paragraph 10 hereinafter set forth, Landlord shall promptly commence to diligently pursue to complete such repairs.  Notwithstanding any other provision contained in this Paragraph, the commencement of repair or restoration work by Landlord hereunder shall in no event be deemed a representation or warranty by Landlord that such repairs or restoration can or will in fact be completed within such one hundred fifty (150) day period and Landlord shall in no event be liable to Tenant for any failure or inability to complete said repairs or restoration within such one hundred fifty (150) day period; provided, however, except with respect to a restoration of the Premises performed by Landlord pursuant to Section 10.02 hereof, in the event that the Premises are not so repaired or restored within one hundred fifty (150) days after the date of such fire or other casualty, Tenant shall have the right, by written notice to Landlord, to terminate this Lease and all rent and other sums payable by Tenant hereunder shall be accounted for as between Landlord and Tenant as of that date.  This Lease shall remain in full force and effect except that an abatement of Base Rental and Additional Rental shall be allowed Tenant for such part of the Premises as shall be rendered unusable by Tenant in the conduct of its business during the time such part is so unusable.  A total destruction of the Building shall, at the option of Landlord, automatically terminate this Lease as of the date of such destruction.

15

10.02.  If such repairs cannot, in Landlord’s opinion (as supported by the required architect’s, contractor’s or construction consultant’s written opinion), be made within one hundred fifty (150) days following the date of such fire or other casualty, Landlord or Tenant may elect to terminate this Lease, upon written notice to the other party within forty-five (45) days after the date of such fire or other, and, if this Lease is not so terminated, Landlord shall  promptly commence to repair or restore such damage. in which event this Lease shall continue in full force and effect, but the Base Rental and Additional Rental shall be partially abated as provided in subparagraph 10.01.  If Landlord does not so elect to make such repairs, Landlord agrees to use all reasonable efforts to complete such repairs in a commercially reasonable period of time following the date of such fire or other casualty.

10.03.  Notwithstanding anything to the contrary in this Lease, if the holder of a “Landlord’s Mortgage” or the lessor under a “Landlord’s Ground Lease” (as those terms are defined in Paragraph 28) require that any material portion of the insurance proceeds from a casualty loss be paid to it, then Landlord shall have the option to cancel this Lease as of the date of the casualty by written notice to Tenant given within thirty (30) days after said holder or lessor notifies Landlord that it is collecting such material portion of the insurance proceeds.

10.04.  If the Premises are to be repaired under this Paragraph 10 by Landlord, Landlord’s obligation to repair the Premises shall be discharged upon restoration of the Premises to condition reasonably comparable to that existing immediately prior to the of the casualty event (except with respect to improvements installed by Tenant or at Tenant’s sole cost).  Tenant shall pay all other costs of repairing the Premises and shall be responsible for carrying such casualty insurance with respect to such other Tenant improvements as set forth in Paragraph 11 hereof.

10.05.  In the event the Premises are damaged by fire, earthquake, act of God, the elements or other casualty within twelve (12) months of-the last day of the Lease term and (i) in the reasonable opinion of Landlord’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within sixty (60) days after the date of such damage, and (ii) such damage renders unusable more than twenty-five percent (25%) of the Premises, then, in such event, the Landlord or Tenant may elect to terminate this Lease upon written notice to the other party within forty-five (45) days after the date of such fire or other casualty and, if this Lease is not so terminated, Landlord shall promptly commence to repair and restore such damage, in which event this Lease shall continue in full force and effect, but the Base Rental and Additional Rental shall be partially abated as provided for in Paragraph 10.01.

10.06.  Landlord acknowledges and agrees that in the event the Premises are damaged by fire, earthquake, act of God. the elements or other casualty to such art extent that the Premises are rendered unusable by Tenant for their intended use and this Lease is not terminated pursuant to the provisions of this Section 10, Landlord shall use commercially reasonable efforts at no out-of-pocket costs to Landlord to temporarily relocate Tenant into other space then owned by Landlord during the period of restoration.

11.           Insurance.

(a)   Tenant covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and

16

expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for:

(i)            Liability Insurance in the Commercial General Liability form (or reasonable equivalent thereto) covering the Premises and Tenant’s use thereof against claims for personal injury or death, property damage and product liability occurring upon, in or about the Premises, such insurance to be written on a claims made basis, to be in combined single limit amounts not less than Two Million Dollars ($2,000,000.00) and to have general aggregate limits of not less than Three Million Dollars  ($3,000,000.00) for each policy year.  The insurance coverage required under this Paragraph 11 (a)(i) shall, in addition, extend to any liability of Tenant arising out of the indemnities provided for in Paragraph 14 and, if necessary, the policy shall contain a contractual endorsement to that effect.

(ii)           Insurance on the “all-Risk” or equivalent form on a replacement cost basis against loss or damage to all improvements made by Tenant to the Premises, excluding the Tenant Improvements, as defined in Exhibit “G”, which shall be covered under Landlord’s policies of insurance, (including, without in any manner limiting the generality of the foregoing, flood insurance if the Premises are located in a flood hazard area), having a deductible not greater than Fifty Thousand Dollars ($50,000.00); and in an amount sufficient to prevent Landlord or Tenant from becoming a co-insurer of any loss, but in any event in amounts not less than 100% ct the actual replacement value of all improvements made by Tenant to the Premises as described in this subparagraph.  Landlord shall have the right to require from Tenant, not more than once every twelve (12) months, to provide reasonable evidence of the value of the improvements made by Tenant to the Premises as described in this subparagraph.

(iii)          INTENTIONALLY DELETED

(iv)          INTENTIONALLY DELETED

(v)           INTENTIONALLY DELETED

(vi)          Property insurance to cover all personal property, equipment and fixtures at any time located in the Premises.  Such insurance shall insure against fire, sprinkler damage, vandalism and malicious mischief and against loss or damage by other risks now or hereafter included in the standard form of an all-risk policy in an amount equal to the full replacement value thereof subject, however, to a commercially reasonable deductible.

(b)   All policies of the insurance provided for in Paragraph 11(a) shall be issued by insurers of recognized reputation and responsibility.  Each and every such policy:

(i)            Shall name Landlord’s Mortgagee, as defined in Paragraph 28, as an additional insured as respects Tenant’s acts and omissions.  In addition, the coverage described in Paragraph 11(a) (ii) shall also name Landlord as “loss payee.”

(ii)           Shall be made available for review by Landlord (or certificates thereof evidencing the required coverages shall be made available for review by Landlord) and certificates thereof shall be delivered to Landlord prior to delivery of possession of the Premises to Tenant and thereafter if requested by Landlord within thirty (30) days after the

17

expiration of each such policy, and, as often as any such policy shall expire or terminate.  Renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent.

(iii)          Shall contain a provision that the insurer waives any right of subrogation against Landlord an account of my loss or damage to any property, the Premises or its contents arising from any risk covered by all risks fire and extended coverage insurance of the type and amount required to be carried hereunder, provided that such waiver does not invalidate such policies or prohibit recovery thereunder.

(iv)          Shall contain a provision that the insurer will endeavor to give to Landlord and such other parties in interest at least thirty (30) days notice in writing in advance of any material change, cancellation, termination or lapse, of the effective date of any reduction in the amounts of insurance.

(v)           Shall be written as primary policy which does not contribute to and is not in excess. of coverage, which Landlord may carry.

(c)   Any insurance provided for in Paragraph 11(a) may be maintained by means of a policy or policies of blanket insurance, covering additional items or locations or insured; provided, however, that:

(i)            Landlord’s Mortgagee shall be named as an additional insured thereunder as its interest may appear.

(ii)           INTENTIONALLY DELETED

(iii)          Any such policy or policies shall not limit (beyond the aggregate policy limits) the amount of the total insurance allocated to the Tenant’s improvements and property.

(iv)          The requirements set forth in this Paragraph 11 are otherwise satisfied.

(d)   In the event the Tenant shall fail to carry and maintain the insurance coverages set forth in this Paragraph 11, Landlord may upon thirty (30) days notice to Tenant (unless such coverages will lapse in which event no such notice shall be necessary) procure such policies of insurance and Tenant shall promptly reimburse Landlord therefor.

(e)   Landlord may, at any time, but not more than one (1) time in any twelve (12) month period, require a review of the insurance coverage and limits of liability set forth in this Paragraph 11 to determine whether the coverage and the limits are reasonable and adequate’ in the existing circumstances.  The review will be  undertaken on a date and at a time set forth in Landlord’s notice requesting a review and shall be conducted at the Premises.

(f)    Landlord’s Insurance.  Landlord shall maintain insurance against loss or damage to Property and Public Liability and Property Damage Liability Insurance as follows:

18

(i)            Landlord shall procure and maintain in effect with insurers of recognized reputation and responsibility “All Risk” property insurance in an amount not less than the 100% replacement cost of the real and business personal property and loss of rental income insurance in an amount equal to the twelve months projected rental income without offset for any coinsurance and subject to an “Agreed Value” form.

(ii)           Landlord shall maintain in effect Commercial General Liability Insurance against bodily injury and property damage losses arising out of ownership, use, control and management of the Property, including, but not limited to, Contractual Liability and Products & Complete Operations Liability insurance in an amount not less than $1,000,000’ for any one occurrence and $3,000,000 in the aggregate, Landlord shall name Tenant as an additional insured.

It is understood and agreed that the insurance requirements contained in this Paragraph or elsewhere in this Lease or Landlord’s or Tenant’s compliance therewith, are not intended to, and shall not be construed to, limit, mitigate or reduce any of the indemnity obligations of Landlord or Tenant contained in Paragraph 14 or elsewhere in this Lease.

12.           Release and Subrogation.

In addition to, and not in lieu of, any and all other releases and waivers by Tenant and Landlord contained in this Lease, Tenant and Landlord each hereby waives, and releases the other from any and all claims, rights, demands and causes of action which it might have at any time against the other on account of loss or damage that is or should be covered by any insurance policy the waiving party has or is required to have pursuant to this Lease.  Tenant and Landlord shall obtain from its respective insurers under all policies of fire, theft, public liability, workmen’s compensation and other insurance maintained by Tenant or Landlord at any time during the term of this Lease insuring or covering the Premises or any portion thereof or operations therein or therefrom, a waiver of all rights of subrogation which the insurer of Tenant or Landlord might have against  the other party and the other affiliated parties described in Paragraph 11 hereof.  If a waiver of subrogation is not available under a policy maintained by Tenant or Landlord, Tenant or Landlord shall cause the other party and the other affiliated parties described in Paragraph 11 hereof to be named as additional insureds.  Tenant and Landlord shall indemnify and hold harmless the other party against any loss or expense, including reasonable attorney’s fees, resulting from the failure to obtain such waiver.

13.           Tenant’s Personal Property.

All of Tenant’s personal property in the Premises shall be and remain at Tenant’s sole risk, and Landlord shall not be liable for and Tenant hereby releases Landlord from any and all liability for theft thereof or any damage thereto occasioned by any acts or negligence of any third persons, or any act of god, except to the extent caused by the acts or negligence of Landlord, its agents, employees and contractors.

19

14.           Indemnification.

14.01.  Tenant agrees that neither Landlord nor its members, employees, agents or representatives shall be liable and hereby waives all claims against Landlord, its members, employees, agents and representatives for damage to any property or injury or death of any person in, upon or about the Premises arising at any time and from any cause other than by reason of the negligence or intentional misconduct of Landlord, its authorized employees or agents, and Tenant shall indemnify and hold harmless Landlord, and its partners, employees, agents and representatives from any and all loss, cost, damage and expense incurred or suffered by Landlord or said,- other parties to the extent arising out of or resulting from (i) the use or occupancy of the Premises, except such as is caused by negligence or intentional misconduct of Landlord, its authorized agents or employees, or (ii) the misconduct or negligence of Tenant or its agents, contractors, employees, licensees or invitees.  The foregoing indemnity obligation of Tenant shall include reasonable attorney’s fees, investigation costs and all other reasonable costs and expenses incurred by Landlord from the first notice that any claim or demand is to be made or may be made.  The provisions of this Paragraph 14 shall survive the termination of this Lease with respect to any damage, injury or death prior to such termination.

14.02.  Landlord agrees that neither Tenant nor its members, employees agents or representatives shall be liable and hereby waives all claims against Tenant. its members employees. agents and  representatives for damage to any property or injury or death of any person in, upon or about the Premises arising at any time and from any cause other than by reason of the negligence or intentional misconduct of Tenant its authorized employees or agents, and Landlord shall indemnify and hold harmless Tenant and its partners, employees, agents and representatives from any and all loss, cost, damage and expense incurred or suffered by Tenant or said other parties to the extent arising out of or resulting from (i) the use or occupancy of the Premises, except such as is caused by negligence or intentional misconduct of Tenant, its authorized agents or employees, or (ii) the misconduct or negligence of Landlord or its agents, contractors, employees, licensees or invitees.  The foregoing indemnity obligation of Landlord shall include reasonable attorney’s fees, investigation costs and all other reasonable costs and expenses incurred by Tenant from the first notice that any claim or demand is to be made or may be made.  The provisions of this Paragraph 14 shall survive the termination of this Lease with respect to any damage, injury or death prior to such termination.

15.           Compliance with Legal Requirements.

Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations and requirements now in force or which may be hereafter in force, with the requirements of any board of fire underwriters or other similar body now or hereafter constituted, with any direction or occupancy certificate issued pursuant to any law by any public officer or officers, as well as the provisions of all recorded documents affecting the Premises, insofar as any thereof relate to or affect the condition, use or occupancy of the Premises, excluding requirements of structural changes not related to or affected by improvements made by or for Tenant or not necessitated by Tenant’s acts.

16.           Assignment and Subletting.

16.01.  Tenant shall not at any time during the term of this Lease have the right to sublet all or any part of the Premises or assign this Lease or any right or interest therein, without

20

the prior written consent of Landlord, such consent not to be unreasonably withheld, conditioned or delayed.  Except as otherwise expressly set forth below, in the case of sale or transfer of a controlling ownership interest of Tenant or a change in control of Tenant resulting from a merger, consolidation or asset sale shall be deemed an assignment or transfer requiring Landlord’s prior written consent which but no Landlord approval shall be required if the resulting entity that remains as Tenant under this Lease has a tangible net worth of at least $5 million.  Should Tenant desire to assign this Lease or any right or interest herein or sublet the Premises or any part thereof, Tenant shall give Landlord written notice of such desire, which notice shall contain (1) the name and address of the proposed subtenant or assignee and its form of organization, (2) the nature of the proposed subtenant’s or assignee’s business to be conducted in the Premises, (3) the term and conditions of the proposed sublease or assignment, and (4) financial statements for the proposed subtenant or assignee and such other financial information as Landlord shall reasonably request and a bank reference, together with a request that Landlord approve such assignment or subletting.  Landlord shall have a period of ten (10) days following receipt of such written notice within which to notify Tenant in writing that Landlord elects either (A) upon providing Tenant with a detailed explanation of Landlord’s reasons and concerns, to deny Tenant the right to consummate such subletting or assignment or (B) to permit Tenant to assign this Lease or sublet such space, subject, however, to all of the following conditions:

(a)   The sublease or assignment shall be on substantially the same terms and conditions set forth in the notice given to Landlord. 

(b)   The proposed assignee or sublessee shall be engaged in a business in the Premises which is consistent with the nature of the Building and is permitted by the provisions of Paragraph 4 hereof, and the use of the Premises or any portion thereof by such subtenant or assignee will not, in Landlord’s reasonable estimation, increase to an unreasonable level the scope or quantity of services or utilities then being furnished to Tenant as of the proposed date of assignment or subletting.

(c)   The proposed assignee or sublessee is a respectable party of sufficient financial worth to perform its obligations under this Lease or under the sublease, as applicable, and Tenant shall have provided Landlord with proof thereof.

(d)   No subletting or assignment shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant  to pay the Rental and to perform all other obligations to be performed by Tenant under this Lease.

(e)   INTENTIONALLY OMITTED

(f)    INTENTIONALLY OMITTED

(g)   With the exception of assignments permitted without the consent of Landlord pursuant to Paragraph 16.01 of this Lease, any and all options, including, without limitation, expansion options, renewal options and rights of first refusal or negotiation, granted pursuant to this Lease, are not assignable and shall be null and void and of no further force or effect on and after the effective date of such assignment of this Lease or any right or interest therein.

21

(h)   Notwithstanding the foregoing, Tenant shall have the right to assign this Lease or sublet all or any part of the Premises without the prior consent of Landlord if all of the following condition is satisfied:

(i)    The assignee or subtenant is a parent company, affiliate, subsidiary or an entity resulting from a merger or consolidation with Tenant or is an entity succeeding to the business and assets of Tenant or is a subsidiary or affiliate of Tenant (with affiliate being defined as defined under the current version of the U.S.  Internal Revenue Code); and In relation to the foregoing, Tenant acknowledges and agrees that in the event of an assignment pursuant to this subsection 16.01(h), Tenant shall remain primarily liable for the performance of all obligations to be performed by Tenant under this Lease unless and except the subject assignee has a tangible net worth of at least $10,000,000, in which event, Tenant shall be released from its liability hereunder.

16.02.  If Landlord consents to any such assignment or sublease, Tenant shall pay to Landlord, promptly upon demand, a reasonable sum not to exceed $300.00 in each instance as attorney’s fees arising incident to such transaction and no sublease or assignment shall be valid and no one shall occupy the Premises by reason thereof until a fully executed counterpart of the sublease or assignment has been delivered to Landlord.  Any attempted assignment, sublease or other action by Tenant in violation of this Paragraph 16 shall be null and void and shall constitute an Event of Default.  Except as provided in subparagraph 16.01, this Lease, or any right or interest hereof, shall not be assignable as to the interest of Tenant by operation of law without Landlord’s written consent, such consent not to be unreasonably withheld, conditioned or delayed.  The acceptance of Rental by Landlord from any other person or entity shall not be deemed to be a waiver by Landlord of any provision hereof.  Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting.  In the event of default by any assignee or successor of Tenant in the performance of any of the terms of this Lease, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor.

17.           Signs.

Signage rights will be provided on the front glass of the Premises.  All aspects of Tenant’s signage, including size, location, content, design and manner of attachment, shall be subject to Landlord’s prior approval, such approval not to be unreasonably withheld.  The actual sign and its respective installation cost shall be at the expense of the Tenant and shall conform to architectural covenants and all applicable laws and ordinances, if any.  Tenant shall remove all signs installed by Tenant at the expiration or any earlier termination of the Lease Term.  Tenant shall be responsible for any damage to the Building occasioned by the installation of any such signs.  Tenant shall place no sign, if any, upon the roof of the Premises or the Building, nor any part of the roof, including the flashing or gutters of the Premises or the Building.  Tenant shall repair any damage to the Building caused by its signage, including, but not limited to, discoloration.  Excepting “force majeure,” Tenant shall be required to install identification signage within ninety (90) days of the commencement, subject to the aforementioned conditions and limitations.  Notwithstanding any other provision contained herein to the contrary, Landlord acknowledges and agrees that Tenant shall be entitled to install and maintain throughout the

22

Lease Term signage consistent with the signage of the tenant occupying the Premises as of the Lease Date.  The provisions hereof shall survive the termination of this Lease.

18.           Rules.

Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as Exhibit “C” and made a part hereof, and, after notice thereof, all reasonable non-discriminatory modifications thereof and additions thereto from time to time promulgated in writing by Landlord.  Landlord shall not be responsible to Tenant for the nonperformance by any  other tenant or occupant of the Building of any of said rules and regulations.  However, Landlord shall assume responsibility for the even enforcement among all tenants of the Building of said rules and regulations.  In the event of a conflict between the terms of this Lease and said rules and regulations, this Lease shall control. 

19.           Entry by Landlord

With twenty-four (24) hours’ prior notice (written or oral) to Tenant (except in the event of an emergency where no such notice shall be required), Landlord may enter the Premises at reasonable hours to (a) inspect the same, (b) exhibit the same to prospective purchasers, lenders and tenants (provided, however, Landlord’s right to enter the Premises for the purposes of showing same to perspective tenants shall not arise until one hundred and eighty (180) days prior to the end of the term hereof), (c) determine whether Tenant is complying with all of its obligations hereunder, (d) supply the services to be provided by Landlord to Tenant hereunder, (e) post notices of nonresponsibility, and (f) make repairs required of Landlord under the terms hereof or repairs to any adjoining space or utility services or make repairs, alterations or improvements to any other portion of the Building; provided, however, that all such work shall be done as promptly as reasonably possible and so as to cause as little interference to Tenant as reasonably possible.  So long as such entries are conducted in accordance with the conditions of the preceding sentence, Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned by such entry.  Landlord shall at all times have and retain a key with which to unlock all of the doors in, on or about the Premises (excluding Tenant’s vaults, safes, trade secret areas and similar areas reasonably designated in writing by Tenant in advance); and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises, or any portion thereof.  Tenant shall pay upon demand all repair costs and expenses resulting from Landlord’s emergency entry to the Premises, but only under circumstances where Tenant caused the subject emergency.  Landlord shall also have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, to change the arrangement and/or location of entrances or passageways. doors and doorways, stairs, or other public parts of the Building and to change the name or number of designation by  which the Building is commonly known, provided the same does not materially interfere with Tenant’s use of the Premises and Landlord reimburses Tenant for costs associated with such changes.

23

(a)   Notwithstanding the provisions of Paragraph 19 above, except in the case of emergency, Landlord shall make a reasonable attempt to notify Tenant by telephone, letter, facsimile or other means prior to visiting the Premises, however, failure to do so shall not constitute a default by Landlord hereunder.  In the event that Landlord should need to enter the Premises for the purpose of making repairs, alterations or improvements, Landlord shall schedule such work in accordance with Tenant’s reasonable business schedule.  Additionally, in no event other than an emergency will Landlord enter an examining room while a patient is present, and Landlord will at all times other than an emergency defer to the privacy expectation of Tenant’s patients at the request and direction of Tenant.

20.           Environmental Matters.

(a)   For purposes of this Lease:

(i)            “Contamination” as used herein means the uncontained or uncontrolled presence of or release of Hazardous Substances (as hereinafter defined) into any environmental media from, upon, within, below, into or on any portion of the Premises or the Building so as to require remediation, cleanup or investigation under any applicable Environmental Law (as hereinafter defined).

(ii)           “Environmental Laws” as used herein means all federal, state, and local laws, regulations, orders, permits, ordinances or other requirements, concerning protection of human health, safety and the environment, all as may be amended from time to time.

(iii)          “Hazardous Substances” as used herein means any hazardous or toxic substance, material, chemical, pollutant, contaminant or waste as those terms are defined by any applicable Environmental Laws (including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act. 42 U.S.C. 9601 et seq. (“CERCLA”) and the Resource Conservation and Recovery Act. 42 U.S.C. 6901 et seq. [“RCRA”]) and any  wastes, polychlorinated biphenyls, urea formaldehyde, asbestos, radioactive materials, radon, explosives, petroleum products and oil.

(b)   Landlord represents that, except as might otherwise be set forth in environmental reports delivered by Landlord to Tenant, if any (i) Landlord has not treated, stored or disposed of any Hazardous Substances upon or within the Premises and (ii) to Landlord’s actual knowledge without investigation, no Hazardous Substances are present on or under the Building as of the date of this Lease.

(c)   Tenant represents that all its activities on the Premises during the course of this Lease will be conducted in compliance with Environmental Laws.  Tenant, at Tenant’s sole cost and expense, shall be responsible for obtaining all permits or licenses or approvals under Environmental Laws necessary for Tenant’s operation of its business on the Premises and shall make all notifications and registrations required by any applicable Environmental Laws.  Tenant, at Tenant’s sole cost and expense, shall at all times comply with the term and conditions of all such permits, licenses, approvals, notifications and registrations and with any other applicable Environmental Laws affecting in any way the approvals and make

24

all such notifications and registrations required by any applicable Environmental Laws necessary for Tenant’s operation of its business on the Premises.

(d)   Tenant shall not cause or permit any Hazardous Substances to be brought upon, kept, stored or used in or about the Premises or the Building without the prior written consent of Landlord, which consent may be granted or withheld in the reasonable discretion of -Landlord; provided; however, that the consent of Landlord shall not be required for the use at the Premises of cleaning supplies, toner for photocopying machines and other similar materials, in containers and quantities reasonably necessary for and consistent with normal and ordinary use by Tenant, at the Premises, in the routine operation or maintenance of Tenant’s office equipment or in the routine janitorial service, cleaning and maintenance for the Premises.

(e)   Neither Landlord nor Tenant shall cause or permit the release of any Hazardous Substances by its respective agents, contractors, employees or invitees into any environmental media such as air, water or land, or into or on the Premises or the Building in any manner that violates any Environmental Laws.  If such release shall occur the responsible party shall (i) take all steps reasonably necessary to contain and control such release and any associated Contamination, (ii) clean up or otherwise remedy such release and any associated Contamination to the extent required by, and take any and all other actions required under, applicable Environmental Laws and (iii) notify and keep the other party reasonably informed of such release and response.

(f)    Regardless of any consents granted by Landlord pursuant to Paragraph 20(d) allowing Hazardous Substances upon the Premises, Tenant shall under no circumstances whatsoever (i) cause or permit any activity on the Premises which would cause the Premises to become subject to regulation as a hazardous waste treatment, storage or disposal facility under RCRA or the regulations promulgated thereunder; (ii) discharge Hazardous Substances into the storm sewer system serving the Building; or (iii) install any underground storage tank or underground piping on or under the Premises.

(g)   Each of Landlord and Tenant shall and hereby does indemnify, defend and hold the other party hereto harmless from and against any and all reasonable and actual expense, loss, and liability suffered by the indemnified party (with the exception of those expenses, losses, and liabilities arising from such party’s own negligence or willful act), by reason of the indemnifying party’s storage, generation, handling, treatment, transportation, disposal, or arrangement for transportation or disposal, of any Hazardous -Substances (whether accidental, intentional, or negligent) or by reason of the indemnifying party’s breach of any or the provisions of this Paragraph 20.  Such expenses, losses and liabilities shall include; without limitation, (i) any and all expenses that the indemnified party may incur to comply with any Environmental Laws as a result of the indemnifying party’s failure to comply therewith; (ii) any and all costs that the indemnified party may incur in studying or remedying any Contamination at or arising from the Premises as a result of a failure to comply with this Paragraph 20 or Environmental Laws; (iii) any and all costs that the indemnified party may incur in studying, removing, disposing or otherwise addressing any Hazardous Substances which are present at the Premises as a result of a failure to comply with this Paragraph 20 or Environmental Laws; (iv) any and all fines, penalties or other sanctions assessed by reason of the indemnifying party’s failure to comply with Environmental Laws; and (v) any and all reasonable legal and

25

professional fees and costs incurred by the indemnified - party in connection with the foregoing.  Notwithstanding any other provision to the contrary contained in this subsection 20(g), Tenant acknowledges and agrees that Landlord shall have no obligations under this subsection 20(g) for the release of Hazardous Substances or any other violation of any Environmental Law occurring as the result of the actions or inactions of any party for whom Landlord is not otherwise responsible at law (including, but not limited to, any applicable Environmental Laws).  Further, notwithstanding any other provision contained herein to the contrary, Landlord acknowledges and agrees that Tenant shall have no liability or responsibility whatsoever for any pre-existing environmental conditions with respect to the Premises or Building Furthermore, Landlord shall and does hereby indemnify Tenant, hold and defend Tenant harmless from and against any and all reasonable and actual expense, loss and liability suffered by Tenant by reason of any misrepresentations made by Landlord under this paragraph 20.  The indemnities contained herein shall survive the termination or expiration of this Lease.

(h)   Landlord shall have the right, but not the obligation, to enter the Premises at reasonable times throughout the Term, after at least twenty-four (24) hours’ prior written notice to Tenant, to audit and inspect the Premises for Tenant’s compliance with this Paragraph 20.

21.           Landlord’s Lien.

Landlord acknowledges and agrees that Tenant shall have the right at any time to encumber all or any portion of its interest in and to any furniture, fixtures or equipment located in the Premises with a lien to secure financing, and, Landlord agrees to execute such Landlord’s lien waiver or other agreements as Tenant may reasonably require in connection with any such financing.

22.           Events of Default.

The occurrence of any one or more of the following events (“Events of Default”) shall constitute a breach of this Lease by Tenant: (a) if Tenant shall fail to pay any Rental when and as the same becomes due and payable, and such payment remains outstanding for a period of fifteen (15) days after written notice thereof from Landlord to Tenant; (b) if Tenant shall fail to pay any other sum when and as the same becomes due and payable, and such payment remains outstanding for a period of fifteen (15) days after written notice thereof from Landlord to Tenant, (c) if Tenant shall fail to perform or observe any other term or provision of this Lease or of the rules and regulations described in Paragraph 18 to be performed or observed by Tenant, and (except or the failure set forth in clause (g) such failure shall continue for more than thirty (30) days after written notice thereof from Landlord, provided that if Tenant’s cure can not reasonably be completed within thirty (30) days, said thirty (30) day period shall be extended as long as Tenant proceeds diligently and in good faith to effect such cure; (d) intentionally omitted; (e) if Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due or shall file a petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file a petition in any proceeding seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file an answer admitting or fail timely to contest the material allegations of a petition filed against it in any such proceeding,

26

or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or any material part of its properties; (f) if, within forty-five (45) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if, within forty-five (45) days after the appointment without the consent or acquiescence of Tenant of any trustee, receiver or liquidator of Tenant or of any material part of its properties, such appointment shall not have been vacated; (g) if Tenant shall fail to return a properly executed estoppel certificate to Landlord in accordance with the provisions of Paragraph 31 hereof within the time period designated for such return in Landlord’s request for same and such failure continues for five (5) business days after Tenant’s receipt of written notice of such failure from Landlord; or (h) if Tenant shall knowingly do or permit to be done any act which results in a lien being filed against the Premises or the Building and within thirty (30) days after written notice from Landlord, Tenant does not occasion the removal of any such lien.

23.           Remedies

23.01.  Upon the occurrence of any Event of Default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever except as otherwise expressly provided:

(a)   Landlord, with or without terminating this Lease, may, without prejudice to any other remedy Landlord may have for possession, arrearages in Rental or damages for breach of contract or otherwise. immediately or at any time thereafter, in accordance with applicable law, reenter the Premises and expel or remove therefrom Tenant and all  persons and entities claiming by or through Tenant (including, without limitation, any and all sublessees and assignees) and all property belonging to or placed on the Premises by, at the direction of or with the consent of Tenant or its assignees or sublessees without being liable to prosecution or any claim for damages therefor; and Tenant agrees to indemnify Landlord for all loss and damage which Landlord may suffer by reason of such termination of this Lease or of Tenant’s right to possession hereunder, whether through inability to relet the Premises or through decrease in rental or otherwise.  Landlord may, at its option and with or without terminating this Lease, also declare the positive difference, if any, between (i) the entire amount of the Rental which would become due and payable during the remainder of the term of this Lease and the amount of any rental abated during any free rent period, discounted to present value using a discount rate equal to the Prime Rate in effect as of the date of such declaration, and (ii) the fair rental value of the Premises during the remainder of the term of this Lease (taking into account, among other factors, the anticipated duration of the period the Premises will be unoccupied prior to reletting and the anticipated cost of reletting the Premises), also discounted to present value using a discount rate equal to the Prime Rate in effect as of the date of such declaration, to be due and payable immediately, in which event such sum shall be due and payable immediately and Tenant agrees to pay the same at once. together with all Rental and other sums theretofore due, at the office of Landlord in Atlanta, Georgia; it being understood and agreed that such payment shall be and constitute Landlord’s liquidated damages, Landlord and Tenant acknowledging and agreeing that it is difficult or impossible to determine’ the actual damages Landlord would suffer from Tenant’s breach hereof and that the agreed upon liquidated damages are not punitive or penalties and are just, fair and reasonable, all in accordance with O.C.G.A. - 13-6-7.

27

(b)   Landlord, with or without terminating this Lease, may immediately or at any time thereafter relet the Premises or any part thereof for such time or times. at such rental or rentals and upon such other terms and conditions as Landlord in its reasonable discretion may deem advisable. and Landlord may make any alterations or repairs to the Premises which it may deem necessary or proper in its reasonable discretion to facilitate such reletting: and Tenant shall pay all reasonable costs of such reletting including, but not limited to the cost of any such reasonable alterations and repairs to the Premises, attorneys’ fees and reasonable brokerage commissions: and if this Lease shall not have been terminated, Tenant shall continue to pay all Rental and all other charges due under this Lease up to and including the date of beginning of payment of rent by any subsequent tenant of part or all of the Premises, and thereafter Tenant shall pay monthly during the remainder of the term of this Lease the positive difference, if any, between the rent and other charges collected from any such subsequent tenant or tenants and the Rental and other charges reserved in this Lease, but Tenant shall not be entitled to receive any excess of any such rents collected over the Rental reserved herein.

(c)   Landlord, with or without terminating this Lease, may recover from Tenant all damages and expenses Landlord suffers or incurs by reason of Tenant’s default, including, without limitation, costs of recovering the Premises, attorney’s fees and any unamortized value of Tenant Improvements, if any, and brokerage commissions,’ all of which shall be immediately due and payable by Tenant to Landlord immediately upon demand.

23.02.  The remedies provided for in this Lease are in addition to any other remedies available to Landlord at law or in equity by statute or otherwise.  All remedies provided in this Lease are cumulative and may be exercised alternatively, successively or in arty other manner.  The exercise by Landlord of any one or more of the rights and remedies provided in this Lease shall not prevent the subsequent exercise by Landlord of any one or more of the other rights and remedies herein provided.  Failure of Landlord to declare an event of default immediately upon its occurrence, or delay in taking any action in connection with an event of default, shall not constitute a waiver of the default, but Landlord shall have the right to declare the default at any time and take such action as is lawful or authorized under this Lease.  Notwithstanding any other provision contained herein to the contrary, Landlord acknowledges and agrees that it will use commercially reasonable efforts to attempt to mitigate its damages in the event of a Tenant default hereunder.

24.           Landlord’s Right to Cure Defaults.

All agreements and provisions to be performed by Tenant under any of the terms of this Lease shall be at the sole cost and expense of Tenant and without any abatement of Rental.  If Tenant shall fail to pay any sums of money. other than Base Rental, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder or violates any provision of this Lease and such failure or violation shall continue for thirty (30) days after written notice thereof by Landlord subject to the same time extension contained in Paragraph 22(c), Landlord is hereby empowered and Landlord may, but shall not be obligated so to do, and without waiving or releasing Tenant from any obligations of Tenant or any other right or remedy of Landlord under this Lease or otherwise, make any such payment, perform any such other act or correct any such violation on Tenant’s part to be made, performed or observed as in this Lease provided.  All sums so paid by Landlord and all necessary incidental costs shall be

28

deemed Rental hereunder and shall be payable to Landlord on demand, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of Base Rental.  All sums so paid by Landlord and all such necessary incidental expenses shall accrue simple interest at the Default Rate from demand until payment, and Tenant shall pay to Landlord such accrued interest together with such sums and expenses.

25.           Attorney’s Fees.

If as a result of any breach or default in the performance of any of the provisions of this Lease, Landlord or Tenant, as the case may be, uses the services of any attorney in order to secure compliance with such provisions or recover damages therefor, or to terminate this Lease or evict Tenant, the defaulting party shall reimburse the other party upon demand for any and all actual and reasonable attorney’s fees and expenses so incurred.

26.           Landlord’s Defaults.

Notwithstanding any other provision of this Lease to the contrary, excluding subparagraph 9.01(a), in the event of any default by Landlord under this Lease, Tenant, in addition to any other remedies available at law or in equity, shall have an action for damages, but prior to any such action or other exercise of any remedies by Tenant.  Tenant will give Landlord written notice specifying such default with particularly, and Landlord shall then have thirty (30) days in which to cure any such default: provided. however, in the event any such default cannot with reasonable diligence be cured within such thirty day period, Landlord shall have such additional reasonable period of time as is necessary to cure such default so long as Landlord commences such cure within such thirty day period and shall diligently prosecute in good faith such cure to completion.

27.           Eminent Domain.

If all or part of the Premises or Building shall be taken as a result of the exercise of the power of eminent domain, this Lease shall terminate as to the part so taken as of the date of taking, and, in the case of a partial taking, either Landlord or Tenant shall have the right to terminate this Lease by written notice to the other within thirty (30) days after such date; provided, however, that a condition to the exercise by Tenant of such right to terminate shall be that the portion of the Premises or Building taken shall be of such extent and nature as substantially to handicap, impede or impair Tenant’s use of the Premises and, further, provided that a condition to the exercise by Landlord of such right to terminate shall be that the portion of the Premises or Building taken shall be of such extent and nature as to materially adversely affect Landlord’s ability to continue to lease space within the Building in an economically reasonable manner as determined by Landlord in its reasonable discretion.  In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise.  The foregoing notwithstanding, nothing in this paragraph shall be construed as precluding Tenant from seeking on its on behalf and expense a separate award for its relocation and moving expenses, as well as any tenant alterations, additions or improvements paid for directly by

29

Tenant.  In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall to the extent reasonably practicable restore the Premises and/or the Building to a complete architectural unit, and the monthly Base Rental and Additional Rental thereafter to be paid shall be equitably reduced.

28.           Subordination.

28.01.  Except as provided in subparagraph 28.03 below, this Lease shall be subject and subordinate at all times to (i) any and all ground or underlying leases which are now in effect regarding the Building or any part thereof (collectively or singularly, “Landlord’s Ground Lease’), and (ii) the lien or security title or interest of any and all third party mortgages and deeds to secure debt in any amount or amounts whatsoever now or hereafter placed on or against the Building or my part thereof or on or against Landlord’s interest or  estate therein or on or against any or all such ground or underlying leases (collectively or singularly, “Landlord’s Mortgage”), all without the necessity of having further instruments executed on the part of Tenant to effectuate such subordination.  With respect to the foregoing, Landlord represents and warrants that there is currently no Landlord’s Ground Lease in effect with respect to the Building.

28.02.  While subparagraph 28.01 above is self-operative, and no further instrument of subordination shall be necessary, Tenant shall, in confirmation of such subordination, upon demand, at any time or times, execute, acknowledge and deliver to Landlord or a holder of Landlord’s Mortgage (“Landlord’s Mortgagee”) or the lessor under Landlord’s Ground Lease (“Landlord’s Ground Lessor”), as applicable, a Subordination, Non-Disturbance and Attornment Agreement, in the form which is in Exhibit “E” attached hereto and made a part hereof by this reference.

28.03.  Tenant shall, upon demand, at any time or times, execute, acknowledge and deliver to Landlord or Landlord’s Mortgagee or Landlord’s Ground Lessor, as applicable, without expense, any and all reasonable instruments that may be necessary to make this Lease superior to the lien or security title or interest of Landlord’s Mortgage or to the estate of the Landlord’s Ground Lease.

28.04.  If Landlord’s Mortgagee or Landlord’s Ground Lessor, as applicable, shall hereafter succeed to the right of Landlord under this Lease, Tenant shall, at the option of such holder or lessor, attorn to and recognize such successor as Tenant’s Landlord under this Lease and shall promptly execute and deliver any reasonable instrument that may be necessary to evidence such attornment.  Upon such attornment, this Lease shall continue in full force and effect as a direct lease between each successor Landlord and Tenant, subject to all of the terms, covenants and conditions of this Lease.

28.05.  Tenant agrees to execute any documents required under this Paragraph 28 within fifteen (15) days after demand.

28.06.  Notwithstanding any provisions to the contrary contained in this Paragraph 28, Tenant’s obligation to subordinate to a Landlord’s Ground Lease or Landlord’s Mortgage shall be subject to the full execution by Landlord, Tenant and Landlord’s Mortgagee

30

of a form Subordination, Non-Disturbance and Attornment Agreement in the form attached as Exhibit “E” to this Lease and delivery thereof to the Tenant.

28.07.  Landlord acknowledges and agrees that it shall, on or before fifteen (15) days after the Commencement Date, deliver to Tenant a counterpart of the Subordination, Non-Disturbance and Attornment Agreement attached hereto as Exhibit “E” executed by each of Landlord and all current Landlord’s Mortgagees.

29.           No Merger.

The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation hereof or a termination by Landlord pursuant to the terms of this Lease, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, except those to Tenant’s subsidiaries and affiliates or may, at the option of Landlord, operate as an assignment to it of any and all such subleases or subtenancies.

30.           Sale

In the event the original Landlord hereunder, or any successor owner of the Building, shall sell or convey the Building, all liabilities and obligations on the part of the original Landlord or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner.  Tenant agrees to attorn to such new owner.  Landlord shall, upon written request of Tenant, provided Tenant evidence of such new owner’s assumption of this Lease.

31.           Estoppel Certificate.

At any time and from time to time designated by Landlord (but on not less than fifteen (15) days prior written request by Landlord), Tenant will execute, acknowledge and deliver to Landlord, promptly upon request, a certificate certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification), (b) the date, if any, to which Rental and other sums payable hereunder have been paid, (c) that no notice has been received by Tenant of any default which has not been cured, except as to defaults specified in said certificate, and (d) such other matters as may be reasonably requested by Landlord.  Any such certificate may be relied upon by any existing or prospective purchaser, investor, ground lessor, mortgagee or holder of any deed to secure debt on the Building or any part thereof.  Landlord agrees that it shall execute a comparable estoppel certificate within fifteen (15) days after written request by Tenant.

32.           No Light, Air or View Easement.

No easement of light, air or view is granted by Landlord hereunder, and any diminution or shutting off of light, air or view by any building or other structure shall in no way affect this Lease or impose any liability on Landlord.

31

33.           Holding Over

If Tenant remains in possession after expiration of this Lease, with Landlord’s acquiescence and without any distinct written agreement between Landlord and Tenant, this Lease shall become a month-to-month periodic tenancy, and there shall be no renewal of this Lease by operation of law.  Such periodic tenancy may be terminated by thirty (30) days written notice by either party to this Lease to the other party and such termination shall be effective as of the last day of the calendar month during which said notice period ends.  During the period of any such holding over, all provisions of this Lease shall be and remain in effect except that the monthly Base Rental shall be one hundred ten percent (110%) of the Base Rental payable for the last calendar month of the term of this Lease, including any renewals or extension; provided, however, that for the first 60 days of holdover there shall be no consequential damages.  The inclusion of the preceding sentence in this Lease shall not be construed as Landlord’s consent for Tenant to hold over.  If Tenant remains in possession after expiration of the term of this Lease, without Landlord’s acquiescence or consent, Tenant shall become a Tenant-at-sufferance subject to eviction in accordance with Georgia law.  This Paragraph 33 will survive the termination of this Lease, by lapse of time or otherwise.

34.           Abandonment

If Tenant shall abandon or surrender the Premises’ and fail to pay rent, or be dispossessed by process of law or otherwise, any personal property belonging to Tenant and left on the Premises for a period of ten (10) business days thereafter shall be deemed to be abandoned, at the option of Landlord.

35.           Security Deposit

See Exhibit “F’.

36.           Waiver

The waiver by Landlord or Tenant of any agreement, condition or provision herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other agreement. condition or  provision herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be construed to waive or to lessen the right of Landlord or Tenant to insist upon the performance by the other parts’ in strict accordance with said terms.  The subsequent acceptance of Rental hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any agreement, condition or provision of this Lease, other than the failure of Tenant to pay the particular increment of Rental so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rental.  Landlord may accept a partial payment of Rental or other sums due hereunder without such constituting an accord and satisfaction and without prejudice to Landlord’s right to demand the balance of such Rental or other sum notwithstanding any notation on a check or letter accompanying such partial payment, unless Landlord expressly waives its right to such balance in writing.

32

37.           Notices

Except as might otherwise be specifically provided for herein to the contrary, whenever any notice, demand or request is required or permitted hereunder, such notice, demand or request shall be in writing and either hand delivered in person, by reputable courier service, or sent United States Mail, return receipt requested, postage prepaid and addressed as follows: to Tenant at the applicable address specified in the Basic Lease Information, or to such other place as Tenant may from time to time designate in a notice to Landlord; to Landlord at the address specified in the Basic Lease Information, or to such other place as Landlord may from time to time designate in a notice to Tenant.  Any notice, demand or request which shall be served upon either of the parties in manner aforesaid shall be deemed sufficiently given and received for all purposes hereunder (i) at the time such notices, demands or requests are hand delivered in person or by reputable courier service or (ii) on the third (3rd) day after the mailing of such notices, demands or requests via United States Mail, in accordance with the preceding portion of this paragraph.  Notwithstanding the foregoing, or any other provision contained herein to the contrary, Tenant hereby appoints as an agent of Tenant to receive the service of all dispossessory or distraint proceedings and notices thereunder the person in charge of or occupying the Premises at the time. and, if no person shall be in charge of or occupying the same, then such service may be made by attaching the same on the main entrance of the Premises.

38.           Complete Agreement.

There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements. brochures. agreements and understandings. if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease.  There are no representations between Landlord and Tenant other than those contained in this Lease, and any reliance with respect to any representations is solely upon the representations set forth in this Lease.  Any modifications or amendments to this Lease in order to be effective must be in writing and signed by the party to be charged.

39.           Corporate Authority.

If Tenant signs as a corporation, each person executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing corporation, that Tenant has and is qualified to do business in Georgia, that the corporation has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation were authorized to do so.  The individual executing this Lease on behalf Landlord represents and warrants that he or she is duly authorized to executed and deliver this Lease on behalf of Landlord, that this Lease is binding upon Landlord in accordance with its terms, and that no other party’s approval is necessary for Landlord to enter into this Lease.

40.           Landlord Liability.

Except as might otherwise specifically be provided for herein to the contrary, Landlord shall not be liable to Tenant or Tenant’s employees, agents, patrons or visitors, or to any other person whomsoever, for any injury to person or damage to property on or about Premises, resulting from and/or caused in part or whole by leaking of gas, oil, water or steam or by electricity emanating from Premises, and Tenant hereby covenants and agrees that it will at all

33

times indemnify and hold safe and harmless the property, the Landlord, Landlord’s agents and employees from any loss, liability, claims, suits, costs, expenses, including without limitation attorney’s fees and damages, both real and alleged, arising out of any such damage or injury; except injury to persons or damage to property the cause of which is the negligence of Landlord or the failure of Landlord to repair any part of Premises which Landlord is obligated to repair and maintain hereunder within a reasonable time after the receipt of written notice from Tenant of needed repairs.

41.           Quiet Enjoyment.

Landlord hereby covenants and agrees that if Tenant shall perform all of the covenants and agreements herein stipulated to be performed on Tenant’s part, subject to the provisions of Paragraph 28 hereof.  Tenant shall at all times during the continuance hereof have the peaceable and quiet enjoyment and possession of the Premises, but always subject to the terms hereto, and restrictions, easements and other matters of public record affecting or other-wise encumbering the Building.

42.           Force Majeure

Notwithstanding any other provision of this Lease, when a period of time is herein prescribed of any action to be taken by Landlord or Tenant, such party shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the reasonable control of such party.

43.           Certain Rights Reserved to Landlord.

Landlord reserves and may exercise the following rights without affecting Tenant obligations hereunder:

(a)   to change the name or street address of the Building (provided, however, Landlord shall pay all reasonable out-of-pocket costs incurred by Tenant in connection with any such change of address including, but not limited’ to replacing all stationery and business cards of Tenant);

(b)   INTENTIONALLY DELETED;

(c)   to reasonably approve all sources furnishing janitorial services, sign painting and lettering, toilet supplies, lamps and bulbs used on the Premises;

(d)   to retain at all times pass keys to the Premises;

(e)   subject to the provisions of Paragraph 19 to take any and all measures, including inspections, repairs, alterations, decorations, additions and improvements to the Premises or the Building, and identification and admittance procedures for access to the Building as may be necessary or desirable for the safety, protection, preservation or security of the

34

Premises of the Building or the Landlord’s interests or as may be necessary or desirable in Landlord’s reasonable discretion in the operation of the Building.

Subject to the provisions of Paragraph 19,  Landlord may enter upon the Premises and may exercise any or all of the foregoing rights hereby reserved without the same being construed as a forcible or unlawful entry into, or detainer of the Premises and without being deemed guilty of an eviction, actual or constructive, or without being deemed guilty of disturbance of the Tenant’s use or possession and without being liable in any manner to Tenant and without abatement of rent or affecting any of Tenant obligations hereunder.

44.           Bankruptcy Matters

(a)   Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as Rental, shall constitute rent for the purposes of the Bankruptcy Code, 11 U.S.C. 502(b) (7).

(b)   This is a contract under which applicable law excuses Landlord from accepting performance from (or rendering performance to) any person or entity other then Tenant within the meaning of the Bankruptcy Code, 11 U.S.C. “365(c), 365(e)(2).

(c)   If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code.  Any and all monies or other considerations constituting Landlord’s property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. 

(d)   Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations arising under this Lease on and after the date of such assignment.  Any such assignee shall upon demand, execute and deliver to Landlord an instrument confirming such assumption.

45.           Americans With Disabilities Act.

Notwithstanding any other provisions contained herein to the contrary Landlord will be responsible or complying with ill requirements relating to new construction and alterations to the public accommodations and commercial facilities as described by and defined in Title III of the Americans with Disabilities Act of 1990 and regulations promulgated thereunder (the “ADA”) for the Tenant’s Premisesp; provided, however, Landlord shall not be responsible for complying with such provisions of the ADA if compliance is exempt under the ADA. including, without limitations, if the cost and scope of the alterations necessary to comply with the ADA are disproportionate to the cost and scope of the overall alterations (as defined in the ADA) which are otherwise anticipated to be constructed within the Premises upon their

35

initial occupancy by Tenant.  In addition, Landlord shall remove architectural and other barriers in the Premises and common areas of the Building provided such removal is readily achievable (as defined by the ADA and determined in Landlord’s reasonable judgment) and only to the extent required, and in the order of priority prescribed, by Title III of the ADA excluding points of access or entry to the property, Building and parking areas, and excluding any Common Area.  In no event shall Landlord be responsible for, and Tenant  hereby agrees to bear the responsibility, cost and expense of (a) providing auxiliary aids and services to accommodate specific needs for a disabled employee, licensee or invitee of Tenant unless such aid, service or accommodation is exempt pursuant to the ADA or Tenant has notified Landlord in writing of the necessity for such aid or service and Landlord and Tenant have mutually agreed on such aid or service; (b) complying with the provisions of Title I of the ADA relating to the hiring of employees and all other terms, conditions and privileges of employment; and (c) complying with Title III of the ADA with respect to any requirement arising out of a specific need of which Tenant was aware and with respect to which Tenant failed to provide notice to Landlord as required under this paragraph.

Tenant further agrees that (1) in the event it utilizes the services of any interior planner or architect other than Landlord’s designated interior planner or architect, any plans and specifications for tenant improvements or alterations to the Premises, such plans and specifications shall conform to all applicable requirements of the ADA, shall otherwise be in accordance with the agreements contained in this paragraph, and Landlord’s review of such plans shall not constitute a warranty that the plans comply with the ADA; (2) it shall notify Landlord of any particular ‘requirements it may have to enable Landlord to meet its obligations of this paragraph and (3) it shall bear sole responsibility for complying with the ADA as it may relate to Tenant’s furniture, fixtures and equipment.

Landlord and Tenant promise to reimburse and indemnify each other for any expenses incurred because of the failure to conform’ with ADA as the parties hereto have agreed in this paragraph. including the cost of making  any alterations, renovations or accommodations required by the ADA. or any governmental enforcement agency, or any court, any and all fines, civil penalties. and damages awarded resulting from a violation of the ADA and regulations, and all reasonable legal expenses incurred in defending claims made under the ADA, including reasonable attorneys fees.

46.           Miscellaneous.

The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular.  If there is more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several.  This Lease grants Tenant the right to possess and enjoy the use of the Premises subject to the terms and provisions of this Lease; no estate is conveyed by this Lease and Tenant has only a usufruct not subject to levy and sale.  Nothing in this Lease is deemed to make or imply that Landlord and Tenant are partners or joint venturers.  Time is of the essence of this Lease and each and all of its provisions.  Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.  Landlord’s obligations and liability with respect to this Lease shall be limited solely to Landlord’s interest in the Building (and rents, profits and insurance and condemnation proceeds

36

derived therefrom), as such interest is constituted from time to time, and neither Landlord nor any officer, director, shareholder nor member- of Landlord shall have any personal liability whatsoever with respect to this Lease.  The agreements, conditions and provisions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, executors, administrators, successors and assigns of the parties hereto.  Tenant shall not, without, notifying Landlord in advance, record this Lease or a short-form memorandum hereof in any public records.  Tenant shall not, without the prior written consent of Landlord, use the Building name for any purpose other than as the address of the business to be conducted by Tenant in the Premises.  If any provision of this Lease shall be determined to be illegal or unenforceable, such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect.  The captions, headings and table of contents contained in this Lease are for convenience only and do not in any way limit, amplify or modify the terms and provisions of this Lease.  This Lease shall be a contract between Landlord and Tenant and shall be governed by and construed pursuant to the laws of the State of Georgia.

47.           Broker Representation.

Tenant represents that it has neither consulted with nor retained a broker in connection with the negotiation of this Lease, except for Tenant’s Broker and Landlord’s Broker (as identified in the Basic Lease Information), and Landlord acknowledges that Tenant’s Broker represents Tenant and not Landlord.  Landlord represents and warrants that it has neither consulted with nor retained any broker in connection with the negotiation of this Lease, except for Landlord’s Broker, and Tenant acknowledges that Landlord’s Broker represents Landlord and not Tenant.  Landlord agrees that both Tenant’s Broker and Landlord’s Broker shall be compensated for their services in connection herewith by Landlord, pursuant to separate commission agreements between Landlord and said brokers.

48.           Exhibits; Additional Provisions.

The Basic Lease Information and the exhibits and addendum if any, specified in the Basic Lease Information are attached to this Lease and by this reference made a part hereof.  Additional provisions, if any, are set forth on Exhibit “F” attached hereto and by this reference made a part hereof.  To the extent of any conflict between such additional provisions and the balance of this Lease, such additional provisions shall control.

WITNESS WHEREOF, the parties have executed this Lease under seal as of the date first above stated.

LANDLORD:

ATLANTA LAKESIDE REAL ESTATE, L.P.,
a Georgia Limited Partnership

By:	/s/ Alexandra Logan
Name:	Alexandra Logan
Title:	Agent

37

TENANT:

LANIER HEALTHCARE, L.L.C.,
A Delaware limited liability company

By:	/s/ Robert J. Duhoy
Name:	Robert J. Duhoy
Title:	EVP & CFO

38

EXHIBIT “A”

A-1

EXHIBIT “B”

MEMORANDUM OF COMMENCEMENT OF RENTAL

This Memorandum is made and entered into this          day of        , 2002, by and between ATLANTA LAKESIDE REAL ESTATE, L.P., a Georgia limited partnership (“Landlord”) and LANIER HEALTHCARE, L.L.C., (“Tenant”).

WHEREAS, Landlord and Tenant entered into that certain Lease Agreement (the “Lease”) dated                            , with respect to certain premises known as Lakeside Spalding Triangle, 5430 Metric Place, Norcross, Georgia, as such Premises are more particularly described in the Lease.

WHEREAS, by virtue of Paragraph 2 of the Lease, the Lease Term and the payment of Base Rental and Additional Rental (as such terms are defined in the Lease) are to commence upon the delivery of the Premises to Tenant (unless such delivery is delayed by delays attributable to Tenant);

NOW, THEREFORE, for and in consideration of the Premises and the mutual covenants expressed in the Lease, it is hereby agreed by Landlord and Tenant as follows:

1.             Pursuant to the terms of Paragraph 2 of the Lease, the Premises have been delivered to Tenant; the Commencement Date shall be                          ; the ‘Base Rental and Additional Rental commenced on                      ; and the Expiration Date ‘shall be                       (as such terms are defined in the Lease).

2.             This Memorandum shall not be deemed or construed to alter or amend the Lease in any manner.

IN WITNESS WHEREOF, Landlord and Tenant have caused their duly authorized officers or members to execute this Memorandum the day and year first above written.

TENANT:

LANIER HEALTHCARE, L.L.C.,
a Delaware limited liability company

By:

LANDLORD:

ATLANTA LAKESIDE REAL ESTATE, L.P.,
a Georgia Limited Partnership

By:

Title:

B-1

EXHIBIT “C”

ATLANTA LAKESIDE REAL ESTATE, L.P.,
RULES AND REGULATIONS

These Rules and Regulations have been adopted by Atlanta Lakeside Real Estate, L.P. (“Landlord”) for the mutual benefit and protection of all the tenants of Buildings in order to insure the safety, care and cleanliness of the Building and the preservation of order therein.

1.             Sidewalks, passages, exits, entrances, driveways, parking areas or other common areas shall not be obstructed by tenants or used by them for any purpose other than for ingress and egress from their respective premises.  The passages, exits, entrances, stairways or other common areas are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of such tenant’s business unless such persons are engaged in illegal activities.  No tenant, and no employees or invitees of any tenant, shall go upon the roof of the Building, except as authorized by Landlord.

2.             No sign, placard, picture, name, advertisement or notice, visible from the exterior of one’s premises shall be inscribed, painted, affixed, installed or otherwise displayed by any tenant either on its premises or any part of the Building without the prior written consent of Landlord, such consent to be given or withheld in Landlord’s reasonable discretion, and Landlord shall have the right to remove any such sign, placard, picture, name, advertisement, or notice without notice to and at the sole expense of the tenant.  Any expense incurred by Landlord may, at Landlord’s sole option, be treated as Rental under of this Lease.

3.             If Landlord shall have given such prior written consent to any tenant at any time, whether before or after the execution of the lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of such lease, and shall be deemed to relate only to the particular sign, placard, picture, name, advertisement or notice so consented to be Landlord and shall not be construed as dispensing with the necessity of obtaining the specific prior written consent of Landlord with respect to any other such sign, placard, picture, name, advertisement or notice.

4.             Any bulletin board or directory of the Building is to be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom.

5.             No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed, in or used in connection with, any window or door on any premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.  No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Building.  No articles shall be placed against glass partitions or doors which might appear unsightly from outside tenants’ premises.

C-1

6.             In no event shall any tenant store any articles or other items outside of the exterior walls of the Building, unless such storage has been pre-approved in writing by Landlord.

7.             No tenant shall employ any person or persons other than the janitor of Landlord for the purpose of cleaning their respective premises unless otherwise approved by Landlord in writing prior to the employment of such person, such approval to not be unreasonably withheld or delayed.  Except with the prior written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same.  No tenant shall cause any unnecessary labor by reason of such tenant’s carelessness or indifference in the preservation of good order and cleanliness of the premises.  Landlord shall in no way be responsible to any tenant for any loss of property or effects on the premises, however occurring, or for any damage done to the property or effects of any tenant by the janitor or any other employee or any other person.

8.             Each tenant shall see that all doors of its premises are closed, and securely locked and must observe strict care and caution that all water faucets or water apparatus are entirely shut off before the tenant or its employees leave such premises, and that all utilities shall likewise be carefully shut off, so as to prevent waste or damage, and for any default or carelessness the tenant shall make good all injuries sustained by other tenants or occupants of the Building.  All tenants shall keep the door or doors to the Building and/or corridors closed at all times except for ingress and egress.

9.             Intentionally omitted.

10.           No tenant shall alter any lock or access device or install a new or additional lock or access device or any bolt on any door of its premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.  If Landlord shall give its prior written consent, the tenant shall in each case furnish Landlord with a key for any such lock.

11.           No tenant shall make or have made additional copies of any keys or access devices provided by Landlord.  Each tenant, upon the termination of the tenancy, shall deliver to Landlord all the keys or access devices for the building, offices and rooms which shall have been furnished the tenant or which the tenant shall have had made.  In the event of the loss of any keys or access devices so furnished by Landlord, the tenant shall pay Landlord therefore the replacement cost of any keys, locks or access devices.  Landlord shall at its cost provide an adequate number of keys and/or access cards for Tenant to conduct its business operations.

12.           The toilets, urinals, wash bowls, and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever, including coffee grounds, shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose agents, employees or invitee, shall have caused it.

13.           No tenant shall use or keep in its premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities necessary

C-2

for the operation or maintenance of office equipment.  No tenant shall use any method of heating or air conditioning other than that supplied by Landlord.

14.           No tenant shall use, keep or permit to be used or kept in its premises any foul or noxious gas or substance or permit or suffer such premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building in their reasonable determination by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about any premises of the Building other than seeing eye dogs.

15.           No cooking shall be done or permitted by any tenant on its premises (except that use by tenant of Underwriters’ Laboratory approved equipment for the preparation of coffee, tea, hot, chocolate, popcorn, microwaveable foods and similar food and beverages for tenants and their employees shall be permitted, provided, that such equipment and use is in accordance with all applicable federal, state, and city laws, codes, ordinances, rules and regulations) nor shall premises be used for lodging.

16.           Subject to the provisions of the Basic Lease Information and Paragraph 4 of the Lease, except with the prior written consent of Landlord, no tenant shall sell or permit the sale, at retail, of any goods or merchandise in or on any premises, nor shall the premises of any tenant be used for the storage of merchandise or for manufacturing of any kind, or the business of a public barber shop, beauty parlor, nor shall the premises of any tenant be used for any illegal, improper, immoral or objectionable purpose, or any business activity other than that specifically provided for in such tenant’s lease.

17.           If a tenant requires telegraphic, telephonic, electronic burglar alarm or similar services, it shall first obtain and comply with, Landlord’s reasonable instructions for their installation.

18.           Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed.  No boring or cutting for wires will be allowed without the prior written consent of Landlord. which consent shall not be unreasonably withheld, conditioned or delayed.  The location of burglar alarms, telephones, call boxes  and other office equipment to all premises shall be subject to the prior written approval of Landlord.

19.           Except as expressly provided for in the Lease, no tenant shall install any radio or television antenna, satellite or other dish, loudspeaker or any other device on the exterior walls or the roof of the Building.  Tenants shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere.

20.           INTENTIONALLY DELETED

21.           No furniture, freight, equipment, supplies, packages, merchandise or other property will be received in the Building except between such reasonable hours as shall be designated by Landlord.

C-3

22.           No tenant shall install, maintain or operate upon their premises any vending machine other than within an employee break room without the prior written consent of Landlord.

23.           There shall not be used in any space, or in the public areas of the Building, either by any tenant or others, any hand trucks except those equipped with rubber tires and side guards or other such material-handling equipment as Landlord may approve.  No other vehicles of any kind shall be brought by any tenant into or kept in or about their premises.

24.           Each tenant shall store all its trash and garbage within the interior of its premises.  No material shall be placed in the trash boxes or receptacles if such material is of such a nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city without violation of any law or ordinance governing such disposal.

25.           Canvassing, soliciting, distribution of handbills or any written material, and peddling in the Building are prohibited and each tenant shall cooperate to prevent the same.  No tenant shall make room-to-room solicitation of business from other tenants in the Building.

26.           Landlord reserves the right to exclude or expel from the Building any person who, in Landlord’s judgment, is intoxicated or under the influence of alcohol or drugs or who is in violation of any of the Rules and Regulations of the Building.

27.           Without the prior written consent of Landlord, tenant shall not use the name of the Building in connection with or in promoting or advertising the business of tenant except as tenant’s address.

28.           No animals, including without limitation, pets (other than trained seeing-eye dogs required to be used by the visually impaired) shall be brought into the Premises.

29.           Each tenant shall comply with all energy conservation, safety, fire protection and evacuation procedures and regulations established by Landlord in its reasonable discretion or any governmental agency.

30.           Each tenant assumes any and all responsibility for protecting its premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to Premises closed.

31.           The requirements of tenants will be attended to only upon application at the office of the Building by an authorized individual.  Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employees will admit any person (tenant or otherwise) to any office without specific instructions from Landlord.

32.           All wallpaper or vinyl fabric materials which tenant may install on painted walls shall be applied with a strippable adhesive.  The use of nonstrippable adhesive will cause damage to the walls when materials are removed, and repairs made necessary thereby shall be made by Landlord at tenant’s sole expense.

C-4

33.           Intentionally omitted.

34.           Subject to the terms of the Lease, each tenant will refer all contractors, contractor’s representatives and installation technicians, rendering any services to such tenant, to Landlord for Landlord’s supervision, approval, and control before performance of any contractual service.  This provision shall apply to all work performed in the Building requiring Landlord’s approval under the terms of the Lease only, and may include installations of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.

35.           Each tenant shall give prompt notice to Landlord of any accidents to or defects in plumbing, electrical fixtures, or heating apparatus so that such accidents or defects may be attended to promptly.

36.           Each tenant shall require all of its employees, agents and invitees to park all cars within the designated car parking areas.

37.           No tenant shall hang or suspend any item from the structure steel components of the Building without having first received Landlord’s prior written approval to do so.

38.           Each tenant shall use its commercially reasonable best efforts for the observance of all of the foregoing Rules and Regulations by such tenant’s employees, agents, clients, customers, invitees and guests.

39.           These Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, provisions, covenants, obligations, agreements and conditions of any lease of premises in the Building.

40.           Landlord reserves the right to make such other and reasonable non-discriminatory rules and regulations as in its judgment may from time to time be needed’ for safety and security, for care and cleanliness of the Building and for the preservation of good order therein.  Each tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional reasonable non-discriminatory rules and regulations which are adopted hereafter of which Tenant is provided notice.

C-5

“EXHIBIT D”

INTENTIONALLY OMITTED

D-1

EXHIBIT F
ADDITIONAL PROVISIONS

1.             Base Rental (but not Additional Rental) will be waived during the first five months of the Term and 50% of the Base Rental (but not Additional Rental) shall be waived during months 6-8 of the Term.  During such periods Tenant shall continue to pay Tenant’s Percentage Share of Operating Expenses as set forth in Paragraph 3.01 (b) of this Agreement, which Operating Expenses shall include proportionate common area maintenance, Insurance Expenses and Real Estate Taxes for the Premises.

2.             Security Deposit - Tenant has deposited with Landlord a security deposit in the amount of $31,621 which shall be held by Landlord as security for the full and faithful performance by Tenant of each and every term, covenant and condition of this Lease on the part of Tenant to be observed and performed.  If’, from time to time, any of the Rents herein reserved or any other charges or sums payable by Tenant to Landlord shall be over due and unpaid or should Landlord make payments on behalf of Tenant or should Tenant fail to perform any of the terms of Lease, then Landlord may at its option from time to time, and without prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply the security deposit, or so much thereof as may be necessary to compensate Landlord toward the payment of Rents, charges or other sums due from Tenant, or towards any loss, damage or expense sustained by Landlord resulting from such default on the part of Tenant.  In the event Tenant shall fully and faithfully comply with all of the terms, covenants and conditions of this Lease and pay all of the Rentals as they become due and all of the charges and sums payable by Tenant to Landlord, the security deposit shall be returned to Tenant upon the expiration of the Lease.

3.             Landlord shall provide Tenant at all times during the Lease Term 173 parking spaces free and unassigned.

4.             The preliminary space planning, design, construction drawings and specifications for the Tenant Improvements will be provided by Hendrick and Associates and Landlord shall pay for same up to $.65 psf.

5.             The tenant improvement contractor will coordinate with Landlord to provide Tenant or Tenant’s contractors. early access to the space for the installation of phone systems, cabling and equipment.

6.             Tenant shall have access to the Premises 24 hours a day 7 days a week.

7.             The Premises shall be turn keyed by Landlord per the plans prepared by Hendrick and Associates dated 8/30/02 and labeled TP-6R.  The finishes shall reflect Landlord’s standard finishes and shall include the specifications submitted by Hendrick and Associates dated 5/15/02 except for the following two items:

(a)           There will be no drop pipe system in the server room and existing 2’ x 2’ ceiling system shall remain and be matched as necessary.  The Landlord standard finishes will be in accordance with the finishes described in the attached Exhibit “I”.  Exhibit “I” also contains the Hendrick drawing TP-6R, the Hendrick 5/15/02 specifications and the scope of work for the

F-1

tenant improvement work which contains information not otherwise specified on the Hendrick plans labeled TP-6R.  Any changes or additions to the plans i) not specifically shown on the TP-6R drawing or noted in the Hendrick 5/15/02 specifications or ii) varying from Landlord’s standard finishes or the attached scope of work shall be paid for by the Tenant along with any additional costs that are directly or indirectly caused by such changes, additions or variances.

7.             Tenant may install an antenna on the roof of the Premises with Landlord approval not to be unreasonably withheld and in accordance with the rules described in Exhibit “J”.

8.             Landlord shall provide Tenant with inspection reports certifying that all HVAC equipment is in good working order prior to the commencement of the Lease and shall repair or replace any HVAC equipment found not to be in good working order.

F-2

EXHIBIT “G”
INITIAL IMPROVEMENT OF PREMISES

The initial improvement of the Premises Shell, being the current “as is” condition of the Premises, shall be conducted in accordance with the following provisions:

1.             Landlord agrees to construct the improvements to the Premises (the “Tenant Improvements”) in substantial accordance with the plans and specifications prepared by Hendrick & Associates dated August 30, 2002 labeled TP-6R which plans and specifications are attached hereto as Exhibit “K-1” (collectively, the “Approved Plans”).  Tenant acknowledges and agrees that the finishes used in constructing the Tenant Improvements shall be as provided in Exhibit “I-2” attached hereto.  Notwithstanding the foregoing, Tenant acknowledges and agrees that there will be no dry pipe system in the server room and the existing 2’ x 2’ cooling system shall remain and be matched as necessary.

(a)   Tenant shall have the right to request changes to the Approved Plans and Landlord shall not unreasonably withhold its consent to any such changes.  However, in the event any such change requested by Tenant in Landlord’s estimation will result in an increase in the cost of the Tenant Improvements, Tenant shall deposit with Landlord at the time Landlord approves such requested change an amount equal to Landlord’s estimate of the increase of such cost.  In relation thereto, Tenant acknowledges and agrees that it shall be solely responsible for any and all increases in cost necessary to complete the Tenant Improvements resulting from• change orders requested by Tenant.  Landlord agrees to use commercially - reasonable efforts to require the general contractor employed by Landlord to construct the Tenant Improvements (the “Tenant Improvement Contractor”).

(b)   Landlord shall complete the Tenant Improvements by December 15, 2002; provided, however, in no event shall the failure to complete the subject Tenant Improvements by said December 15, 2002 date constitute an event of default by Landlord hereunder, nor shall Landlord be liable to Tenant for any damages which Tenant might incur as a result of Tenant Improvements not being completed by said December 15, 2002 date.  However, in the event Landlord fails to substantially complete the Tenant Improvements by December 15, 2002, then, subject to the provisions set forth below with respect to Tenant Caused Delays, both the Commencement Date and Expiration Date of this Lease shall be extended day-for-day for each day following said December 15, 2002 date, until such time as substantial completion is obtained as provided in Paragraph 2 of the Lease.  Substantial completion shall be as defined in Paragraph 2.02 of the Lease.  Notwithstanding the above, in the event Landlord’s failure to achieve substantial completion of the Tenant Improvements results from Tenant Caused Delays, then. in such event, substantial completion shall be deemed to have occurred on that day that Landlord determines in its reasonable discretion that substantial completion would have been achieved but for such Tenant Caused Delays.  For the purposes hereof, Tenant Caused Delays shall include any Tenant change orders causing delays as well as the interference by Tenant or its employees, agents, representatives, contractors or suppliers with any work being conducted by Landlord or Landlord’s Tenant Improvement Contractor resulting in delays and the failure by Tenant to deliver permittable construction drawings by September 15, 2002.  Tenant agrees to cooperate with Landlord’s efforts to complete construction of the Tenant Improvements in a timely manner and agrees that neither it, nor its employees, agents, representatives, contractors,

G-1

or subcontractors shall interfere in any manner with work being conducted by Landlord or the Tenant Improvement Contractor or its subcontractors.  Landlord agrees to advise Tenant in writing of any delays Landlord reasonably expects will result from, any Tenant requested change order at the time of Tenant’s request of such change order.

2.             The cost of constructing the Tenant Improvements shall be borne as follows: Landlord shall pay for costs necessary to complete the Tenant Improvements in accordance with the Approved Plans; however, as stated above, Tenant shall be solely responsible for any and all increases in cost resulting from change orders requested by Tenant.

G-2

EXHIBIT “H’

INTENTIONALLY DELETED

H-1

EXHIBIT “I”

LEASED AREA STANDARD INTERIOR IMPROVEMENTS

The Hawkins Companies - Owner – Developer
2303 Cumberland Parkway, Suite 100
Atlanta, GA 30339
Contact: Mr.  John Crane
770-438-6675
770-438-6424 (Fax)

CARPENTRY AND MILL WORK:

Toilet rooms shall have plastic laminate lavatory countertops without base cabinet for handicap access.

DOORS AND HARDWARE:

3’-0” x 7’-0” x 1-3/4” flush solid core oak vaneer, stained interior doors.  Door frames shall be hollow metal knock-down.

Hardware shall be lever action Cal-Royal SL Series with 26D finish.

Function to be compatible with room types indicated on drawings.  Provide hinges, floor mounted door stops, and closers as required.

PARTITIONS:

Demising wall partitions shall be 1-hour rated extending from finished slab to deck (height varies) and shall be constructed with 5/8” type ‘C’ gypsum wallboard screwed to both sides of 6” wide metal studs (ga. as required for height) spaced 16” o.c.

Provide R-1 1 sound attenuation blankets in wall cavity floor to roof deck. (Ut Des.  U-465)

Typical interior partitions shall extend from finished slab to finished ceiling and shall be constructed with 1/2” gypsum wallboard screwed to both sides of 3-5/8” wide (25 Ga.) metal studs spaced 24” o.c.  All joints taped and sanded.  Ceiling height 10’ - 6”

ACOUSTICAL CEILINGS:

2-0” x 2’-O” x 5/8” Tegular square edge ceiling panels on 15/16” grid. (Armstrong Minatone - -Cortega)

I-1

Provide R-l1, 3-1/2” batt insulation above all ceilings.

Ceilings to be Continuous over all interior partitions.

FLOORING:

Supply and install Shaw industries “Bayhill II” (32 oz.) (cut pile) or “Sea Island II” (26 oz.) (level loop) as standard carpet or equivalent.

4” Johnsonite rubber base.

VCT (in break and other areas per tenant request) by Mannington, Essentials Collection.

Ceramic Tile floor and base in toilet rooms.

Colors to be selected by tenant from samples provided by Landlord.  All installations to be direct glue down.

PAINTING:

Paint all interior walls of space with 2-coats of flat latex.

Paint all hollow metal door frames oil based enamel, semi-gloss.

VWC (Type I) standard in toilet rooms. -

ACCESSORIES:

Single roll toilet paper holder ea. toilet.

Feminine napkin disposals ea. women’s toilet.

Soap dispensers. ea. lay.

One mirror extending full width of lavatory countertop at ea. toilet room.

Provide semi-recessed combination paper towel / waste receptacles.

42” and 36” grab bars at each H.C. toilet.

Toilet partitions to be metal in standard colors.

I-2

HVAC:

A complete HVAC system shall be design/build.  The design shall be in accordance to applicable codes and shall conform with recommendations of ASHRAE.

HVAC to be furnished by (electric cool/gas heat) roof-top package units.  Height of roof-top units shall not exceed 54” (including curb) above the roof and must be approved by the building management.

Roof-top units to be located between the double joists along the center of the middle column bay of the building. (Base building joist have been designed to accommodate units at these locations only).

Provide additional structural reinforcement as required for all roof mounted equipment.

Provide exhaust fans in all toilet rooms.

PLUMBING:

Quantities of fixtures shall be those required by code and as indicated on drawings.

Lavatories shall be nominal 20” x 17” white vitreous china silk, self rimming for countertop installation.  Faucets to have lever action handles.

Toilets shall be floor mounted, white vitreous china two-piece 1.6 GPF elongated pressure-assisted siphon jet flush- action toilet.

Provide water heater above ceiling, sized as required. to serve fixtures indicated.

FIRE PROTECTION:

Sprinklers to be installed as required by code for standard office space.

Fire extinguishers to be mounted in semi-recessed steel fire extinguisher cabinets with full glass and pull handle as mfg. by J.L.  Industries Model No. 1017F10 or approved equal.  Provide as required for standard office space.

ELECTRICAL:

Provide electrical service as recommended by electrical contractor and as follows:

I-3

Meter and disconnect at building electric room.

480/277V panel, transformer and 120/208V panel located in tenant space.

Provide (grey) duplex receptacles 11OV - 15A grounded with (stainless steel) cover plate.

Provide telephone outlets with pull string from outlet box through finished ceiling and (stainless steel) cover plate (5 outlets per 1,000 s.f.).

Provide (1) phone board.

Provide (grey) single pole light switches with (stainless steel), cover plate.

Provide 2’ x 4’ recessed fluorescent light fixtures - 3 tube, 21 cell fixture with parabolic lens, T-8 lamps and electronic ballast (One fixture per 80 s.f.).

Provide 2’ x 4’ emergency light fixtures to match std. parabolic fixtures with battery packs. (One per 2,000 s.f.).

Provide exit lights: Lithonia Lighting “Quantum QM S W 3 R 120/277 EL.

I-4

EXHIBIT “J”

RULES AND REGULATIONS FOR USE OF THE COMMUNICATION EQUIPMENT

Permission is granted, free of rental charge, for the Tenant to install Communication Equipment at the Premises on the roof and building structure, at Tenant’s sole cost and expense, subject to the following restrictions:

(a)  The location and means of securing the Communication Equipment must be approved by Landlord or its designated agent, which shall not be unreasonably withheld or delayed.  Tenant shall be responsible for any voiding of the roof warranty and for any damage to the Building roof or structure or any surrounding property resulting from the installation or operation of the Communication Equipment, including, but not limited to, damage resulting from wind, ice or any other causes.  The Communication Equipment shall not damage the Building, the structure or the system of communication devised by any other user authorized by Landlord or users at neighboring properties whose use of such communication systems preceded Tenant’s use of its Communication Equipment.  If such damage or interference shall occur, Tenant shall correct same promptly.

(b)  Tenant agrees to maintain the Communication Equipment in a proper and safe operating condition.

(c)  Tenant shall comply with all codes, rules, regulations and conditions of any applicable governmental agency and shall pay for all legal, engineering and other expenses incident thereto.  Prior to installation, Tenant shall provide Landlord with a copy of all required permits, licenses, or evidence of authority to operate from this location.

(d)  Installation of the Communication Equipment shall be performed, at Tenant’s sole cost and expense, in a responsible and workmanlike manner by personnel with all necessary skill and expertise through or under the supervision of Landlord.

(e)  Tenant shall be responsible for any costs associated with furnishing electricity for the Communication Equipment.

(f)  Tenant shall remove the Communication Equipment and restore the roof and structure to its original condition, except for ordinary wear and tear, at the earlier of Tenant’s cessation of use of the Communication Equipment or the expiration of the term of this Lease or any renewal term thereof, at Tenants sole cost and expense.  The Communication Equipment shah, at all times, remain the property of Tenant and Tenant shall have the right to remove it at any time, subject to the terms and conditions herein.

(g)  Tenant shall be responsible for implementing appropriate screening as reasonably required by Landlord.

(h)  Tenant agrees to indemnify, defend and hold Landlord harmless from any claim resulting from property damage or personal injury arising in connection with the installation, maintenance, existence or removal of the Communication Equipment and shall carry

J-1

insurance ( or shall be self-insured as permitted under this Lease) to cover such liability and property damages.

(i)  Tenant shall perform all work in connections with the Communication Equipment in compliance with the recommendations of the manufacturer of the roof of the Buildings (including the use of such manufacturer’s designated contractor, if any), and further shall perform any such work in a manner so as not to void or otherwise adversely affect any warranties for the roofs of the Buildings.  Landlord shall provide Tenant copies of all roof warranties and the name of said designated contractor.

J-2

EX-10.30

Exhibit 10.30

FULL SERVICE
LEASE

BRANDYWINE OPERATING PARTNERSHIP, L.P.

Landlord

and

MEDQUIST INC.

Tenant

for Bishops Gate Corporate Center
1000 Bishops Gate Boulevard
Mt. Laurel, New Jersey

E-1

TABLE OF CONTENTS

		Page
1.	SUMMARY OF DEFINED TERMS	1
2.	PREMISES	3
3.	TERM	3
4.	CONSTRUCTION BY LANDLORD	4
5.	FIXED RENT AND SECURITY DEPOSIT	6
6.	ADDITIONAL RENT	6
7.	ELECTRICITY CHARGES	11
8.	SIGNS; USE OF PREMISES AND COMMON AREAS	11
9.	ENVIRONMENTAL MATTERS	13
10.	TENANT’S ALTERATIONS	15
11.	CONSTRUCTION LIENS	16
12.	ASSIGNMENT AND SUBLETTING	17
13.	LANDLORD’S RIGHT OF ENTRY	20
14.	REPAIRS AND MAINTENANCE	20
15.	INSURANCE; SUBROGATION RIGHTS	21
16.	INDEMNIFICATION	22
17.	QUIET ENJOYMENT	23
18.	FIRE DAMAGE	23
19.	SUBORDINATION; RIGHTS OF MORTGAGEE	24
20.	CONDEMNATION	25
21.	ESTOPPEL CERTIFICATE	26
22.	DEFAULT	26
23.	LANDLORD’S LIEN	30
24.	LANDLORD’S REPRESENTATIONS AND WARRANTIES	30
25.	SURRENDER	30
26.	RULES AND REGULATIONS	31
27.	GOVERNMENTAL REGULATIONS	31
28.	NOTICES	32
29.	BROKERS	32
30.	CHANGE OF BUILDING/PROJECT NAME	32
31.	LANDLORD’S LIABILITY	33
32.	AUTHORITY	33
33.	NO OFFER	33
34.	RENEWAL	33
35.	EXPANSION RIGHTS	36
35.	ROOF RIGHTS	36
36.	RELOCATION	36
37.	MISCELLANEOUS PROVISIONS	36
38.	CONSENT TO JURISDICTION	39
39.	WAIVER OF TRIAL BY JURY	39
40.	EXCLUSIVE USE	39

i

EXHIBITS

EXHIBIT “A”	-	PLAN OF PREMISES
EXHIBIT “B”	-	CONFIRMATION OF LEASE TERM
EXHIBIT “C”	-	RULES AND REGULATIONS
EXHIBIT “D”	-	CLEANING SPECIFICATIONS
EXHIBIT “E”	-	WORK LETTER

ii

LEASE

THIS LEASE (“Lease”) entered into as of the            day of June, 2003, between BRANDYWINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“Landlord”) and MEDQUIST INC., a New Jersey corporation, with its principal place of business at 1000 Bishops Gate Boulevard, Mt. Laurel, New Jersey (“Tenant”).

WITNESSETH

In consideration of the mutual covenants herein set forth, and intending to be legally bound, the parties hereto covenant and agree as follows:

1.             SUMMARY OF DEFINED TERMS

The following defined terms, as used in this Lease, shall have the meanings and shall be construed as set forth below:

(a)           “Building”:  The Building to be built at 1000 Bishops Gate Boulevard, Mt. Laurel, New Jersey 08054.

(b)           “Project”:  The Building, the land and all other improvements located at Bishops Gate Corporate Center, Mt.  Laurel, New Jersey 08054.

(c)           “Premises”:  All of the third floor and a portion of the second floor containing approximately 28,673 rentable square feet of the Building shown on the mutually agreed upon space plan attached hereto as Exhibit “A” and made a part hereof.  Within sixty days of the Commencement Date, Landlord’s architect shall utilize the 1996 BOMA standard to determine Tenant’s rentable square footage of the Premises and Tenant’s Allocated Share.

(d)           “Term”:  From the Commencement Date for a period of 84 months.

(e)           “Fixed Rent”:

LEASE YEAR	RENT PER S.F.			MONTHLY INSTALLMENTS		ANNUAL FIXED RENT
Months 1-60	$	20.30	*	$	48,505.16	$	582,061.90
Months 61-84	$	21.30	*	$	50,894.58	$	610,734.90

* plus amounts pursuant to Articles 6 and 7 hereof.

(f)            “Security Deposit”:  $0

(g)           “Lease Commencement Date”:  See Article 3.

(h)           “Tenant’s Allocated Share”:  54.11% to be adjusted as and when the square footage of the Premises or Building changes;

“Base Year”:  2004.

(i)            “Rentable Area”:  Premises 28,673 sq. ft. Building 52,986 sq. ft.

(j)            “Permitted Uses”:  Tenant’s use of the Premises shall be limited to general office, executive and any other legally permissible use, subject to all applicable laws and governmental rules and regulations and to all reasonable requirements of the insurers of the Building.

(k)           “Broker”:  Insignia ESG

(l)            “Notice Address/Contact”

Tenant:  Prior to Commencement:

MedQuist Inc.
Five Greentree Centre, Suite 311
Marlton, NJ  08053
Attn:      General Counsel

After Commencement:

MedQuist Inc.
1000 Bishops Gate Boulevard
Mt. Laurel, NJ  08054
Attention: General Counsel

Landlord:

Brandywine Operating Partnership, L.P.
401 Plymouth Road, Suite 500
Plymouth Meeting, PA  19462
Attn:      George D. Sowa, Senior Vice President

with a copy to:

Brandywine Realty Trust
401 Plymouth Road, Suite 500
Plymouth Meeting, PA  19462
Attn:      Brad A. Molotsky, General Counsel

(m)          “Tenant’s Standard Identification Code”:                  

(n)           “Additional Rent”:  All sums of money or charges required to be paid by Tenant under this Lease other than Fixed Rent, whether or not such sums or charges are designated as “Additional Rent”.

(o)           “Rent”:  All Annual Fixed Rent, monthly installments of Annual Fixed Rent, Fixed Rent and Additional Rent payable by Tenant to Landlord under this Lease.

2

2.             PREMISES

Landlord does hereby lease, demise and let unto Tenant and Tenant does hereby hire and lease from Landlord the Premises for the Term, upon the provisions, conditions and limitations set forth herein.

3.             TERM

(a)           The Term of this Lease shall commence (the “Commencement Date”) on the date which is the later of (i) April 1, 2004 or (ii) upon substantial completion of the improvements required to be made by Landlord and “Tenant’s Work”, if any under Article 4 and “Exhibit E” but in any event, if earlier, the Commencement Date shall occur when Tenant, with Landlord’s prior consent, which consent shall not be unreasonably withheld, assumes possession of the Premises for its Permitted Uses.  The Premises shall be deemed “substantially completed” when the improvements called for by Article 4 and “Exhibit E” have been completed to the extent that the Premises may be occupied by Tenant for its Permitted Uses, subject only to completion of minor finishing, adjustment of equipment, and other minor punchlist items and minor construction aspects, and Landlord has procured a permanent or temporary certificate of occupancy permitting the occupancy of the Premises, if required by law (hereafter, “substantially completed”).  The Term shall expire on the last day of the month which is 84 months from the Commencement Date.  The Commencement Date shall be confirmed by Landlord and Tenant by the execution of a Confirmation of Lease Term in the form attached hereto as Exhibit “B”.  If Tenant fails to execute the Confirmation of Lease Term within twenty (20) business days, Landlord’s reasonable determination of such dates shall be deemed accepted.

(b)           Upon notification by Landlord, Landlord and Tenant shall schedule a pre-occupancy inspection of the Premises at which time a punchlist of minor outstanding items, if any, and to the extent they are ascertainable at that time, shall be completed.  Within a reasonably prompt time thereafter, Landlord shall complete the punchlist items to Tenant’s reasonable satisfaction.  For the purpose of the Lease, punchlist items are those minor adjustments, repairs, replacements and the failure to complete of which, taken as a whole shall not interfere with or disrupt Tenant’s intended Use of the Premises in the manner contemplated.  No punchlist repairs, replacements or adjustments to be made by Landlord or its agents shall materially interfere with any of Tenant’s Permitted Uses at the Premises and Landlord and its agents will exercise all reasonable means to minimize inconvenience and/or disruption to Tenant, its employees, clients, vendors and invitees.

(c)           In the event that the Premises are not ready for Tenant’s occupancy at the time herein fixed for the beginning of the Term of this Lease, because of any alterations or construction now or hereafter being carried on either to the Premises or the Building , or because of any restrictions, limitations or delays caused by government regulations or governmental agencies, this Lease and the Term hereof shall not be affected thereby, nor shall Tenant be entitled to make any claim for or receive any damages whatsoever from Landlord; provided, however, no rent or other sums herein provided to be paid by Tenant shall become due until the Premises are substantially completed and reasonably deemed by Landlord and Tenant to be ready for Tenant’s occupancy, and until that time, the rent and other sums due hereunder shall be suspended.

3

4.             CONSTRUCTION BY LANDLORD

(a)           Landlord shall construct, at its sole cost and expense, the Building in accordance with base building specifications (“Landlord’s Work”) as set forth in the Work Letter attached hereto as Exhibit “E” (“Work Letter”).

(b)           Landlord to provide a “turnkey” build out as per Landlord approved plans and specification attached hereto as “Exhibit E” (“Tenant’s Work”).  Tenant’s Work shall not include (1) dry sprinkler system in Tenant computer room and (2) ceiling tile alternate beyond the “Second Look” building standard but Tenant Work shall include a $2,000 allowance toward additional structural steel necessitated by a Tenant movable filing system.

(c)           In addition to the Tenant’s Work, Landlord shall provide an additional allowance up to $2.00 per rentable square foot of the Premises to be used solely by Tenant for moving expenses (“Moving Allowance”).  The Moving Allowance shall be paid upon receipt of paid invoices evidencing the moving expense.

(d)           Landlord shall provide Tenant with a construction schedule for the Landlord’s Work and the Tenant’s Work.  In the event Landlord closes on the potential acquisition of the building where Tenant is currently a tenant, 5 Greentree Center, Lincoln Drive West, Marlton, New Jersey (“5 Greentree Premises”) and Tenant is unable to occupy the Premises for any reason other than Force Majeure or Tenant Delay, then, from the date of Landlord’s ownership forward Landlord shall waive the holdover penalty for occupying the 5 Greentree Premises beyond the expiration of the lease term.  In the event Landlord does not acquire the 5 Greentree Premises and the Commencement Date has not occurred by April 30, 2004 for any reason other than Force Majeure or Tenant Delay, then Landlord shall pay the holdover portion of Tenant’s rent (but not the base or additional rent due thereunder) at the 5 Greentree Premises commencing May 1, 2004.

5.             FIXED RENT

(a)           Tenant shall pay to Landlord without notice or demand, and without set-off, the annual Fixed Rent payable in the monthly installments of Fixed Rent as set forth in Article 1(e), in advance on the first day of each calendar month during the Term by (i) check to Landlord at P0 Box 8538-363, Philadelphia, PA 19171 or (ii) wire transfer of immediately available funds to the account at First Union National Bank, Salem NJ account no. 2030000359075 ABA #031201467; such transfer to be confirmed to Landlord’s accounting department (610-325-5622 - fax) by written facsimile upon written request by Tenant.  Notwithstanding the immediately preceding sentence, the first full month’s installment shall be paid upon the execution of this Lease by Tenant.

(b)           In the event any Fixed Rent or Additional Rent, charge, fee or other amount due from Tenant under the terms of this Lease are not paid to Landlord when due, Tenant shall also pay as Additional Rent a service and handling charge equal to five (5%) percent of the total payment then due.  The aforesaid late fee shall begin to accrue on the first day following a payment due date, irrespective of any cure period granted hereunder.  This provision shall not prevent Landlord from exercising any other remedy herein provided or

4

otherwise available at law or in equity in the event of any default by Tenant.  Notwithstanding the foregoing, Landlord agrees that twice each year, prior to imposing the late fee, Landlord shall send written notice to Tenant and Tenant shall have ten (10) days from receipt of such notice to cure the delinquency.

(c)           Tenant shall be required to pay a Security Deposit of $0 under this Lease (the “Collateral”), as security for the prompt, full and faithful performance by Tenant of each and every provision of this Lease and of all obligations of Tenant hereunder.

(d)           If Tenant defaults (irrespective of the fact that Tenant cured such default) more than twice in its performance of a monetary obligation and such monetary defaults aggregate in excess of $100,000 under this Lease, Landlord may require Tenant to post Collateral in an amount equal to the greater of the twice the current Security Deposit or twice the Fixed Rent then paid monthly.

(e)           No interest shall be paid to Tenant on the Collateral, and Landlord shall have the right to commingle the Collateral with other Security Deposits held by Landlord.  If Tenant fails to perform any of its obligations hereunder, Landlord may use, apply or retain the whole or any part of the Collateral for the payment of(i) any rent or other sums of money which Tenant may not have paid when due, (ii) any sum expended by Landlord on Tenant’s behalf in accordance with the provisions of this Lease, and/or (iii) any sum which Landlord may expend or be required to expend by reason of Tenant’s default, including, without limitation, any damage or deficiency in or from the reletting of the Premises as provided in this Lease.  The use, application or retention of the Collateral, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law (it being intended that Landlord shall not first be required to proceed against the Collateral) and shall not operate as either liquidated damages or as a limitation on any recovery to which Landlord may otherwise be entitled.  If any portion of the Collateral is used, applied or retained by Landlord for the purposes set forth above, Tenant agrees, within ten (10) days after the written demand therefor is made by Landlord, to deposit cash or a new letter of credit with the Landlord in an amount sufficient to restore the Collateral to its original amount.  In addition to the foregoing, if Tenant defaults more than twice in its performance of a monetary obligation under this Lease beyond notice and grace periods, irrespective of whether such default is cured, Landlord may require Tenant to post Collateral of twice the Fixed Rent paid monthly.

(f)            If Tenant shall fully and faithfully comply with all of the provisions of this Lease, the Collateral, or any balance thereof, shall be returned to Tenant without interest after the expiration of the Term or upon any later date after which Tenant has vacated the Premises.  In the absence of evidence satisfactory to Landlord of any permitted assignment of the right to receive the Collateral, Landlord may return the same to the original Tenant, regardless of one or more assignments of Tenant’s interest in this Lease or the Collateral.  Upon the return of the Collateral, or the remaining balance thereof, to the original Tenant or any successor to the original Tenant, Landlord shall be completely relieved of liability with respect to the Collateral.

In the event of a transfer of the Project or the Building, Landlord shall transfer the Collateral to the vendee or lessee and Landlord shall thereupon be released by Tenant from all

5

liability for the return of such Collateral.  Upon the assumption of such Collateral by the transferee, Tenant agrees to look solely to the new landlord for the return of said Collateral, and the provisions hereof apply to every transfer or assignment made of the Collateral to a new landlord.  Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the Collateral and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.  The Collateral shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord.

6.             ADDITIONAL RENT

(a)           Commencing January 1, 2005, and in each calendar year thereafter during the Term (as same may be extended), Tenant shall pay to Landlord Tenant’s Allocated Share of the following charges (“Recognized Expenses”), without deduction or set off except as expressly provided herein, to the extent such Recognized Expenses exceed the Recognized Expenses in the Base Year.

(i)            Operating Expenses.  All of the following costs and expenses for the maintenance and operation to the Project.

(A)          All costs and expenses incurred in the operation of the Building and Project, for lighting, cleaning the Building exterior and common areas of the Building interior, trash removal and recycling, repairs and maintenance of the roof and storm water management system, fire suppression and alarm systems, for the Project, removing snow, ice and debris and maintaining all landscape areas, (including replacing and replanting original flowers, shrubbery and trees), maintaining and repairing all other exterior improvements on the Project, all repairs and compliance costs necessitated by laws enacted or which become effective after the date of occupancy of the tenants of the Building (including, without limitation, any additional regulations or requirements enacted after such date regarding the Americans With Disabilities Act (as such applies to the Project or common areas but not to any individual tenant’s space), if applicable) required of Landlord under applicable laws and rules and regulations.  All of the aforementioned costs and expenses are subject to the “Operating Expense Exclusions” listed below.

(B)           All reasonable costs and expenses paid by Landlord for environmental testing, sampling or monitoring required by statute, regulation or order of governmental authority, except any costs or expenses incurred in conjunction with the spilling or depositing of any hazardous substance for which any person or other tenant is legally liable and Landlord is reimbursed for by such other person, or any spilling or depositing of any hazardous substance due to the negligence or willful act of Landlord or its agents or contractors.

(C)           Any other expense or charge (excluding reasonably allocated general and administrative charges) which would typically be considered an expense of maintaining, operating or repairing the Project under generally accepted accounting principles.

(D)          Management fee not to exceed five (5%) percent of Fixed Rent received.

6

(E)           Capital expenditures and capital repairs otherwise includable hereunder shall be included as operating expenses solely to the extent that they related to (i) an installation or improvement required by reason of any new (or amendment to any) law, ordinance or regulation, or (ii) an installation or improvement which is incurred with the intention of, and which results in, a reduction in Operating Expenses, and in either such case, solely to the extent of the annual amortized costs of same over the useful life of the improvement in accordance with generally accepted accounting principles.

(F)           All insurance premiums paid or payable by Landlord for insurance with respect to the Project as follows: (a) fire and extended coverage insurance (including demolition and debris removal); (b)Landlord’s commercial general liability insurance (including bodily injury and property damage) and boiler insurance; and (c) insurance as other Landlords of similar buildings in the general vicinity or any reputable mortgage lending institution holding a mortgage on the Premises may require.  If the coverage period of any of such insurance obtained by Landlord commences before or extends beyond the Term, the premium therefore shall be prorated to the Term.  Should Tenant’s occupancy or use of the Premises at any time change and thereby cause an increase in such insurance premiums on the Premises, Building and/or Project, Tenant shall pay to Landlord the entire amount of such reasonably documented increase.

Notwithstanding the foregoing, the term “Operating Expenses” shall not include any of the following:

(A)          Repairs or other work occasioned by fire, windstorm or other casualty or by the exercise of the right of eminent domain;

(B)           Leasing commissions, marketing costs, accountants’, consultants’, auditors or attorneys’ fees, costs and disbursements and other expenses incurred in connection with negotiations, leases, or disputes with other tenants or prospective tenants or other occupants, or associated with the enforcement of any other leases or the defense of Landlord’s title to or interest in the real property or any part thereof or the preparation or review of financial records or tax returns for the Landlord, or advice to Landlord not specifically relating to the operation of the Building;

(C)           Costs incurred by Landlord in connection with construction of the Building and related facilities, the correction of defects in construction of the Building or the discharge of Landlord’s Work whether for Tenant or anyone else;

(D)          Costs (including permit, licenses and inspection fees) incurred in renovating or otherwise improving or decorating, painting, or redecorating the Building or space for other tenants or other occupants or vacant space;

(E)           Depreciation and amortization;

(F)           Costs incurred due to a breach by Landlord or any other tenant of the terms and conditions of any lease or any law;

7

(G)           Overhead and profit increment paid to subsidiaries or affiliates of Landlord for management or other services on or to the Building or for supplies, utilities or other materials, to the extent that the costs of such services, supplies, utilities or materials exceed the reasonable costs that would have been paid had the services, supplies or materials been reasonably and necessary and provided by unaffiliated parties on a reasonable basis without taking into effect volume discounts or rebates offered to Landlord as a portfolio purchaser;

(H)          Interest on debt or amortization payments on any mortgage or deeds of trust or any other borrowings and any ground rent;

(I)            Ground rents or rentals payable by Landlord pursuant to any over-lease;

(J)            Any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord or any operation from which Landlord derives revenues;

(K)          Costs incurred in managing or operating any “pay for” parking facilities or other facilities at or within the Project;

(L)           Expenses resulting from the gross negligence or willful misconduct of Landlord;

(M)         Any fines or fees, including legal fees, for Landlord’s failure to comply with governmental, quasi-governmental, or regulatory agencies’ rules and regulations;

(N)          Legal, accounting and other expenses related to Landlord’s financing, re-financing, mortgaging or selling the Building or the Project;

(O)          Taxes;

(P)           Electric costs paid pursuant to Article 7 hereof;

(Q)          Costs for sculpture, decorations, painting or other objects of art in excess of amounts typically spent for such items in office buildings of comparable quality in the competitive area of the Building; and

(R)           Cost of any political, charitable or civic contribution or donation;

(S)           Cost of any item included in Operating Expenses to the extent that such cost is reimbursed by an insurance company or a condemnor or a tenant (except as a reimbursement of Operating Expenses) or any other party;

(T)           Costs relating to disputes with other tenants or paid by any other tenant.

8

(ii)           Taxes.  Taxes shall be defined as all taxes, assessments and other governmental charges (“Taxes”), including special assessments for public improvements or traffic districts which are levied or assessed against the Project during the Term or, if levied or assessed prior to the Term, which properly are allocable to the Term, and reasonable and necessary real estate tax appeal expenditures incurred by Landlord to the extent of any reduction resulting thereby.  Nothing herein contained shall be construed to include as Taxes: (A) any inheritance, estate, succession, transfer, gift, franchise, corporation, net income or profit tax or capital levy that is or may be imposed upon Landlord, or (B) any transfer tax or recording charge resulting from a transfer of the Building or the Project or the execution of any Lease; provided, however, that if at any time during the Term the method of taxation prevailing at the commencement of the Term shall be altered so that in lieu of or as a substitute for the whole or any part of the taxes now levied, assessed or imposed on real estate as such there shall be levied, assessed or imposed (i) a tax on the rents received from such real estate, or (ii) a license fee measured by the rents receivable by Landlord from the Premises or any portion thereof, then the same shall be included in the computation of Taxes hereunder.

(b)           Tenant shall pay, in monthly installments in advance, on account of Tenant’s Allocated Share of Recognized Expenses, the estimated amount of the increase of such Recognized Expenses for such year as determined by Landlord in its reasonable discretion in excess of the Base Year and as set forth in a notice to Tenant, such notice to include the basis for such calculation.  Prior to the end of the calendar year in which the Lease commences and thereafter for each successive calendar year (each, a “Lease Year”), or part thereof, Landlord shall send to Tenant a statement of projected increases in Recognized Expenses in excess of the Base Year and shall indicate what Tenant’s projected share of Recognized Expenses shall be, as calculated pursuant to the Lease.  Said amount shall be paid in equal monthly installments in advance by Tenant as Additional Rent commencing January 1 of the applicable Lease Year.

(c)           If during the course of any Lease Year, Landlord shall have reason to believe that the Recognized Expenses shall be different than that upon which the aforesaid projections were originally based, then Landlord, one time in any calendar year, shall be entitled to adjust the amount by reallocating the remaining payments for such year, for the months of the Lease Year which remain for the revised projections, and to advise Tenant of an adjustment in future monthly amounts to the end result that the Recognized Expenses shall be collected on a reasonably current basis each Lease Year.  Tenant shall have the right to audit expenses per Article 6(d) below.

(d)           Landlord shall permit Tenant, at its sole cost and expense upon at least ten (10) business days prior written notice to have an audit made of Landlord’s books, records, and accounts relative to the Taxes and Operating Expenses.  Such inspection shall be made on such date and time reasonably set by the Landlord in Landlord’s office during normal business hours.  Notwithstanding anything to the contrary contained herein, Tenant or Tenant’s authorized representative may conduct an audit no more than one (1) time during any lease year and may only audit the immediately preceding year’s Taxes and Operating Expenses.  If the examination made by the Tenant discloses a discrepancy in the Taxes and Operating Expenses charged to the Tenant, Tenant shall contest such charge within thirty (30) days after Tenant’s completion of its examination of Taxes and Operating Expenses.  In the event that Tenant does not provide written notice to Landlord of Tenant’s intent to dispute or contest such expenses

9

within the thirty (30) day period, Tenant waives the right to dispute or contest the Taxes and Operating Expenses.  It is further understood and agreed that Tenant, Tenant’s accountant and Tenant’s outside counsel will retain as confidential the information contained in the above described books, records and accounts.

(e)           By April 30th of each Lease Year or as soon thereafter as administratively available, Landlord shall send to Tenant a statement of actual expenses incurred for Recognized Expenses for the prior Lease Year showing the Allocated Share due from Tenant.  Landlord shall use its best efforts and diligently work to provide Tenant with the aforesaid statements on or before April 30 of each Lease Year; provided, however, if Landlord is unable to provide such statements by April 30, Landlord shall not have been deemed to waive its right to collect any such amounts as Additional Rent.  In the event the amount prepaid by Tenant exceeds the amount that was actually due then Landlord shall issue a credit to Tenant in an amount equal to the over charge, which credit Tenant may apply to future payments on account of Rent and/or Recognized Expenses and Taxes until Tenant has been fully credited with the over charge.  If the credit due to Tenant is more than the aggregate total of future rental payments, Landlord shall pay to Tenant the difference between the credit in such aggregate total.  In the event Landlord has undercharged Tenant, then Landlord shall send Tenant an invoice with the additional amount due, which amount shall be paid in full by Tenant within thirty (30) days of receipt.

(f)            In calculating the Recognized Expenses as hereinbefore described, if for thirty (30) or more days during the preceding Lease Year less than ninety-five (95%) percent of the rentable area of the Building shall have been occupied by tenants, then the Recognized Expenses attributable to the Property shall be deemed for such Lease Year to be amounts equal to the Recognized Expenses which would normally be expected to be incurred had such occupancy of the Building been at least ninety-five (95%) percent throughout such year, as reasonably determined by Landlord (i.e., taking into account that certain expenses depend on occupancy (e.g., janitorial) and certain expenses do not (e.g., landscaping)).  Furthermore, if Landlord shall not furnish any item or items of Recognized Expenses to any portions of the Building because such portions are not occupied or because such item is not required by the tenant of such portion of the Building, for the purposes of computing Recognized Expenses, an equitable adjustment shall be made so that the item of Operating Expense in question shall be shared only by tenants actually receiving the benefits thereof.

(g)           Each of the Recognized Expenses, whether requiring lump sum payment on invoice terms or constituting projected monthly amounts added to the Fixed Rent, shall for all purposes be treated and considered as Additional Rent and the failure of Tenant to pay the same as and when due in advance and without demand shall have the same effect as failure to pay any installment of the Fixed Rent and shall afford Landlord all the remedies in the Lease therefor as well as at law.  All Operating Expenses shall be charged at no higher rates than that which Tenant could receive contracting directly with a service provider, without reduction on account of volume discounts or preferred vendor rates applicable to Landlord.

(h)           If this Lease terminates other than at the end of a calendar year, Landlord’s annual estimate of Recognized Expenses and Taxes shall be accepted by the parties as the actual Recognized Expenses and Taxes for the year the Lease ends until Landlord provides Tenant with actual statements in accordance with subsection 6(e) above.

10

7.             ELECTRICITY CHARGES

Except as provided herein, Landlord shall not be liable for any interruption or delay in electric or any other utility service for any reason unless caused by the negligence or willful misconduct of Landlord its agents, employees and invitees.  If interruption or delay occurs and shall continue for more than two (2) consecutive business days for any reason within Landlord’s reasonable control, Fixed Rent shall abate until services are restored.  Landlord shall have the right to change the electric and other utility provider to the Project or Building at any time, providing that the electricity charges to Tenant shall be no greater than any of those that would be available to a similarly situated tenant if it obtained electricity through a commercially available provider other than Landlord.  Tenant shall pay to Landlord, as Additional Rent, within thirty (30) business days of receipt of Landlord’s billing statement therefor, (a) all charges incurred by Tenant for electricity in the Premises, such charges to be based upon Tenant’s consumption, as measured by Landlord’s submeter for the Premises and (b) Tenant’s Allocated Share of all charges incurred in the operation of the common areas of the Building with respect to electric/gas.  The aforesaid electricity charges shall commence upon, occupancy by Tenant of the Premises.  Landlord, 24 hours a day, 7 days a week (“Working Hours”), excluding legal holidays, shall furnish the Premises with heat and air-conditioning (HVAC) in the respective seasons sufficient to provide for comfortable working conditions for the occupants of the Premises.  Other than during the hours of 8:00 A.M. to 6:00 P.M. on weekdays and on Saturdays from 8:00 A.M. to 1:00 P.M., Landlord shall similarly supply HVAC in the Premises or part(s) thereof upon request of Tenant at Landlord’s actual out of pocket cost for gas and electricity usage for such HVAC, and shall bill Tenant monthly for such overtime HVAC.  Landlord shall provide air conditioning 24 hours a day, 7 days a week, 365 days a year, to Tenant’s cold room at no additional cost to Tenant.  Landlord shall endeavor to provide the Premises with electricity for lighting and usual office equipment as well as water service twenty-four hours a day, seven days a week, and shall keep reasonably lighted all hallways, stairways, common areas at all times, and shall endeavor to provide use and safe access to the Building and all parking, common areas and elevators twenty-four hours a day seven days a week Tenant shall have access to the Premises 24 hours a day, 7 days a week, 365 days a year.

8.             SIGNS; USE OF PREMISES AND COMMON AREAS

(a)           Landlord, at Tenant’s expense or paid from the Tenant Allowance, shall provide Tenant with standard identification signage on the Premises door, floors, Building directory and the monument sign.  Subject to applicable municipal and township requirements and approvals, and Landlord’s prior approval as to type, size, location, design, lighting, air structural and aesthetic features, Tenant shall have the right to install a façade sign on the Building, with such façade signs to bear the name of the Tenant and the cost of all signage to be borne by Tenant or paid out of the Tenant Allowance.  No other signs shall be placed, erected or maintained by Tenant at any place upon the Premises, Building or Project, unless previously stated herein or Tenant receives written approval from Landlord.

(b)           Tenant may use and occupy the Premises only for the express and limited purposes stated in Article 1(j) above; and the Premises shall not be used or occupied, in whole or in part, for any other purpose without the prior written consent of Landlord, which shall not be unreasonably withheld; provided that Tenant’s right to so use and occupy the Premises

11

shall remain expressly subject to the provisions of “Governmental Regulations”, Article 26 herein.  No machinery or equipment shall be permitted that shall cause vibration, noise or disturbance beyond the Premises.

(c)           Tenant shall not overload any floor or part thereof in the Premises or the Building, including any public corridors or elevators therein, bringing in, placing, storing, installing or removing any large or heavy articles, and Landlord may prohibit, or may direct and control the location and size of, safes and all other heavy articles, and may require that Tenant install, at Tenant’s sole cost and expense (except as required to be made by Landlord pursuant to the construction of the initial tenant improvements) supplementary supports of such material and dimensions as Landlord may reasonably deem necessary to properly distribute the weight.

(d)           Tenant shall not install in or on the Premises, without Landlord’s prior written approval, which approval shall not be unreasonably withheld, any equipment which requires more electric current than Landlord is required to provide under this Lease, and Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of electrical current which can safely be permitted in and for the Premises, taking into account the capacity of electric wiring in the Building and the Premises and the needs of Building common areas (interior and exterior) and the requirements of other tenants of the Building, Tenant and shall not in any event connect a greater load than such safe capacity; provided that Landlord shall cooperate with Tenant in evaluating Tenant’s electrical requirement and providing the same within the Building.

(e)           Tenant shall not commit or suffer any waste upon the Premises, Building or Project or any nuisance, or do any other act or thing which may disturb the quiet enjoyment of any other tenant in the Building or Project.

(f)            Tenant shall have the right, non-exclusive and in common with others, to use the exterior paved driveways and walkways of the Building for vehicular and pedestrian access to the Building and all other interior common areas.  Tenant shall also have the right, in common with other tenants of the Building and Landlord, to use the designated parking areas of the Project for the parking of automobiles of Tenant and its employees and business visitors, incident to Tenant’s permitted use of the Premises; provided that Landlord shall have the right to restrict or limit Tenant’s utilization of the parking areas in the event the same become overburdened and in such case to equitably allocate on proportionate basis or assign parking spaces among Tenant and the other tenants of the Building, provided Tenant at all times has not less than 4.3 spaces per 1,000 square feet of the Premises.  Landlord shall have the right to establish reasonable regulations, applicable to all tenants, governing the use of or access to any interior or exterior common areas; and such regulations, when communicated by written notification from Landlord to Tenant, shall be deemed incorporated by reference hereinafter and part of this Lease.

12

9.             ENVIRONMENTAL MATTERS

(a)           Hazardous Substances.

(i)            Tenant shall not, except as provided in subparagraph (ii) below, bring or otherwise cause to be brought or permit any of its agents, employees, contractors or invitees to bring in, on or about any part of the Premises, Building or Project, any hazardous substance or hazardous waste in violation of law, as such terms are or may be defined in (x) the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., as the same may from time to time be amended, and the regulations promulgated pursuant thereto (“CERCLA”); the United States Department of Transportation Hazardous Materials Table (49 CFR 172.102); by the Environmental Protection Agency as hazardous substances (40 CFR Part 302); the Clean Air Act; and the Clean Water Act, and all amendments, modifications or supplements thereto; (y) the Industrial Site Recovery Act, formerly known as the Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq., as the same may from time to time be amended, and the regulations promulgated pursuant thereto (“ISRA”); and/or (z) any other rule, regulation, ordinance, statute or requirements of any governmental or administrative agency regarding the environment (collectively, (x) and (y) shall be referred to as an “Applicable Environmental Law”).

(ii)           Tenant may bring to and use at the Premises, hazardous substances incidental to its normal business operations under the SIC Code referenced in Article 1(1) above solely in de minimis quantities and strictly in accordance with all Applicable Environmental Law.  Tenant shall store and handle such substances in strict accordance with all Applicable Environmental Law.

(b)           SIC Numbers.

(i)            Tenant represents and warrants that (Standard Industrial Classification) number as designated in the Standard Industrial Classification System Manual prepared by the Office of Management and Budget, and as set forth in Article 1(1) hereof, is correct.  Tenant represents that the specific activities intended to be carried on in the Premises are in accordance with Article 1(i) and Tenant covenants and agrees that it will not do or suffer anything which will cause its SIC number (or that of any assignee or subtenant) to fall within any of the following “major group” classifications of SIC numbers during the Term (and any exercised renewal term) hereof: 22 through 39 inclusive, 46 through 49 inclusive, 51 and 76 (together the “Covered Numbers”).  Tenant further covenants and agrees to notify Landlord at least thirty (30) days prior to any change of facts which would result in the change of Tenant’s SIC number form its present number to any of the covered Numbers.  Upon such notice, Landlord shall have the right, at its option, to terminate this Lease within thirty (30) days of receipt of such notice by notifying Tenant in writing.

(ii)           Tenant shall not engage in operations at the Premises which involve the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of “hazardous substances” or “hazardous waste” as such terms are defined under any Applicable Environmental Law.  Tenant further covenants that it will not cause or permit to exist

13

any “discharge” (as such term is defined under Applicable Environmental Laws) on or about the Premises.

(iii)          (A)          If Tenant’s operations at the Premises now or hereafter constitute an “Industrial Establishment” subject to the requirements of ISRA, then prior to: (1) closing operations or transferring ownership or operations of Tenant at the Premises (as defined under ISRA), (2) the expiration or sooner termination of this lease, or (3) any assignment of this Lease or any subletting of any portion of the Premises; Tenant shall, at its expense, comply with all requirements of ISRA pertaining thereto.  Without limitation of the foregoing, Tenant’s obligations shall include (i) the proper filing of an initial notice under NJSA 13:1K-9(a) to the NJDEP and (ii) the performance of all remediation and other requirements of ISRA, including without limitation all requirements of NJSA 13:1K-9(b) through and including (1).

(B)           In addition, upon written request of Landlord, Tenant shall cooperate with Landlord in obtaining Applicable Environmental Laws approval of any transfer of the Building.  Specifically in that regard, Tenant agrees that it shall (1) execute and deliver all reasonable affidavits, reports, responses to questions, applications or other filings required by Landlord and related to Tenant’s activities at the Premises, (2) allow inspections and testing of the Premises during normal business hours, and (3) as respects the Premises, perform any requirement reasonably requested by Landlord necessary for the receipt of approvals under Applicable Environmental Law, provided the foregoing shall be at no out-of-pocket cost or expense to Tenant except for clean-up and remediation costs arising from Tenant’s violation of this Article 9.

(iv)          The parties acknowledge and agree that, except as provided in subparagraph (iii)(B) above and unless caused by Landlord’s refinancing of the Building, pursuant to the provisions of Section 20(c) of ISRA, Tenant shall be, and is hereby, designated the party responsible (the “Party Responsible”) to comply with the requirements of ISRA (P.L. 1983, c.330) with respect to the Premises, and that as a result, the NJDEP may compel Tenant to so comply.  In addition, any failure of Tenant to provide any information and submission as required under Section 20(a) and Section 20(c) of ISRA shall constitute a default under this Lease.  Any assignee or subtenant of Tenant shall be deemed to have, and by entering into such assignment or sublease, and/or by entering into possession of the Premises, does hereby, acknowledge that they shall be the Party Responsible, jointly and severally with Tenant, under the provisions of this Lease.

(v)           In the event that Tenant is not obligated to comply with Article 9(b)(iii) for any reason, including without limitation inapplicability of ISRA to Tenant, then prior to the expiration or sooner termination of this Lease or any subletting of any portion of the Premises, Tenant shall, at Tenant’s expense, and at Landlord’s option:

(A)          Obtain from the NJDEP a “non-applicability letter” confirming that the proposed termination, assignment or subletting shall not be subject to the requirements of ISRA.  Any representation or certification made by Tenant in connection with the non-applicability letter request shall constitute a representation and warranty by Tenant in favor of Landlord and any misrepresentation or breach of warranty contained in Tenant’s request shall constitute a default under this Lease; provided, however, if a non-applicability letter is not

14

issued due to factors relating solely to the Building or parties other than Tenant, then Tenant shall be deemed to have complied with this provision.

(B)           If reasonably indicated by a reputable environmental consultant engaged by Landlord, at Landlord’s expense, Tenant shall remove “hazardous waste” or “hazardous waste” attributable to Tenant’s occupancy at the Premises in a manner which complies with NJDEP requirements under ISRA, at Tenant’s expense, as if ISRA applied to Tenant and/or the Premises.

(vi)          In the event Tenant is obligated, under this Article or otherwise, to perform and/or cooperate in performing any ISRA obligations and/or obtain and/or cooperate in obtaining any ISRA approval, by way of a non-applicability letter, “negative declaration”, the performance of an approved remedial action work plan, the obtaining of a no further action letter, the performance under a remediation agreement and/or otherwise (collectively the “ISRA Obligations”) and, prior to fully performing such ISRA Obligations, there occurs the scheduled expiration of the Term of this Lease or any other termination of this Lease (collectively, a “Lease Termination”); provided, however, that Tenant shall have any responsibility set forth herein in the event that aforementioned IRSA obligations arise from factors relating solely to the Building or parties other than Tenant, in which case Tenant shall be deemed to have complied with this provision.

(c)           Additional Terms.  In the event of Tenant’s failure to comply in full with this Article, Landlord may, after written notice to Tenant and Tenant’s failure to cure within forty-five (45) days of its receipt of such notice, at Landlord’s option, perform any and all of Tenant’s obligations as aforesaid and all costs and expenses incurred by Landlord in the exercise of this right shall be deemed to be Additional Rent payable on demand and with interest at the Default Rate.  The parties acknowledge and agree that Tenant shall not be held responsible for any environmental issue at the Premises unless such issue was caused by an action or omission of Tenant or its agents, employees, consultants or invitees.  This Article 9 shall survive the expiration or sooner termination of this Lease.

10.           TENANT’S ALTERATIONS

Tenant will not cut or drill into or secure any fixture, apparatus or equipment or make alterations, improvements or physical additions (collectively, “Alterations”) of any kind to any part of the Premises without first obtaining the written consent of Landlord, such consent not to be unreasonably withheld.  Alterations shall be with Landlord’s consent, which shall not be unreasonably withheld and be performed by Tenant, at its sole cost and expense.  Landlord’s consent shall not be required for the installation of any office equipment or fixtures including internal partitions which do not require disturbance of any structural elements or systems (other than attachment thereto) within the Building.  Moreover, Landlord’s consent shall not be required where (1) the improvement involved cost less than $50,000 each or an aggregate of $200,000 per year and (2) the same shall not affect the Building structure or systems or in any manner diminish or impair the value of the Building as a modern, first class suburban office building.  If Landlord approves Tenant’s Alterations or if no approval is required, Tenant, prior to the commencement of labor or supply of any materials, must furnish to Landlord (i) a duplicate or original policy or certificates of insurance evidencing (a) general public liability

15

insurance for personal injury and property damage in the minimum amount of $1,000,000.00 combined single limit, (b) statutory workman’s compensation insurance, and (c) employer’s liability insurance from each contractor to be employed (all such policies shall be non-cancelable without thirty (30) days prior written notice to Landlord and shall be in amounts and with companies satisfactory to Landlord); (ii) construction documents prepared and sealed by a registered New Jersey architect if such alteration is in excess of $50,000; (iii) all applicable building permits required by law; and (iv) an executed, effective Waiver of Mechanics Liens from such contractors and all sub-contractors.  Any consent by Landlord permitting Tenant to do any or cause any work to be done in or about the Premises shall be and hereby is conditioned upon Tenant’s work being performed by workmen and mechanics working in harmony and not interfering with labor employed by Landlord, Landlord’s mechanics or their contractors or by any other tenant or their contractors.  If at any time any of the workmen or mechanics performing any of Tenant’s work shall be unable to work in harmony or shall interfere with any labor employed by Landlord, other tenants or their respective mechanics and contractors, then the permission granted by Landlord to Tenant permitting Tenant to do or cause any work to be done in or about the Premises, may be withdrawn by Landlord upon forty-eight (48) hours written notice to Tenant.

All Alterations (whether temporary or permanent in character) made in or upon the Premises (other than the Landlord Work which will remain on the Premises), either by Landlord or Tenant, shall be Landlord’s property upon installation and shall remain on the Premises without compensation to Tenant and restore the Premises to good order and condition.  Notwithstanding the foregoing, Tenant shall not be required to remove any initial improvements, including telecommunication and electrical wiring, and for any improvements after the initial improvements for which Tenant requests Landlord’s permission for installation and Landlord approves said improvements, Landlord shall provide notice to Tenant that Landlord will require the removal of said improvements at the time it gives such consent and Tenant shall promptly remove such improvement at the end of the term of the Lease (including all furniture, movable trade fixtures and telecommunication equipment).  All such installations, removals and restoration shall be accomplished in a good and workmanlike manner so as not to damage the Premises or Building and in such manner so as not to disturb other tenants in the Building.  If Tenant fails to remove any items required to be removed pursuant to this Article, Landlord may do so and the reasonable costs and expenses thereof shall be deemed Additional Rent hereunder and shall be reimbursed by Tenant to Landlord within fifteen (15) business days of Tenant’s receipt of an invoice therefor from Landlord.

11.           CONSTRUCTION LIENS

(a)           Tenant will not suffer or permit any contractor’s, subcontractor’s or supplier’s lien (a “Construction Lien”) to be filed against the Premises or any part thereof by reason of work, labor services or materials supplied or claimed to have been supplied to Tenant; and if any Construction Lien shall at any time be filed against the Premises or any part thereof, Tenant, within thirty (30) days after notice of the filing thereof, shall cause it to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise.  If Tenant shall fail to cause such Construction Lien to be discharged within the period aforesaid, then in addition to any other right or remedy, Landlord may, but shall not be obligated to, discharge it either by paying the amount claimed to be due or by procuring the discharge of such

16

lien by deposit or by bonding proceedings.  Any amount so paid by Landlord, plus all of Landlord’s costs and expenses associated therewith (including, without limitation, reasonable legal fees), shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand with interest from the date of advance by Landlord at the Default Rate.

12.           ASSIGNMENT AND SUBLETTING

(a)           Subject to the remaining subsections of Article 12, except as expressly permitted pursuant to this section, Tenant shall not, without the prior written consent of Landlord, such consent not to be unreasonably withheld, assign, transfer or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof.  Tenant shall have the right to assign or transfer any interest in this Lease to a subsidiary, parent or an affiliate of Tenant or a successor to Tenant by way of merger, consolidation, corporate reorganization or the purchase of all or substantially all of Tenant’s assets, each without Landlord’s consent.

(b)           If at any time or from time to time during the term of this Lease Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord of such desire, including the name, address and contact party for the proposed assignee or subtenant, a description of such party’s business history, the effective date of the proposed assignment or sublease (including the proposed occupancy date by the proposed assignee or sublessee), and in the instance of a proposed sublease, the square footage to be subleased, a floor plan professionally drawn to scale depicting the proposed sublease area, and a statement of the duration of the proposed sublease (which shall in any and all events expire by its terms prior to the scheduled expiration of this Lease, and immediately upon the sooner termination hereof).  If Tenant desires to assign this Lease or sublet more than 20% of the Premises originally demised hereunder, then Landlord may, at its option, and in its sole and absolute discretion, exercisable by notice given to Tenant within twenty (20) days next following Landlord’s receipt of Tenant’s notice (which notice from Tenant shall, as a condition of its effectiveness, include all of the above-enumerated information), elect to recapture the Premises if Tenant is proposing to sublet or assign the Premises or such portion as is proposed by Tenant to be sublet (and in each case, the designated and non-designated parking spaces included in this demise, or a pro-rata portion thereof in the instance of the recapture of less than all of the Premises), and terminate this Lease with respect to the space being recaptured.

(c)           If Landlord elects to recapture the Premises or a portion thereof as aforesaid, then from and after the effective date thereof as approved by Landlord, after Tenant shall have fully performed such obligations as are enumerated herein to be performed by Tenant in connection with such recapture, and except as to obligations and liabilities accrued and unperformed (and any other obligations expressly stated in this Lease to survive the expiration or sooner termination of this Lease), Tenant shall be released of and from all lease obligations thereafter otherwise accruing with respect to the Premises (or such lesser portion as shall have been recaptured by Landlord).  The Premises, or such portion thereof as Landlord shall have elected to recapture, shall be delivered by Tenant to Landlord free and clear of all furniture, furnishings, personal property and removable fixtures, with Tenant repairing and restoring any and all damage to the Premises resulting from the installation, handling or removal thereof, and otherwise in the same condition as Tenant is, by the terms of this Lease, required to redeliver the

17

Premises to Landlord upon the expiration or sooner termination of this Lease.  In the event of a sublease of less than all of the Premises, the cost of erecting any required demising walls, entrances and entrance corridors, and any other or further improvements required in connection therewith, including without limitation, modifications to HVAC, electrical, plumbing, fire, life safety and security systems (if any), painting, wallpapering and other finish items as may be acceptable to or specified by Landlord, all of which improvements shall be made in accordance with applicable legal requirements and Landlord’s then-standard base building specifications, shall be performed by Landlord’s contractors, and shall be shared 50% by Tenant and 50% by Landlord.  Upon the completion of any recapture and termination as provided herein, Tenant’s Fixed Rent, Recognized Expenses and other monetary obligations hereunder shall be adjusted pro-rated based upon the reduced rentable square footage then comprising the Premises.

(d)           if Landlord provides written notification to Tenant electing not to recapture the Premises (or so much thereof as Tenant had proposed to sublease), then Tenant may proceed to market the designated space and may complete such transaction and execute an assignment of this Lease or a sublease agreement (in each case in form acceptable to Landlord) within a period of five (5) months next following Landlord’s notice to Tenant that it declines to recapture such space, provided that Tenant shall have first obtained in any such case the prior written consent of Landlord to such transaction, which consent shall not be unreasonably withheld.

For purposes of this Section 12(d), and without limiting the basis upon which Landlord may withhold its consent to any proposed assignment or sublease, the parties agree that it shall not be unreasonable for Landlord to withhold its consent to such assignment or sublease if: (i) the proposed assignee or sublessee shall have a net worth which is not acceptable to Landlord in Landlord’s reasonable discretion; (ii) the proposed assignee or sublessee shall have no reliable credit history or an unfavorable credit history, or other reasonable evidence exists that the proposed assignee or sublessee will experience difficulty in satisfying its financial or other obligations under this Lease; (iii) the portion of the Premises requested to be subleased renders the balance of the Premises unleasable as a separate area; (iv) Tenant is proposing to assign or sublease to an existing tenant of the Building or another property owned by Landlord or by its partners, or to another prospect with whom Landlord or its partners, or their affiliates are then negotiating (v) the proposed assignee or sublessee will cause Landlord’s existing parking facilities to be reasonably inadequate, or in violation of code requirements, or require Landlord to increase the parking area or the number of parking spaces to meet code requirements, or (vi) the nature of such party’s proposed business operation would or might reasonably permit or require the use of the Premises in a manner inconsistent with the “Permitted Use” specified herein, would or might reasonably otherwise be in conflict with express provisions of this Lease, would or might reasonably violate the terms of any other lease for the Building, or would, in Landlord’s reasonable judgment, otherwise be incompatible with other tenancies in the Building.

(e)           Any sums or other economic consideration received by Tenant as a result of any subletting, assignment or license (except rental or other payments received which are attributable to the amortization of the cost of leasehold improvements made to the sublet or assigned portion of the premises by Tenant for subtenant or assignee, and other reasonable expenses incident to the subletting or assignment, including standard leasing commissions) whether denominated rentals under the sublease or otherwise, which exceed, in the aggregate, the

18

total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to that portion of the premises subject to such sublease or assignment) shall be divided evenly between Landlord and Tenant, with Landlord’s portion being payable to Landlord as Additional Rental under this Lease without affecting or reducing any other obligation of Tenant hereunder.

(f)            Regardless of Landlord’s consent, no subletting or assignment shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder.  The acceptance of rental by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof.  Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting.  In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor.

(g)           In the event that (i) the Premises or any part thereof are sublet and Tenant is in default under this Lease, or (ii) this Lease is assigned by Tenant, then, Landlord may collect Rent from the assignee or subtenant and apply the net amount collected to the rent herein reserved; but no such collection shall be deemed a waiver of the provisions of this Article 12 with respect to assignment and subletting, or the acceptance of such assignee or subtenant as Tenant hereunder, or a release of Tenant from further performance of the covenants herein contained.

(h)           Tenant may, after notice to, but without the consent of Landlord, assign this Lease to an affiliate (i.e., a corporation 50% or more of whose capital stock is owned by the same stockholders owning 50% or more of Tenant’s capital stock), parent or subsidiary corporation of Tenant or to a corporation to which it sells or assigns all of substantially all of its assets or stock or with which it may be consolidated or merged (“Affiliate”), provided such purchasing, consolidated, merged, affiliated or subsidiary corporation shall, in writing, assume and agree to perform all of the obligations of Tenant under this Lease, shall have a net worth of at least $10,000,000 and it shall deliver such assumption with a copy of such assignment to Landlord within ten (10) days thereafter, and provided further that Tenant shall not be released or discharged from any liability under this Lease by reason of such assignment.  At Landlord’s option, Landlord shall be entitled to a security deposit from such assignee in the amount of one month’s Fixed Rent at the highest rental rate during the Term.

(i)            In connection with each proposed assignment or subletting of the Premises by Tenant, Tenant shall pay to Landlord an administrative fee of $250 per request (including requests for non-disturbance agreements and Landlord’s or its lender’s waivers) in order to defer Landlord’s administrative expenses arising from such request.

(j)            Anything in this Article 12 to the contrary notwithstanding, no assignment or sublease shall be permitted under this Lease if Tenant is in default at the time of such assignment.

19

13.           LANDLORD’S RIGHT OF ENTRY

Landlord and persons authorized by Landlord may enter the Premises at all reasonable times upon reasonable advance notice (except in the case of an emergency in which case no prior notice is necessary) for the purpose of inspections, repairs, alterations to adjoining space, appraisals, or other reasonable purposes; including enforcement of Landlord’s rights under this Lease.  Landlord shall not be liable for inconvenience to or disturbance of Tenant by reason of any such entry; provided, however, that such entry and activities shall be done, so far as practicable and without increasing the cost to Landlord, so as to not unreasonably interfere with Tenant’s use of the Premises and provided that Landlord shall be responsible for any negligence or willful acts in connection with such entry and activities.  Landlord also shall have the right to enter the Premises at all reasonable times after giving at least twenty-four (24) written notice to Tenant, to exhibit the Premises to any prospective purchaser, tenant and/or mortgagee.

14.           REPAIRS AND MAINTENANCE

(a)           Except as specifically otherwise provided in subparagraphs (b) and (c) of this Article, Tenant, at its sole cost and expense and throughout the Term of this Lease, shall keep and maintain the Premises in good order and condition, free of accumulation of dirt and rubbish, and shall promptly make all non-structural repairs necessary to keep and maintain such good order and condition.  Landlord shall replace lights, ballasts, tubes, ceiling tiles, outlets and similar equipment as required for repairs or replacement and the charge or cost associated with same shall be included as part of Recognized Expenses as set forth in Section 6. Landlord shall make such repairs or replacements to the Premises within a reasonable time of notice to Landlord.  Tenant shall not use or permit the use of any portion of the Premises for outdoor storage.  When used in this Article 14, the term “repairs” shall include replacements and renewals when necessary.  All repairs made by Tenant shall utilize materials and equipment which are at least equal in quality and usefulness to those originally used in constructing the Building and the Premises.

(b)           Landlord, throughout the Term of this Lease and at Landlord’s sole cost and expenses, shall make all necessary repairs to the footings and foundations, exterior walls, roof and the structural steel columns and girders forming a part of the Premises.

(c)           Landlord shall maintain all HVAC systems, plumbing and electric systems serving the Building and the Premises with the exception of any systems installed as a Tenant Improvement or an Alteration such as supplemental HVAC equipment (“Tenant’s Specialized Systems”).  Tenant shall maintain Tenant’s Specialized Systems at Tenant’s sole cost and expense.  Tenant’s Allocated Share of Landlord’s cost for HVAC, electric and plumbing service, maintenance and repairs, as limited under Article 6 with respect to capital expenditures, shall be included as a portion of Recognized Expenses as provided in Article 6 hereof.

(d)           Landlord, throughout the Term of this Lease, shall make all necessary repairs to the Building outside of the Premises and to the common areas, including the roof, walls, exterior portions of the Premises and the Building, utility lines, equipment and other utility facilities in the Building, and to any driveways, sidewalks, curbs, loading, parking and

20

landscaped areas, and other exterior improvements for the Building; provided, however, that Landlord shall have no responsibility to make any repairs unless and until Landlord receives written notice of the need for such repair or Landlord has actual knowledge of the need to make such repair.  Tenant shall pay its Allocated Share of the cost of all repairs, as limited under Article 6 with respect to capital repairs, to be performed by Landlord pursuant to this Paragraph 14(d) as Additional Rent as provided in Article 6 hereof.

(e)           Landlord shall keep and maintain all common areas appurtenant to the Building and any sidewalks, parking areas, curbs and access ways adjoining the Property in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice, and shall keep and maintain all landscaped areas in a neat and orderly condition.  Tenant shall pay its Allocated Share of the cost of all work to be performed by Landlord pursuant to this Paragraph (e) as Additional Rent as provided in Article 6 hereof.

(f)            Notwithstanding anything herein to the contrary, repairs to the Premises, Building or Project and its appurtenant common areas made necessary by a negligent or willful act or omission of Landlord or Tenant or any employee, agent, contractor, or invitee of Landlord or Tenant shall be made at the sole cost and expense of the other party, except to the extent of insurance proceeds received by the other.

(g)           Landlord shall provide Tenant with janitorial services for the Premises Monday through Friday of each week in accordance with the guidelines set forth in Exhibit “D” attached hereto and the Tenant shall pay its Allocated Share of the cost thereof as Additional Rent as provided in Article 6 hereof.

15.           INSURANCE; SUBROGATION RIGHTS

(a)           Tenant shall obtain and keep in force at all times during the term hereof, at its own expense, comprehensive general liability insurance including contractual liability and personal injury liability and all similar coverage, with combined single limits of $2,000,000.00.  Tenant shall also require its movers to procure and deliver to Landlord a certificate of insurance naming Landlord as an additional insured.

(b)           Tenant shall, at its sole cost and expense, maintain in full force and effect on all Tenant’s trade fixtures, equipment and personal property on the Premises, a policy of all risk property insurance covering the full replacement value of such property.

(c)           All insurance required hereunder shall not be subject to cancellation without at least thirty (30) days prior notice to all insureds, and shall name Landlord, Brandywine Realty Trust, Brandywine Operating Partnership, L.C., as an additional insured, as their interests may appear, and, if requested by Landlord, shall also name as an additional insured any mortgagee or holder of any mortgage which may be or become a lien upon any part of the Premises.  Prior to the commencement of the Term, Tenant shall provide Landlord with certificates which evidence that the coverages required have been obtained.  Tenant shall also furnish to Landlord throughout the term hereof replacement certificates, at least thirty (30) days prior to the expiration dates of the then current policy or policies.  All the insurance required under this Lease shall be issued by insurance companies authorized to do

21

business in the State of New Jersey with a financial rating of at least an A-X as rated in the most recent edition of Best’s Insurance Reports and in business for the past five years.  The limit of any such insurance shall not limit the liability of Tenant hereunder.  If Tenant fails to procure and maintain such insurance, Landlord shall notify Tenant and Tenant shall provide evidence of such insurance within ten (10) days of the written demand.  Medquist, Inc. may self insure and maintain a deductible in excess of $20,000; provided that this right shall not apply to any assignee or subtenant which shall not maintain any deductible in excess of $20,000 or self-insure unless approved in writing by Landlord.  The policy limits set forth herein shall be subject to periodic review, and Landlord reserves the right to require that Tenant increase the liability coverage limits if, in the reasonable opinion of Landlord, the coverage becomes inadequate or is less than commonly maintained by tenants of similar buildings in the area making similar uses.

(d)           Landlord shall obtain and maintain the following insurance during the Term of this Lease: (i) replacement cost insurance including all risk perils on the Building and on the Project, (ii) builder’s risk insurance for the Landlord Work to be constructed by Landlord in the Project, and (iii) comprehensive commercial liability insurance (including bodily injury and property damage) covering Landlord’s operations at the Project in amounts reasonably required by the Landlord’s lender or Landlord.

(e)           Each party hereto, and anyone claiming through or under them by way of subrogation, waives and releases any cause of action it might have against the other party and Landlord and Brandywine Realty Trust, and their respective employees, officers, members, partners, trustees and agents, on account of any loss or damage that is insured against under any insurance policy required to be obtained hereunder (to the extent that such loss or damage is recoverable under such insurance policy) that covers the Project, Building or Premises, Landlord’s or Tenant’s fixtures, personal property, leasehold improvements or business and which names Landlord and Brandywine Realty Trust or Tenant, as the case may be, as a party insured.  Each party hereto agrees that it will cause its insurance carrier to endorse all applicable policies waiving the carrier’s right of recovery under subrogation or otherwise against the other party.  During any period while such waiver of right of recovery is in effect, each party shall look solely to the proceeds of such policies for compensation for loss, to the extent such proceeds are paid under such policies.

16.           INDEMNIFICATION

(a)           Tenant shall defend, indemnify and hold harmless Landlord and Brandywine Realty Trust and their respective partners, officers, trustees, employees and agents from and against any and all third-party claims, actions, damages, liability and expense (including all reasonable attorney’s fees, expenses and liabilities incurred in defense of any such claim or any action or proceeding brought thereon) arising from (i) any activity, work or things done, permitted or suffered by Tenant or its agents, licensees or invitees in or about the Premises or elsewhere contrary to the requirements of the Lease, (ii) any breach or default in the performance of any obligation of Tenant’s part to be performed under the terms of this Lease, and (iii) any negligence or willful act of Tenant or any of Tenant’s agents, contractors, employees or invitees.  Without limiting the generality of the foregoing, Tenant’s obligations shall include any case in which Landlord or Brandywine Realty Trust shall be made a party to any litigation commenced by or against Tenant, its agents, subtenants, licensees, concessionaires,

22

contractors, customers or employees, in which event Tenant shall defend, indemnify and hold harmless Landlord, or Brandywine Realty Trust and shall pay all costs, expenses and reasonable attorney’s fees incurred or paid by Landlord, and Brandywine Realty Trust in connection with such litigation, after notice to Tenant and Tenant’s refusal to defend such litigation, and upon notice from Landlord shall defend the same at Tenant’s expense by counsel satisfactory to Landlord.

(b)           Landlord shall defend, indemnify and hold harmless Tenant and its employees and agents from and against any and all third-party claims, actions, damages, liability and expense (including all attorney’s fees, expenses and liabilities incurred in defense of any such claim or any action or proceeding brought thereon) arising from (i) any activity, work or things done, permitted or suffered by Landlord or Brandywine Realty Trust in or about the Project or elsewhere contrary to the requirements of the Lease, (ii) any breach or default in the performance of any obligation on Landlord’s part to be performed under the terms of this Lease, and (iii) any negligence or willful act of Landlord or Brandywine Realty Trust or any of Landlord’s agents, contractors or employees, and in case Tenant shall be made a party to any litigation commenced by or against Landlord or Brandywine Realty Trust, its agents, contractors or employees, then Landlord shall defend, indemnify and hold harmless Tenant and shall pay all costs, expenses and reasonable attorney’s fees incurred or paid by Tenant in connection with such litigation, after notice to Landlord and Landlord’s refusal to defend such litigation, and upon notice from Tenant shall defend the same at Landlord’s expense by counsel satisfactory to Tenant.  Landlord shall further indemnify and hold harmless Tenant from and against any and all third-party claims, actions, damages, liability and expense (including, without limitation, reasonable attorney’s fees and disbursements) which may be imposed upon or incurred by or asserted against Tenant by reason of loss of life, personal injury and/or damage to property occurring in or about, or arising out of, the Premises, adjacent sidewalks and loading platforms or areas and common areas appurtenant to the Building occasioned by reason of any act or omission of Landlord or Brandywine Realty Trust, its agents, contractors or employees.

17.           QUIET ENJOYMENT

Tenant shall peaceably and quietly hold and enjoy the Premises for the Term, without hindrance from Landlord, or anyone claiming by through or under Landlord under and subject to the terms and conditions of this Lease.

18.           FIRE DAMAGE

(a)           Except as provided below, in case of damage to the Premises by fire or other insured casualty, Landlord shall repair the damage.  Such repair work shall be commenced promptly following notice of the damage and completed with due diligence, taking into account the time required for Landlord to effect a settlement with and procure insurance proceeds from the insurer, except for delays due to governmental regulation, scarcity of or inability to obtain labor or materials, intervening acts of God or other causes beyond Landlord’s reasonable control.

(b)           Notwithstanding the foregoing, if (i) the damage is of a nature or extent that, in Landlord’s reasonable judgment (to be communicated to Tenant within thirty (30)

23

days from the date of the casualty), the repair and restoration work would require more than one hundred eighty (180) consecutive days to complete after the casualty (assuming normal work crews not engaged in overtime), or (ii) if more than thirty (30%) percent of the total area of the Building is extensively damaged or materially and adversely interferes with the conduct of Tenant’s business, or (iii) the casualty occurs in the last Lease Year of the Term and Tenant has not exercised a renewal right, either party shall have the right to terminate this Lease and all the unaccrued obligations of the parties hereto, by sending written notice of such termination to the other within ten (10) days of Tenant’s receipt of the notice from Landlord described above.  Such notice is to specify a termination date no less than fifteen (15) days after its transmission.

(c)           If the nature of loss is not covered, by Landlord’s fire insurance or if such proceeds are unavailable, Landlord may elect either to (i) repair the damage as above provided notwithstanding such fact or (ii) Landlord or Tenant may terminate this Lease by giving notice of such election as aforesaid.

(d)           In the event Landlord has not completed restoration of the Premises within one hundred eighty (180) days from the date of casualty, Tenant may terminate this Lease by written notice to Landlord within thirty (30) business days following the expiration of such 180 day period unless, within thirty (30) business days following receipt of such notice, Landlord has substantially completed such restoration and delivered the Premises to Tenant for occupancy.

In the event of damage or destruction to the Premises or any part thereof, Tenant’s obligation to pay Fixed Rent and Additional Rent shall be equitably adjusted or abated.

19.           SUBORDINATION; RIGHTS OF MORTGAGEE

(a)           This Lease shall be subject and subordinate at all times to the lien of any mortgages now or hereafter placed upon the Premises, Building and/or Project and land of which they are a part without the necessity of any further instrument or act on the part of Tenant to effectuate such subordination, provided, however, that so long as Tenant or its successors or assigns is not in default under any of the provisions of this Lease: (i) the interest of Tenant and its successors, assigns and subtenants under this Lease shall not be diminished or interfered with, (ii) Tenant, its successors, assigns and subtenants may remain undisturbed and in quiet possession under this Lease, and (c) no such rights shall be disturbed by any proceeding taken by the mortgagee against Landlord or by foreclosure by the mortgagee.  Tenant further agrees to execute and deliver upon demand such further instrument or instruments evidencing such subordination of this Lease to the lien of any such mortgage and such further instrument or instruments of attornment as shall be reasonably requested by any mortgagee or proposed mortgagee or by or by a ground lessor, licensor or party to an agreement under any such ground lease, license or agreement, respectively.  Notwithstanding the foregoing, any mortgagee may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery and in that event such mortgagee shall have the same rights with respect to this Lease as though it had been executed prior to the execution and delivery of the mortgage.

24

(b)           In the event Landlord shall be or is alleged to be in default of any of its obligations owing to Tenant under this Lease, Tenant agrees to give to the holder of any mortgage (collectively the “Mortgagee”) now or hereafter placed upon the Premises, Building and/or Project, notice as may be reasonably required by such Mortgagee.

(c)           Landlord shall deliver a subordination, attornment and nondisturbance agreement (“Nondisturbance Agreement”) from each Landlord’s Mortgagee, on each such mortgagee’s standard form, which shall provide, inter alia, that the leasehold estate granted to Tenant under this Lease will not be terminated or disturbed by reason of the foreclosure of the mortgage held by Landlord’s Mortgagee, so long as Tenant shall not be in default under this Lease and shall pay all sums due under this Lease without offsets or defenses thereto, except as specifically set forth herein, and shall fully perform and comply with all of the terms, covenants and conditions of this Lease on the part of Tenant to be performed and/or complied with, and in the event a mortgagee or its respective successor or assigns shall enter into and lawfully become possessed of the Premises covered by this Lease and shall succeed to the rights of Landlord hereunder, Tenant will attorn to the successor as its landlord under this Lease and, upon the request of such successor landlord, Tenant will execute and deliver an attornment agreement in favor of the successor landlord.

20.           CONDEMNATION

(a)           If the Property or any portion thereof shall be taken under the power of eminent domain or conveyed in lieu thereof, the taking of which materially and adversely interferes with the conduct of Tenant’s business, then Tenant shall have the right to terminate this Lease at such time by furnishing written notice to Landlord.  If Tenant does not terminate this Lease, Landlord shall proceed with due diligence to make all repairs necessary to restore the Property to as near its former condition as circumstances will permit and the Lease shall remain in full force and effect, except that, effective on the date of taking or conveyance, the Premises shall be reduced by the portion of the Premises, so taken or conveyed, and the Rent shall be proportionately reduced by the portion of the Premises taken or conveyed.  Damages awarded to Landlord for such taking or conveyance shall belong to Landlord, provided that Tenant may assert a claim solely for the unamortized cost of any leasehold improvements paid for by Tenant, Tenant’s personal property, fixtures and moving expenses.

(b)           If the Premises is taken or if neither Landlord nor Tenant have elected to terminate this Lease pursuant to the preceding statement, Landlord shall do such work as may be reasonably necessary to restore the portion of the Premises not taken to tenantable condition for Tenant’s uses provided however, if Landlord determines that the net award/damages available for restoration of the Premises, Building and/or Project will not be sufficient to pay the cost of restoration, or if the condemnation damage award is required to be applied on account of any mortgage which encumbers any part of the Premises, Building and/or Project, Landlord may terminate this Lease by giving Tenant thirty (30) days prior notice specifying the termination date which shall be the date title to the condemned real estate vests in the condemnor.

25

21.           ESTOPPEL CERTIFICATE

Each party agrees at any time and from time to time, within ten (10) days after the other party’s written request, to execute, acknowledge and deliver to the other party a written instrument in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that it is in full force and effect as modified and stating the modifications), and the dates to which Rent, Additional Rent, and other charges have been paid in advance, if any, and stating whether or not to the best knowledge of the party signing such certificate, the requesting party is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the signer may have knowledge.  It is intended that any such certification and statement delivered pursuant to this Article may be relied upon by any prospective purchaser of the Project or any mortgagee thereof or any assignee of Landlord’s interest in this Lease or of any mortgage upon the fee of the Premises or any part thereof.

22.           DEFAULT

(a)           If:

(i)            Tenant fails to pay any installment of Fixed Rent or any amount of Additional Rent when due; provided, however, Tenant shall have seven (7) days to cure such delinquency after receipt of written notice from Landlord.

(ii)           Tenant fails to observe or perform any of Tenant’s other non-monetary agreements or obligations herein contained within thirty (30) days after written notice specifying the default, or the expiration of such additional time period as is reasonably necessary to cure such default, provided Tenant immediately commences and thereafter proceeds with all due diligence and in good faith to cure such default,

(iii)          Tenant makes any assignment for the benefit of creditors,

(iv)          a petition is filed or any proceeding is commenced against Tenant or by Tenant under any federal or state bankruptcy or insolvency law and such petition or proceeding is not dismissed within ninety (90) days,

(v)           a receiver or other official is appointed for Tenant or for a substantial part of Tenant’s assets or for Tenant’s interests in this Lease,

(vi)          any attachment or execution against a substantial part of Tenant’s assets or of Tenant’s interests in this Lease remains unstayed or undismissed for a period of more than twenty (20) days, or

(vii)         a substantial part of Tenant’s assets or of Tenant’s interest in this Lease is taken by legal process in any action against Tenant, then, in any such event, an Event of Default shall be deemed to exist and Tenant shall be in default hereunder.

If an Event of Default shall occur, the following provisions shall apply and Landlord shall have, in addition to all other rights and remedies available at law or in equity, the rights and remedies

26

set forth therein, which rights and remedies may be exercised upon or at any time following the occurrence of an Event of Default unless, prior to such exercise, Landlord shall agree in writing with Tenant that the Event(s) of Default has been cured by Tenant in all respects.

(b)           Acceleration of Rent.  By notice to Tenant, Landlord shall have the right to accelerate all Fixed Rent and all expense installments due hereunder and otherwise payable in installments over the remainder of the Term, and, at Landlord’s option, any other Additional Rent to the extent that such Additional Rent can be determined and calculated to a fixed sum; and the amount of accelerated rent to the termination date, without further notice or demand for payment, shall be due and payable by Tenant within ten (10) days after Landlord has so notified Tenant, such amount collected from Tenant shall be discounted to present value using an interest rate of six percent (6%) per annum.  Additional Rent which has not been included, in whole or in part, in accelerated rent, shall be due and payable by Tenant during the remainder of the Term, in the amounts and at the times otherwise provided for in this Lease.

If Tenant pays the accelerated Rent as set forth in the prior paragraph, Tenant shall have the right to continued possession of the Premises or a right to a credit pursuant to Sections 22(c) and 22(d) below.

Notwithstanding the foregoing or the application of any rule of law based on election of remedies or otherwise, if Tenant fails to pay the accelerated rent in full when due, Landlord thereafter shall have the right by notice to Tenant, (i) to terminate Tenant’s further right to possession of the Premises and (ii) to terminate this Lease under subparagraph (b) below; and if Tenant shall have paid part but not all of the accelerated rent, the portion thereof attributable to the period equivalent to the part of the Term remaining after Landlord’s termination of possession or termination of this Lease shall be applied by Landlord against Tenant’s obligations owing to Landlord, as determined by the applicable provisions of subparagraphs (c) and (d) below.

(c)           Termination of Lease.  By notice to Tenant, Landlord shall have the right to terminate this Lease as of a date specified in the notice of termination, which termination date shall be at least forty-five (45) days from the date of Tenant’s receipt of such notice, and in such case, Tenant’s rights, including any based on any option to renew, to the possession and use of the Premises shall end absolutely as of the termination date; and this Lease shall also terminate in all respects except for the provisions hereof regarding Landlord’s damages and Tenant’s liabilities arising prior to, out of and following the Event of Default and the ensuing termination.

Following such termination and the notice of same provided above (as well as upon any other termination of this Lease by expiration of the Term or otherwise) Landlord immediately shall have the right to recover possession of the Premises; and to that end, Landlord may enter the Premises and take possession, without the necessity of giving Tenant any additional notice to quit or any other further notice, with legal process or proceedings, and in so doing Landlord may remove Tenant’s property (including any improvements or additions to the Premises which Tenant made, unless made with Landlord’s consent which expressly permitted Tenant to not remove the same upon expiration of the Term), as well as the property of others as

27

may be in the Premises, and make disposition thereof in such manner as Landlord may deem to be commercially reasonable and necessary under the circumstances.

(d)           Tenant’s Continuing Obligations/Landlord’s Reletting Rights.

(i)            Unless and until Landlord shall have terminated this Lease under subparagraph (b) above, Tenant shall remain fully liable and responsible to perform all of the covenants and to observe all the conditions of this Lease throughout the remainder of the Term to the early termination date; and, in addition, Tenant shall pay to Landlord, upon demand and as Additional Rent, the total sum of all costs, losses, damages and expenses, including reasonable attorneys’ fees, as Landlord incurs because of any Event of Default having occurred.

(ii)           If Landlord either terminates Tenant’s right to possession without terminating this Lease or terminates this Lease and Tenant’s leasehold estate as above provided, then, subject to the provisions below, Landlord shall have the unrestricted right to relet the Premises or any part(s) thereof to such tenant(s) on such provisions and for such period(s) as Landlord may deem appropriate.  Landlord agrees, however, to use reasonable efforts to mitigate its damages, provided that Landlord shall not be liable to Tenant for its inability to mitigate damages if it shall endeavor to relet the Premises in like manner as it offers other comparable vacant space or property available for leasing to others in the Project of which the Building is a part or another property owned by Landlord or its partners or affiliates within a two (2) mile radius of the Building.  If Landlord relets the Premises after such a default, the costs recovered from Tenant shall be reallocated (or refunded as the case may be) to take into consideration any additional rent which Landlord receives from the new tenant which is in excess to that which was owed by Tenant.

(e)           Landlord’s Damages.

(i)            The damages which Landlord shall be entitled to recover from Tenant shall be the sum of:

(A)          all Fixed Rent and Additional Rent accrued and unpaid as of the termination date; and

(B)           i) all costs and expenses incurred by Landlord in recovering possession of the Premises, including removal and storage of Tenant’s property, (ii) the costs and expenses of restoring the Premises to the condition in which the same were to have been surrendered by Tenant as of the expiration of the Term, and (iii) the costs of reletting commissions; and

(C)           all Fixed Rent and Additional Rent (to the extent that the amount(s) of Additional Rent has been then determined) otherwise payable by Tenant over the remainder of the Term as reduced to present value.

Less deducting from the total determined under subparagraphs (A), (B) and (C) all Rent and all other Additional Rent to the extent determinable as aforesaid, (to the extent that like charges would have been payable by Tenant) which Landlord receives from other tenant(s) by reason of the leasing of the Premises or part during or attributable to any period falling within the

28

otherwise remainder of the Term.  Landlord shall not be entitled to a windfall in the event Landlord collected accelerated rent and then is able to relet the Premises.

(ii)           The damage sums payable by Tenant under the preceding provisions of this paragraph (d) shall be payable on demand from time to time as the amounts are determined; and if from Landlord’s subsequent receipt of rent as aforesaid from reletting, there be any excess payment(s) by Tenant by reason of the crediting of such rent thereafter received, the excess payment(s) shall be promptly refunded by Landlord to Tenant, without interest.

(iii)          Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for the specific performance of any covenant or agreement contained herein, and for the enforcement of any other appropriate legal or equitable remedy, including, without limitation, injunctive relief, and for recovery of all moneys due or to become due from Tenant under any of the provisions of this Lease.

(f)            Landlord’s Right to Cure.  Without limiting the generality of the foregoing, if Tenant shall be in default in the performance of any of its obligations hereunder, Landlord, without being required to give Tenant any notice or opportunity to cure, may (but shall not be obligated to do so), in addition to any other rights it may have in law or in equity, cure such default on behalf of Tenant, and Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including reasonable attorneys’ fees and other legal expenses, together with interest at 10% per annum Rate from the dates of Landlord’s incurring of costs or expenses.

(g)           Landlord’s Statutory Rights.  Landlord shall have all rights and remedies now or hereafter existing at law with respect to the enforcement of Tenant’s obligations hereunder and the recovery of the Premises.  No right or remedy herein conferred upon or reserved to Landlord shall be exclusive of any other right or remedy, but shall be cumulative and in addition to all other rights and remedies given hereunder or now or hereafter existing at law.  Landlord shall be entitled to seek injunctive relief in case of the violation, or attempted or threatened violation, of any covenant, agreement, condition or provision of this Lease, or to seek a decree compelling performance of any covenant, agreement, condition or provision of this Lease.

(h)           Remedies Not Limited.  Nothing herein contained shall limit or prejudice the right of Landlord to exercise any or all rights and remedies available to Landlord by reason of default or to prove for and obtain in proceedings under any bankruptcy or insolvency laws, an amount equal to the maximum allowed by any law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damage referred to above.

(i)            No Waiver by Landlord.  No delay or forbearance by Landlord in exercising any right or remedy hereunder, or Landlord’s undertaking or performing any act or matter which is not expressly required to be undertaken by Landlord shall be construed, respectively, to be a waiver of Landlord’s rights or to represent any agreement by Landlord to undertake or perform such act or matter thereafter.  Waiver by Landlord of any breach by Tenant

29

of any covenant or condition herein contained (which waiver shall be effective only if so expressed in writing by Landlord) or failure by Landlord to exercise any right or remedy in respect of any such breach shall not constitute a waiver or relinquishment for the future of Landlord’s right to have any such covenant or condition duly performed or observed by Tenant, or of Landlord’s rights arising because of any subsequent breach of any such covenant or condition nor bar any right or remedy of Landlord in respect of such breach or any subsequent breach.  Landlord’s receipt and acceptance of any payment from Tenant which is tendered not in conformity with the provisions of this Lease or following an Event of Default (regardless of any endorsement or notation on any check or any statement in any letter accompanying any payment) shall not operate as an accord and satisfaction or a waiver of the right of Landlord to recover any payments then owing by Tenant which are not paid in full, or act as a bar to the termination of this Lease and the recovery of the Premises because of Tenant’s previous default.

(j)            No Waiver by Tenant.  No delay or forbearance by Tenant in exercising any right or remedy under the Lease, or Tenant’s undertaking or performing any act or matter which is not expressly required to be undertaken by Tenant shall be construed, respectively, to be a waiver of Tenant’s rights or to represent any agreement by Tenant to undertake or perform such act or matter thereafter.  Waiver by Tenant of any breach by Landlord of any covenant or condition herein contained (which waiver shall be effective only if so expressed in writing by Tenant) or failure by Tenant to exercise any right or remedy in respect of any such breach shall not constitute a waiver or relinquishment for the future of Tenant’s right to have any such covenant or condition duly performed or observed by Landlord, or of Tenant’s rights arising because of any subsequent breach of any such covenant or condition nor bar any right or remedy of Tenant in respect of such breach or any subsequent breach.

23.           LANDLORD’S LIEN.  Intentionally omitted.

24.           LANDLORD’S REPRESENTATIONS AND WARRANTIES

Landlord represents and warrants to Tenant that as of the date hereof: (a) Landlord is the fee owner of the Project free and clear of any mortgages and/or superior leases as of the date of execution of this Lease, and (b) Landlord has the authority to enter into this Lease and perform all of its obligations hereunder.

25.           SURRENDER

Tenant shall, at the expiration of the Term, promptly quit and surrender the Premises in good order and condition and in conformity with the applicable provisions of this Lease, excepting only reasonable wear and tear and damage by fire or other insured casualty.  Tenant shall have no right to hold over beyond the expiration of the Term and in the event Tenant shall fail to deliver possession of the Premises as herein provided, such occupancy shall not be construed to effect or constitute other than a tenancy at sufferance.  During the first ninety (90) days of occupancy beyond the expiration of the Term the amount of rent owed to Landlord by Tenant shall automatically become one hundred fifty percent (150%) the sum of the Rent as due on the last day of the scheduled Term.  Thereafter if Tenant fails to surrender the space Landlord may elect to automatically extend the Term for an additional month with a Rent of two hundred percent (200%) the sum of the Rent as due on the last day of the scheduled Term the

30

sum of the Rent as those sums are at that time calculated under the provisions of the Lease.  The acceptance of rent by Landlord or the failure or delay of Landlord in notifying or evicting Tenant following the expiration or sooner termination of the Term shall not create any tenancy rights in Tenant and any such payments by Tenant may be applied by Landlord against its costs and expenses, including attorney’s fees, incurred by Landlord as a result of such holdover.

26.           RULES AND REGULATIONS

Tenant agrees that at all times during the terms of this Lease (as same may be extended) it, its employees, agents, invitees and licenses shall comply with all rules and regulations specified on Exhibit “C” attached hereto and made a part hereof, together with all reasonable Rules and Regulations as Landlord may from time to time promulgate provided they do not increase the financial burdens of Tenant or unreasonably restrict Tenant’s rights under this Lease are applied in non-discriminatory manner to all tenants of the Building.  Landlord shall provide Tenant with appropriate prior written notice of any changes or additions to the Rules and Regulations and Tenant’s right to dispute the reasonableness of any changes in or additions to the Rules and Regulations shall be deemed waived unless asserted to Landlord within fifteen (15) business days after Landlord shall have given Tenant such written notice.  In case of any conflict or inconsistency between the provisions of this Lease and any Rules and Regulations, the provisions of this Lease shall control.  Landlord shall have no duty or obligation to enforce any Rule and Regulation, or any term, covenant or condition of any other lease, against any other tenant, and Landlord’s failure or refusal to enforce any Rule or Regulation or any term, covenant of condition of any other lease against any other tenant shall be without liability of Landlord to Tenant.  However, if Landlord does enforce Rules or Regulations, Landlord shall endeavor to enforce same equally in a non-discriminatory manner.

27.           GOVERNMENTAL REGULATIONS

(a)           Tenant shall, in the use and occupancy of the Premises and the conduct of Tenant’s business or profession therein, at all times comply with all applicable laws, ordinances, orders, notices, rules and regulations of the federal, state and municipal governments, or any of their departments.

(b)           Without limiting the generality of the foregoing, Tenant shall (i) obtain, at Tenant’s expense, before engaging in Tenant’s business or profession within the Premises, all necessary licenses and permits including (but not limited to) state and local business licenses or permits except Tenant’s certificate of occupancy, and (ii) remain in compliance with and keep in full force and effect at all times all licenses, consents and permits necessary for the lawful conduct of Tenant’s business or profession at the Premises.  Tenant shall pay all personal property taxes, income taxes and other taxes, assessments, duties, impositions and similar charges which are or may be assessed, levied or imposed upon Tenant.

(c)           Landlord shall be responsible for compliance with all present and future laws, orders, requirements, orders, directives, rules and regulations of federal, state, county and city governments and of all other governmental authorities having or claiming jurisdiction over the Project, including but not limited to, Title III of the Americans with Disabilities Act of 1990, 42 U.S.C. 12181 et seq. and its regulations, (collectively, the “ADA”)

31

(i) as to the design and construction of common areas (e.g., sidewalks, parking areas and bathrooms) and (ii) with respect to the initial design and construction by Landlord of Landlord’s Work (as defined in Article 4 hereof).  Except as set forth above in the initial sentence hereto, Tenant shall be responsible for compliance with the ADA in all other respects during the term hereof concerning the use and occupancy of the Premises, which compliance shall include, without limitation (i) provision for full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of the Premises as contemplated by and to the extent required by the ADA, (ii) compliance relating to requirements under the ADA for Tenant’s use of the Premises or amendments thereto arising after the date of this Lease with respect to Tenant’s use of the Premises, and (iii) compliance relating to the design, layout, renovation, redecorating, refurbishment, alteration, or improvement to the Premises made or requested by Tenant at any time following completion of the Landlord’s Work.

28.           NOTICES

Wherever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease to or on the other party, such notice or demand shall be deemed to have been duly given or served if in writing and either: (i) personally served; (ii) delivered by pre-paid nationally recognized overnight courier service (e.g., Federal Express) with evidence of receipt required for delivery; (iii) forwarded by Registered or Certified mail, return receipt requested, postage prepaid; (iv) facsimile with a copy mailed by first class United States mail or (v) e-mailed with evidence of receipt and delivery of a copy of the notice by first class mail; in all such cases addressed to the parties at the addresses set forth in Article 1(l) hereof.  Each such notice shall be deemed to have been given to or served upon the party to which addressed on the date the same is delivered.  Either party hereto may change its address to which said notice shall be delivered or mailed by giving written notice of such change to the other party hereto, as herein provided.

29.           BROKERS

Tenant represents and warrants to Landlord that Tenant has had no dealings, negotiations or consultations with respect to the Premises or this transaction with only the brokers or finders identified in Article 1(k).  Each party agrees to indemnify and hold the other harmless from and against all liability, cost and expense, including reasonable attorney’s fees and court costs, arising out of any misrepresentation or breach of warranty under this Article.  Landlord agrees to pay any commission due and owing to Broker in accordance with a separate commission agreement entered into between Landlord and Broker.

30.           CHANGE OF BUILDING/PROJECT NAME

Landlord reserves the right at any time and from time to time to change the name by which the Building and/or Project is designated, except to the name of a direct competitor of Tenant; provided Tenant’s signage remain on the Building.  Landlord agrees to pay for the reasonably documented costs of stationery charges (including letterhead and cards) necessitated by any such name change.

32

31.           LANDLORD’S LIABILITY

Landlord’s obligations hereunder shall be binding upon Landlord only for the period of time that Landlord is in ownership of the Building; and, upon termination of that ownership, Tenant, except as to any obligations arising during Landlord’s ownership of the Building, shall look solely to Landlord’s successor in interest in the Building for the satisfaction of each and every obligation of Landlord hereunder.  Landlord shall have no personal liability under any of the terms, conditions or covenants of this Lease and Tenant shall look solely to the equity of Landlord in the Building of which the Premises form a part, and to rents, issues and proceeds, including insurance proceeds therefrom, for the satisfaction of any claim, remedy or cause of action accruing to Tenant as a result of the breach of any section of this Lease by Landlord.  In addition to the foregoing, no recourse shall be had for an obligation of Landlord hereunder, or for any claim based thereon or otherwise in respect thereof, against any past, present or future trustee, member, partner, shareholder, officer, director, partner, agent or employee of Landlord, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such other liability being expressly waived and released by Tenant with respect to the above-named individuals and entities.

32.           AUTHORITY

Tenant represents and warrants that (a) Tenant is duly organized, validly existing and is legally authorized to do business in the State of New Jersey, and (b) the persons executing this Lease are duly authorized to execute and deliver this Lease on behalf of Tenant.

33.           NO OFFER

The submission of the Lease by Landlord to Tenant for examination does not constitute a reservation of or option for the Premises or of any other space within the Building or in other buildings owned or managed by Landlord or its affiliates.  This Lease shall become effective as a Lease only upon the execution and legal delivery thereof by both parties hereto

34.           RENEWAL

Provided Tenant is not in default of any obligations under this Lease, nor defaulted more than twice on any monetary obligation in excess of $100,000 in the aggregate and Tenant or its assignee or subtenant is occupying the Premises and the Lease is in full force and effect, Tenant shall have the right to renew this Lease for two (2) terms of five (5) years each beyond the end of the initial Term (each, a “Renewal Term”).  Tenant shall furnish written notice of intent to renew one (1) year prior to the expiration of the applicable Term, failing which, such renewal right shall be deemed waived; time being of the essence.  The terms and conditions of this Lease during each Renewal Term shall remain unchanged except that the annual Fixed Rent for each Renewal Term shall be 95% of the Fair Market Rent (as such term is hereinafter defined).  All factors regarding Additional Rent shall remain unchanged, except the Base Year shall be adjusted to reflect the year the Renewal Term commences.  Anything herein contained to the contrary not-withstanding, Tenant shall have no right to renew the term hereof other than or beyond the two (2) consecutive five (5) year terms hereinabove described.  It shall be a condition of each such Renewal Term that Landlord and Tenant shall have executed, not less than nine (9)

33

months prior to the expiration of the then expiring term hereof, an appropriate amendment to this Lease, in form and content satisfactory to each of them, which shall not contain a material change (other than the terms of the renewal), memorializing the extension of the term hereof for the next ensuing Renewal Term.

34

For purposes of this Lease, “Fair Market Rent” shall mean the base rent, for comparable space, inclusive of all free or reduced rent periods, work letters, cash allowances, fit-out periods and other tenant inducement concessions however denominated except as hereinafter provided.  In determining the Fair Market Rent, Landlord, Tenant and any appraiser shall take into account applicable measurement and the loss factors, applicable lengths of lease term, differences in size of the space demised, the location of the Building and comparable buildings, amenities in the Building and comparable buildings, the ages of the Building and comparable buildings, differences in base years or stop amounts for operating expenses and tax escalations and other factors normally taken into account in determining Fair Market Rent.  The Fair Market Rent shall reflect the level of improvement to be made by Landlord to the space and the Recognized Expenses and Taxes under this Lease.  If Landlord and Tenant cannot agree on the Fair Market Rent, the Fair Market Rent shall be established by the following procedure:  (1) Tenant and Landlord shall agree on a single MAT certified appraiser who shall have a minimum of ten (10) years experience in real estate leasing in the market in which the Premises is located and who has not conducted within the previous five (5) years and does not presently conduct and does not anticipate conducting business in the future with either Tenant or Landlord, (2) Landlord and Tenant shall each notify the other (but not the appraiser), of its determination of such Fair Market Rent and the reasons therefor, (3) during the next seven (7) days both Landlord and Tenant shall prepare a written critique of the other’s determination and shall deliver it to the other party, (4) on the tenth (10th) day following delivery of the critiques to each other, Landlord’s and Tenant’s determinations and critiques (as originally submitted to the other party, with no modifications whatsoever) shall be submitted to the appraiser, who shall decide whether Landlord’s or Tenant’s determination of Fair Market Rent is more correct.  The determinations so chosen shall be the Fair Market Rent.  The appraiser shall not be empowered to choose any number other than the Landlord’s or Tenant’s.  The fees of the appraiser shall be paid by the non-prevailing party.

35.           RIGHT OF EXPANSION.

Subject to (a) Tenant not being in default at the time of exercise nor Tenant ever being in default (irrespective of the fact that Tenant cured such default) of any monetary obligations under this Lease more than twice during the Term and such monetary defaults aggregate in excess of $100,000; (b) the rights of other tenants within the Building from time to time, and (c) such limitations as are imposed by other tenant leases, Landlord shall notify Tenant with regard to space that is or Landlord expects to become vacant and available for lease in the Building and Landlord shall propose to Tenant the basic economic terms upon which Landlord would be prepared to entertain the negotiation of a new lease for such space (on all of the same terms and conditions as are set forth in this Lease, except as otherwise specified by Landlord) or an amendment to this Lease with which the parties would add such space to the description of the “Premises,” in either case for a term which would be coterminous with this Lease unless otherwise specified by Landlord, and which economic terms shall include the estimated date that the space shall be available for delivery, the Base Rent and the tenant allowance (if any) to be furnished to Tenant, whereupon Tenant shall have thirty (30) days next following Landlord’s delivery of such notice within which to accept such terms, time being of the essence.  Should Tenant accept such terms as are specified by Landlord, the parties shall negotiate the terms of a

35

new lease, or an amendment to this Lease, to memorialize their agreement.  In the absence of any further agreement by the parties, such additional space shall be delivered, and Rent for such additional space shall commence on that date which is the earlier of: (x) Tenant’s occupancy thereof, and (y) five (5) days after Landlord delivers such additional space to Tenant free of other tenants and occupants.  If Tenant shall not accept Landlord’s terms within such thirty (30) day period, or if the parties shall not have executed and delivered a mutually satisfactory new lease or lease amendment within thirty (30) days next following Landlord’s original notice under this Article 35, then Tenant’s rights to lease such space shall lapse and terminate, and Landlord may, at its discretion, lease such space on such terms and conditions as Landlord shall determine.

Nothing contained in this Article 15 is intended nor may anything herein be relied upon by Tenant as a representation by Landlord as to the availability of expansion space within the Building at any time.

35.           ROOF RIGHTS

So long as it (i) does not impact Landlord’s roof warranty and (ii) complies with all applicable laws, rules and regulations, Tenant, at Tenant’s sole cost and expense, shall have access to the roof of the Building in designated areas mutually agreed upon for the purpose of installation of microwave satellite, antenna and other communications devices or supplemental HVAC units (the “Roof Equipment”).  Notwithstanding the foregoing, all such Roof Equipment shall be for the sole benefit of Tenant, shall relate specifically to Tenant’s use of the Premises, and shall net be used as a switching station, amplification station or by other tenants or third parties.  Tenant shall make a request for approval of the Roof Equipment hereunder by submission of specific plans and specifications for the work to be performed by Tenant.  Landlord shall respond in writing within five (5) business days from receipt of the same, advising Tenant of approved contractors and those portions of the work that are acceptable and disapproving those portions of the work that are, in Landlord’s judgment, reasonably exercised, unacceptable and with respect to the plans, specifying in detail the nature of Landlord’s objection.  Tenant shall be solely responsible for all damages caused by its Roof Equipment, for the removal of all Roof Equipment and the restoration of the roof upon the expiration or early termination of this Lease unless directed in writing by Landlord otherwise.  Landlord shall be named as an additional insured on all Tenant insurance relating to the Roof Equipment.  All installation, repair, replacement and modification of the Roof Equipment shall be coordinated with Landlord, shall only use those approved contractors and shall be in accordance with the Rules and Regulations set forth herein.

36.           RELOCATION.  Intentionally Omitted.

37.           MISCELLANEOUS PROVISIONS

(a)           Successors.  The respective rights and obligations provided in this Lease shall bind and inure to the benefit of the parties hereto, their successors and assigns; provided, however, that no rights shall inure to the benefit of any successors of Tenant unless Landlord’s written consent for the transfer to such successor and/or assignee has first been obtained or/as provided in Article 12 hereof.

36

(b)           Governing Law.  This Lease shall be construed, governed and enforced in accordance with the laws of the State of New Jersey, without regard to principles relating to conflicts of law.

(c)           Severability.  If any provisions of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions hereof shall in no way be affected or impaired and such remaining provisions shall remain in full force and effect.

(d)           Captions.  Marginal captions, titles or exhibits and riders and the table of contents in this Lease are for convenience and reference only, and are in no way to be construed as defining, limiting or modifying the scope or intent of the various provisions of this Lease.

(e)           Gender.  As used in this Lease, the word “person” shall mean and include, where appropriate, an individual, corporation, partnership or other entity; the plural shall be substituted for the singular, and the singular for the plural, where appropriate; and the words of any gender shall mean to include any other gender.

(f)            Entire Agreement.  This Lease, including the Exhibits and any Riders hereto (which are hereby incorporated by this reference, except that in the event of any conflict between the printed portions of this Lease and any Exhibits or Riders, the term of such Exhibits or Riders shall control), supersedes any prior discussions, proposals, negotiations and discussions between the parties and the Lease contains all the agreements, conditions, understandings, representations and warranties made between the parties hereto with respect to the subject matter hereof, and may not be modified orally or in any manner other than by an agreement in writing signed by both parties hereto or their respective successors in interest.  Without in any way limiting the generality of the foregoing, this Lease can only be extended pursuant to the terms hereof, and in Tenant’s case, with the terms hereof, and in Tenant’s case, with the due exercise of an option (if any) contained herein or a formal agreement signed by both Landlord and Tenant specifically extending the term.  No negotiations, correspondence by Landlord or offers to extend the term shall be deemed an extension of the termination date for any period whatsoever.

(g)           Counterparts.  This Lease may be executed in any number of counterparts, each of which when taken together shall be deemed to be one and the same instrument.

(h)           Telefax Signatures.  The parties acknowledge and agree that notwithstanding any law or presumption to the contrary a telefaxed signature of either party whether upon this Lease or any related document shall be deemed valid and binding and admissible by either party against the other as if same were an original ink signature.

(i)            Calculation of Time.  In computing any period of time prescribed or allowed by any provision of this Lease, the day of the act, event or default from which the designated period of time begins to run shall not be included.  The last day of the period so computed shall be included, unless it is a Saturday, Sunday or a legal holiday, in which event the period runs until the end of the next day which is not a Saturday, Sunday, or legal holiday. 

37

Unless otherwise provided herein, all Notices and other periods expire as of 5:00 p.m. (local time in Plymouth Meeting, Pennsylvania) on the last day of the Notice or other period.

(j)            No Merger.  There shall be no merger of this Lease or of the leasehold estate hereby created with the fee estate in the Premises or any part thereof by reason of the fact that the same person, firm, corporation, or other legal entity may acquire or hold, directly or indirectly, this Lease of the leasehold estate and the fee estate in the Premises or any interest in such fee estate, without the prior written consent of Landlord’s mortgagee.

(k)           Time of the Essence.  TIME IS OF THE ESSENCE IN ALL PROVISIONS OF THIS LEASE, INCLUDING ALL NOTICE PROVISIONS TO BE PERFORMED BY OR ON BEHALF OF TENANT AND LANDLORD.

(l)            Recordation of Lease.  Tenant shall not record this Lease without the written consent of Landlord.

(m)          Accord and Satisfaction.  No payment by Tenant or receipt by Landlord of a lesser amount than any payment of Fixed Rent or Additional Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Fixed Rent or Additional Rent due and payable hereunder, nor shall any endorsement or statement or any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction.  Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other right or remedy provided for in this Lease, at law or in equity.

(n)           No Partnership.  Landlord does not, in any way or for any purpose, become a partner of Tenant in the conduct of its business, or otherwise, or joint venturer or a member of a joint enterprise with Tenant.  This Lease establishes a relationship solely of that of a landlord and tenant.

(o)           No Presumption Against Drafter.  Landlord and Tenant understand, agree, and acknowledge that: (i) this Lease has been freely negotiated by both parties; and (ii) that, in the event of any controversy, dispute, or contest over the meaning, interpretation, validity, or enforceability of this Lease, or any of its terms or conditions, there shall be no inference, presumption, or conclusion drawn whatsoever against either party by virtue of that party having drafted this Lease or any portion thereof.

(p)           Force Majeure.  If by reason of strikes, wars or other labor disputes, fire or other casualty (or reasonable delays in adjustment of insurance), accidents, orders or regulations of any Federal, State, County or Municipal authority, or any other cause beyond Landlord’s reasonable control, Landlord is unable to furnish or is delayed in furnishing any utility or service required to be furnished by Landlord under the provisions of this Lease or is unable to perform or make or is delayed in performing or making any installations, decorations, repairs, alterations, additions or improvements, or is unable to fulfill or is delayed in fulfilling any of Landlord’s other obligations under this Lease (collectively, “Force Majeure”) and provided that Landlord shall notify Tenant within five (5) business days following the onset of a Force Majeure event), no such inability or delay shall constitute an actual or constructive

38

eviction, in whole or in part, or impose any liability upon Landlord or its agents, by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant’s business, or otherwise.  Notwithstanding the foregoing, if the Premises is without water, elevator service or electric or any other utility service for more than two (2) consecutive business days and due to the foregoing Tenant is unable to conduct all or a substantial portion of Tenant’s normal business operations therein, then the Rent shall equitably abate until such electric or other utility or elevator service is restored to the Premises, provided however, that in the event such interruption or delay of service of such utility is substantially due to an act or omission of Tenant or Tenant’s agents, employees, contractors or invitees or an overload of the Building’s capacity for such utility by any of such foregoing entities or persons, the foregoing abatement shall not apply.

38.           CONSENT TO JURISDICTION.  Tenant hereby consents to the exclusive jurisdiction of the state courts located in Burlington County and to the federal courts located in the District of New Jersey.

39.           WAIVER OF TRIAL BY JURY.  Landlord and Tenant waive the right to a trial by jury in any action or proceeding based upon, or related to, the subject matter of this lease.  This waiver is knowingly, intentionally, and voluntarily made by Tenant and Tenant acknowledges that neither Landlord nor any person acting on behalf of Landlord has made any representations of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect.  Tenant further acknowledges that it has been represented (or has had the opportunity to be represented) in the signing of this lease and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel.  Tenant further acknowledges that it has read and understands the meaning and ramifications of this waiver provision and as evidence of same has executed this lease.

40.           EXCLUSIVE USE.  Landlord covenants and agrees that during the Term of the Lease, Landlord shall not lease any premises in the Building to:

Total eMed-EDIX
Heartland Information Systems, Inc.
C-Bay Systems, Ltd.
Healthscribe, Inc.
Dictophone, Inc.
Precyse Solutions, Inc.
Disk Writer, Inc.
Transcend Services, Inc.

whose business is medical transcription services or medical document management services, digital dictation, electronic medical transcription, or reimbursement coding services for healthcare providers.  Tenant shall have a right to update the list of competitors to which Landlord may not lease space within the Building (but not increase the list), which updated list shall become effective thirty days following submission to Landlord.

39

IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the day and year first above written.

WITNESS:	LANDLORD: BRANDYWINE OPERATING PARTNERSHIP, L.P. By: Brandywine Realty Trust, its general partner
	By:	/s/ George D. Sowa
	George D. Sowa, Senior Vice President
ATTEST:	TENANT: MEDQUIST INC.
	By:	/s/ John M. Suender
	John M. Suender, Executive Vice President

40

EXHIBIT “A”

SPACE PLAN

A-1

EXHIBIT “B”

CONFIRMATION OF LEASE TERM

Tenant:  MedQuist, Inc.
Premises:  1000 Bishops Gate Boulevard
Mt. Laurel, New Jersey
Square Footage:          
Suite Numbers: 200 and 300

CONFIRMATION OF LEASE TERM

THIS MEMORANDUM is made as of the          day of              , 200  , between BRANDYWINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership, with an office at 401 Plymouth Road, Suite 500, Plymouth Meeting, PA 19462 (“Landlord”) and MEDQUIST, INC., with its principal place of business at                                                              (“Tenant”), who entered into a lease dated for reference purposes as of                 , 200  , covering certain premises located at 1000 Bishops Gate Boulevard, Mt.  Laurel, NJ.  All capitalized terms, if not defined herein, shall be defined as they are defined in the Lease.

1.             The Parties to this Memorandum hereby agree that the date of           , 200   is the “Commencement Date” of the Term, that the date              , 200   is the Rent Commencement Date and the date            is the expiration date of the Lease.

2.             Tenant hereby confirms the following:

(a)           That it has accepted possession of the Premises pursuant to the terms of the Lease;

(b)           That the improvements, including the Landlord Work and Tenant’s Work, required to be furnished according to the Lease by Landlord have been substantially completed;

(c)           That Landlord has fulfilled all of its duties of an inducement nature or are otherwise set forth in the Lease;

(d)           That there are no offsets or credits against rentals, and the $              Security Deposit has been paid as provided in the Lease;

(e)           That there is no default by Landlord or Tenant under the Lease and the Lease is in full force and effect.

3.             Landlord hereby confirms to Tenant that its Building Number is            and its Lease Number is              .  This information must accompany each Rent check or wire payment.

B-1

4.     Tenant’s Notice Address is:	Tenant’s Billing Address is:
Attn:	Attn:
Phone No.:	Phone No.:
Fax No.:	Fax No.:
E-mail:	E-mail:

4.             This Memorandum, each and all of the provisions hereof, shall inure to the benefit, or bind, as the case may require, the parties hereto, and their respective successors and assigns, subject to the restrictions upon assignment and subletting contained in the Lease.

WITNESS:	LANDLORD: BRANDYWINE OPERATING PARTNERSHIP, L.P.
	By:          Brandywine Realty Trust, its general partner
	By:
WITNESS:	TENANT: MEDQUIST INC.
	By:

B-2

EXHIBIT “C”

BUILDING RULES AND REGULATIONS
LAST REVISION: MARCH 14,2002

Landlord reserves the right to rescind any of these rules and make such other and further rules and regulations as in the judgment of Landlord shall from time to time be needed for the safety, protection, care and cleanliness of the Project, the operations thereof, the preservation of good order therein and the protection and comfort of its tenants, their agents, employees and invitees, which rules when made and notice thereof given to Tenant shall be binding upon him, her or it in a like manner as if originally prescribed.  Wherever Landlord’s consent is required, Landlord shall not unreasonably withhold such consent.

1.             Sidewalks, entrances, passages, elevators, vestibules, stairways, corridors, halls, lobby and any other part of the Building shall not be obstructed or encumbered by any Tenant or used for any purpose other than ingress or egress to and from each tenant’s premises.  Landlord shall have the right to control and operate the common portions of the Building and exterior facilities furnished for common use of the tenants (such as the eating, smoking, and parking areas) in such a manner as Landlord deems appropriate.

2.             No awnings or other projections shall be attached to the outside walls of the Building without the prior written consent of Landlord.  All drapes, or window blinds, must be of a quality, type and design, color and attached in a manner approved by Landlord.

3.             No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Building, or placed in hallways or vestibules without prior written consent of Landlord.

4.             Rest rooms and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed and no debris, rubbish, rags or other substances shall be thrown therein.  Only standard toilet tissue may be flushed in commodes.  All damage resulting from any misuse of these fixtures shall be the responsibility of the tenant who, or whose employees, agents, visitors, clients, or licensees shall have caused same.

5.             No tenant, without the prior consent of Landlord, shall mark, paint, drill into, bore, cut or string wires or in any way deface any part of the Premises or the Building of which they form a part except for the reasonable hanging of decorative or instructional materials on the walls of the Premises, without prior written consent of Landlord.

6.             Tenants shall not construct or maintain, use or operate in any part of the project any electrical device, wiring or other apparatus in connection with a loud speaker system or other sound/communication system which may be heard outside the Premises.  Any such communication system to be installed within the Premises shall require prior written approval of Landlord.

7.             No mopeds, skateboards, scooters or other vehicles and no animals, birds or other pets of any kind shall be brought into or kept in or about the Building.

C-1

8.             No tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from its premises.

9.             No space in the Building shall be used for the manufacture of goods for sale in the ordinary course of business, or for sale at auction of merchandise, goods or property of any kind.

10.           No tenant, or employees of tenant, shall make any unseemly or disturbing noises or disturb or interfere with the occupants of this or neighboring buildings or residences by voice, musical instrument, radio, talking machines, whistling, singing, or in any way.  All passage through the Building’s hallways, elevators, and main lobby shall be conducted in a quiet, business-like manner.  Rollerblading and Rollerskating shall not be permitted in the Building or in the common areas of the Project.

11.           No tenant shall throw anything out of the doors, windows, or down corridors or stairs of the Building.

12.           Tenant shall not place, install or operate on the Premises or in any part of the Project, any engine, stove or machinery or conduct mechanical operations or cook thereon or therein (except for coffee machine, microwave oven, toasters and/or vending machine), or place or use in or about the Premises or Project any explosives, gasoline, kerosene oil, acids, caustics or any other flammable, explosive, or hazardous material without prior written consent of Landlord.

13.           No smoking is permitted in the Building, including but not limited to the Premises, rest rooms, hallways, elevators, stairs, lobby, exit and entrances vestibules, sidewalks, parking lot area except for the designated exterior smoking area.  All cigarette ashes and butts are to be deposited in the containers provided for same, and not disposed of on sidewalks, parking lot areas, or toilets within the Building rest rooms.

14.           Tenants are not to install any additional locks or bolts of any kind upon any door or window of the Building without prior written consent of Landlord.  Each tenant must, upon the termination of tenancy, return to the Landlord all keys for the Premises, either furnished to or otherwise procured by such tenant, and all security access cards to the Building.

15.           All doors to hallways and corridors shall be kept closed during business hours except as they may be used for ingress or egress.

16.           Tenant shall not use the name of the Building, Landlord or Landlord’s Agent in any way in connection with his business except as the address thereof.  Landlord shall also have the right to prohibit any advertising by tenant, which, in its sole opinion, tends to impair the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, tenant shall refrain from or discontinue such advertising.

17.           Tenants must be responsible for all Security Access cards issued to them, and to secure the return of same from any employee terminating employment with them.  Landlord shall issue Tenant 120 access cards.  Each additional card above the 120 provided at not cost and lost cards shall cost $35.00 per card to replace.  No person/company other than

C-2

Building tenants and/or their employees may have Security Access cards unless Landlord grants prior written approval.

18.           All deliveries by vendors, couriers, clients, employees or visitors to the Building which involve the use of a hand cart, hand truck, or other heavy equipment or device must be made via the Freight Elevator.  Tenant shall be responsible to Landlord for any loss or damage resulting from any deliveries made by or for tenant to the Building.  Tenant shall procure and deliver a certificate of insurance from tenant’s movers which certificate shall name Landlord as an additional insured.

19.           Landlord reserves the right to inspect all freight to be brought into the Building, and to exclude from the Building all freight or other material which violates any of these rules and regulations.

20.           Tenant will refer all contractors, contractor’s representatives and installation technicians, rendering any service on or to the premises for tenant, to Landlord for Landlord’s approval and supervision before performance of any contractual service or access to Building.  This provision shall apply to all work performed in the Building including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.  Landlord reserves right to require that all agents of contractors/vendors sign in and out of the Building.

21.           Landlord reserves the right to exclude from the Building at all times any person who is not known or does not properly identify himself to Landlord’s management or security personnel.

22.           Landlord may require, at its sole option, all persons entering the Building after 6 PM or before 7 AM, Monday through Friday and at any time on Holidays, Saturdays and Sundays, to register at the time they enter and at the time they leave the Building.

23.           No space within the Building, or in the common areas such as the parking lot, may be used at any time for the purpose of lodging, sleeping, or for any immoral or illegal purposes.

24.           No employees or invitees of tenant shall use the hallways, stairs, lobby, or other common areas of the Building as lounging areas during “breaks” or during lunch periods.

25.           No canvassing, soliciting or peddling is permitted in the Building or its common areas by tenants, their employees, or other persons.

26.           No mats, trash, or other objects shall be placed in the public corridors, hallways, stairs, or other common areas of the Building.

27.           Tenant must place all recyclable items of cans, bottles, plastic and office recyclable paper in appropriate containers provided by Landlord in each tenant’s space.  Removal of these recyclable items will be by Landlord’s janitorial personnel.

C-3

28.           Landlord does not maintain suite finishes which are non-standard, such as kitchens, bathrooms, wallpaper, special lights, etc.  However, should the need arise for repair of items not maintained by Landlord, Landlord at its sole option, may arrange for the work to be done at tenant’s expense.

29.           Drapes and/or blinds installed by tenant, which are visible from the exterior of the Building, must be cleaned by Tenant, at its own expense, at least once a year.

30.           No pictures, signage, advertising, decals, banners, etc. are permitted to be placed in or on windows in such a manner as they are visible from the exterior, without the prior written consent of Landlord.

31.           Tenant or tenant’s employees are prohibited at any time from eating or drinking in hallways, elevators, rest rooms, lobby or lobby vestibules.

32.           Tenant shall be responsible to Landlord for any acts of vandalism performed in the Building by its employees, agents, invitees or visitors.

33.           No tenant shall permit the visit to its Premises of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, hallways, elevators, lobby or other public portions or facilities of the Building and exterior common areas by other tenants.

34.           Landlord’s employees shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.  Requests for such requirements must be submitted in writing to Landlord.

35.           Tenant agrees that neither tenant nor its agents, employees, licensees or invitees will interfere in any manner with the installation and/or maintenance of the heating, air conditioning and ventilation facilities and equipment.

36.           Landlord will not be responsible for lost or stolen personal property, equipment, money or jewelry from tenant’s area or common areas of the Project regardless of whether such loss occurs when area is locked against entry or not.

37.           Landlord will not permit entrance to tenant’s Premises by use of pass key controlled by Landlord, to any person at any time without written permission of tenant, except employees, contractors or service personnel supervised or employed by Landlord.

38.           Tenant and its agents, employees and invitees shall observe and comply with the driving and parking signs and markers on the Building grounds and surrounding areas.

39.           Tenant and its employees, invitees, agents, etc. shall not enter other separate tenants’ hallways, restrooms or premises unless they have received prior approval from Landlord’s management or such tenant.

40.           Tenant shall not use or permit the use of any portion of the Premises for outdoor storage.

C-4

EXHIBIT “D”

CLEANING SPECIFICATIONS

DAILY:  BUILDING AND TENANT AREAS

1.All desks and other furniture will be dusted with specially treated dust clothes.

2.All windowsills, chair rails, baseboards, moldings, partitions and picture frames that are less than six feet in height will be hand dusted and wiped clean.

3.All non-carpeted floors will be dust mopped with specially treated dust mops.

4.All bright metal work will be maintained and kept in a clean and polished condition.

5.All drinking fountains will be thoroughly cleaned and sanitized.

6.All stairways will be swept and wet mopped.  Stairways shall be policed daily to remove all debris.  Walls, handrails and fixtures are to be spot cleaned and dusted.  Lights, pipes and signage are to be dusted as necessary.

7.All elevators will be vacuumed and the interior of all cabs will be wiped clean and all metal hardware will be polished.  This includes damp wipe, dust and/or thoroughly cleaning all exterior doors, cab walls, doorframes, indicator panels, tracts, plates and grooves.

8.Empty, clean -and dust all wastepaper baskets, ashtrays, receptacles, etc.  After emptying waste baskets, reline with an approved liner as needed.

9.Remove all trash and wastepaper to areas designated by management.

10.Vacuum all carpeted areas.  This shall include all walk-off mats.  In addition, the carpets are to be spot cleaned when necessary.

11.All tile floors will maintain a satin finish.  Hard surface floor areas shall be maintained in a manner which consistently presents the appearance desired without visible evidence of traffic patterns.  Particular attention shall be paid to edges to ensure a proper and dust free appearance.  Any damage to hard surface floors resulting from improper care shall be the full responsibility of contractor.  Contractor shall provide the details of a program to maintain tile floors to insure consistent luster and remove all marks.

D-1

12.All glass surfaces, windows, doors and directory boards shall be spot-cleaned, using an approved glass cleaner, and all glass shall be left in a bright condition which is free of streaks and dust.

13.Wipe and clean all counters, tables, chairs and appliances in kitchen areas.

14.Clean all glass at the building and tenant entrances.

15.Spot clean all horizontal and vertical surfaces removing fingerprints, smudges and stains.

LAVATORIES:

1.Floors are to be swept and washed using an approved antiseptic liquid detergent.  Floors are to be machine scrubbed as needed but not less frequently than every quarter.

2.Refill all dispensers, empty trash, clean and sanitize all restroom fixtures.  Wipe all counters, clean mirrors, wipe chrome and spot wipe partitions and ceramic tile walls.

3.Weekly wash all restroom partitions on both sides.

4.Remove all wastepaper and refuse.

5.No less frequently than quarterly, wash all ceramic tile walls.

WEEKLY

1.Remove fingerprints, smudges and scuff marks from all vertical and horizontal surfaces such as doors, walls and sills.

2.Wash and refinish resilient floors in public areas.  Strip, wax and polish the floors as needed.

3.Polish and buff all no wax resilient floors in tenant areas.

4.Dust and damp wipe all louvers and ceiling grills.

5.Spot clean all interior partition glass windows and clean all interior glass entrance doors.

QUARTERLY

1.Dust and clean all vertical surfaces such as walls, partitions, doors, etc.  That are not cleaned during the nightly cleaning process.

2.Dust and wipe clean all blinds.

D-2

3.Dust the inside of elevator telephone cabinets.

4.Shampoo all elevator carpets.

D-3

EXHIBIT “E”

LANDLORD WORK LETTER

A.            Landlord’s Work.  Landlord shall cause the Building to be constructed in substantial accordance with the plans listed on Exhibit 1 hereto, as amended by changes to such plans as required by Landlord (“Landlord’s Plans”).

Tenant will be required to cause its architect to coordinate Tenant’s interior design documentation with Landlord’s Work (as hereinafter defined).

Landlord shall have the right, from time to time, to make changes to Landlord’s Plans; provided however, in the instance of any material revision or supplement to Landlord’s Plans which would require a material change in or result in a material increase in the cost of Tenant Work (as hereinafter defined), then such revisions and supplements shall be submitted to Tenant for approval, which approval shall not be unreasonably withheld, delayed or conditioned unless it causes an increase in Tenant’s costs.  Tenant’s failure to approve such changes or to disapprove such changes with specific comment within five (5) business days next following notice thereof from Landlord shall for all purposes constitute Tenant’s deemed approval of the revision or supplement to be implemented by Landlord.  Landlord shall further share all revised plans with Tenant’s architect.

Landlord shall provide drywall on the “tenant space side” of core walls, around columns (column covers) and all exterior building walls from the floor to the base of all windows.  Window coverings, as depicted in the Landlord Plans or as otherwise selected by Landlord and approved by Tenant within (5) business days next following Landlord’s request therefor (Tenant’s failure to approve or to disapprove with specific comments, within such time frame, shall for all purposes constitute Tenant’s deemed approval of Landlord’s selection), will be provided by Landlord at each perimeter window at Tenant’s cost.

The work called for by Landlord’s Plans (“Landlord’s Work”) shall be deemed “substantially complete” when (i) the Building’s ground floor lobby, and public areas on the ground floor, including all exterior walkways, driveways, accesses and parking areas necessary for the Tenant’s occupancy, have been substantially completed as required by applicable code, (ii) to the extent required to serve the Premises and the public areas necessary for Tenant’s use and enjoyment of the Premises, the heating, ventilating and air conditioning, elevator and utility systems, including telephone trunk lines into the Building (but not including installation of telephones, computers, or security systems for the Premises), are installed and operating, (iii) the Building is weather tight and roofing installed, (iv) Landlord shall have obtained at least a temporary certificate of occupancy for the Building and the Premises, and (v) Landlord’s architect shall have issued a certificate of substantial completion for Landlord’s Work.

B.            Tenant Work.  On or before July 15, 2003 Tenant shall cause to be prepared and sealed by an architect licensed in the State of New Jersey, and shall submit to Landlord for its approval, all plans and specifications required for the leasehold improvements to be constructed within the Premises (“Tenant Plans”) which Tenant Plans shall be in substantial conformity in all respects with the plans and specifications previously provided to Landlord and

E-1

priced by Landlord for the Tenant Work..  Tenant shall reasonably endeavor to use Landlord’s professionals to prepare the Tenant Plans.  Any delay by Tenant in delivering the Tenant Plans as and when required hereunder shall constitute a Tenant Delay, unless caused in any manner by Landlord or its agents, professional or contractors.  Tenant Plans shall be sufficient so long as Tenant Plans (a) are complete, finished and include detailed architectural, electrical, plumbing, fire protection, HVAC and engineering drawings including all necessary dimensions and specifications and all finish schedules; (b) are practicable and consistent with Landlord’s Plans, subject to standard construction industry tolerances and subject to reasonable as-built field conditions not specified on Landlord’s Plans, (c) involve construction within the Premises only and do not adversely affect or compromise any portion of the Building, and (d) do not require any special materials or design or changes in or of the Building which is not then already set forth in Landlord’s Plans or in Landlord’s judgment cannot be accommodated without additional expense or delay.  To the extent Tenant uses Landlord’s Architect to prepare such plans, Tenants Plans shall be deemed to comply hereunder.  Tenant’s submission of Tenant Plans to Landlord shall be deemed approval thereof by Tenant.  Such submission shall contain one complete electronic media (CAD) copy (said CAD copy to contain Premises plans only), four blue-line or black-line prints and one reproducible copy of each page.  Tenant shall be solely responsible for the completeness and compliance of Tenant Plans with all applicable laws, codes and regulations, including without implied limitation, ADA, and all state and municipal permitting requirements.  Landlord shall review Tenant Plans and respond to Tenant within thirty (30) days after submission, and should Landlord elect to have Tenant Plans reviewed by Landlord’s architects and engineers if Tenant’s Plans were not prepared by Landlord’s professionals.  Tenant shall bear the reasonable expense of such review.  Unless Tenant’s Plans are prepared by Landlord’s professionals, review and approval of Tenant Plans by Landlord (and its professionals, as aforesaid) shall in no instance be deemed or constitute a representation, warranty or confirmation by Landlord or by its professionals of any kind regarding the completeness of Tenant Plans or conformance therewith with applicable laws, codes or regulations, or permitting requirements, or with the requirements of Landlord’s Plans, or the adequacy of Tenant’s specifications or design, but rather Landlord’s review (and review by Landlord’s professionals) is for the protection of Landlord only; provided, however, that Landlord shall use reasonable efforts to advise Tenant if such review indicates that Tenant Plans violate or fail to satisfy any requirements of Landlord’s Work.  If Tenant Plans are not sufficient, as above set forth, Landlord shall notify Tenant of the insufficiency and Tenant shall cause such insufficiency to be remedied and the remedy shall be incorporated into Tenant Plans by Tenant at Tenant’s expense and resubmitted to Landlord, and the time involved in Tenant’s revision and resubmission of Tenant Plans shall constitute a Tenant Delay, unless Tenant’s Plans are prepared by Landlord’s professionals; it being further understood that the foregoing shall not diminish the effect of any intervening Change Order Delay.  If Landlord determines that Tenant Plans are still not sufficient after Landlord’s review and Tenant’s resubmission, then the approval process described above will be repeated; provided, however, that Landlord agrees to review Tenant’s resubmission(s) as promptly as is reasonably practicable.  Tenant shall make no changes to Tenant Plans after Landlord’s approval thereof without the prior written consent of Landlord, which approval shall not be unreasonably withheld, delayed or conditioned, and which changes shall be requested and implemented, if at all, only in accordance with the procedures set forth below.  Any delay in substantial completion of the construction set forth on Tenant Plans (“Tenant Work”) or in Landlord’s Work resulting from such changes or from an election by

E-2

Tenant to incorporate special materials or designs in Tenant Plans shall be deemed to be a Tenant Delay and shall have the consequences herein set forth.  Landlord shall notify Tenant as quickly as reasonably practicable after receipt of any changes to Tenant Plans if Landlord anticipates that the proposed changes will delay substantial completion of construction.

C.            Construction of Tenant Work.

Landlord has delivered to Tenant a cost proposal for the construction of Tenant Work from Landlord’s Contractor based on plans submitted to Landlord by Tenant.

Landlord shall contract with Landlord’s Contractor for the construction of the Tenant Work in accordance with the Tenant Cost Proposal, and Landlord will administer such construction, without additional charge by Landlord for Landlord’s administration services, other than Landlord’s out of pocket fees, costs and expenses, which costs and expenses shall be identified in advance by Landlord.  Landlord shall endeavor to cause Landlord’s Contractor to reasonably consult with Tenant in the selection by Landlord’s Contractor of subcontractors for Tenant Work; provided, however, that Landlord’s Contractor shall at all times retain the right to make the final selection of which subcontractors shall be engaged for the Tenant Work project.

If Tenant deems any changes, additions or alterations in the Tenant Plans necessary or desirable, Tenant shall submit such proposed changes, additions or alterations to Landlord in writing.  As promptly as is reasonably practicable upon receipt of such proposed changes, additions or alterations, Landlord shall provide Tenant with the following: (i) the estimated cost to Tenant, if any, of the proposed changes, additions or alterations, and (ii) an estimate of the delay, if any, in the estimated Substantial Completion Date which will result from the installation of the proposed changes, additions or alterations.  If Landlord reasonably anticipates any delay in the prosecution of either or both Landlord’s Work and Tenant Work during such time as Landlord is evaluating Tenant’s proposed changes, additions or alterations, or as a result of Landlord’s evaluation thereof, Landlord shall advise Tenant of the same, and unless Tenant shall immediately instruct Landlord to disregard Tenant’s request, then any such period of delay encountered in Landlord’s review of Tenant’s requested changes, additions or alterations shall (the remaining provisions of this Work Letter notwithstanding), constitute a Tenant Delay (as further defined herein), regardless of whether Tenant and Landlord shall subsequently execute a written change order implementing such changes, additions and alterations.

Within two (2) business days next following Landlord’s request therefor after Tenant shall have submitted to Landlord its request to make such proposed changes, additions and alterations, Tenant shall provide to Landlord such further information as may be requested by Landlord in its evaluation of Tenant’s request, and within two (2) business days after receipt from Landlord of Landlord’s estimate of cost and estimate of delay (as provided at clauses (i) and (ii) in the preceding paragraph), Tenant shall notify Landlord in writing which, if any, of the proposed changes Landlord is authorized to make, and any delay by Tenant in delivering such notice and executing a written change order (to the extent Tenant determines to make such changes) within such period shall constitute a Tenant Delay.  Landlord shall not effect any such changes in the absence of a change order signed by Landlord and by Tenant confirming the foregoing cost and delay information.  In the event Tenant shall fail to provide to Landlord any

E-3

additional information requested by Landlord in its evaluation of any proposed changes, additions or alterations within the aforesaid two (2) business days, then the time interval between the end of such two (2) days and the day on which Landlord actually receives such information shall be deemed to be a further Tenant Delay.

Anything herein contained to the contrary notwithstanding, the parties acknowledge and agree that the process of reviewing change order requests is time consuming and costly, regardless of whether the changes contemplated are ultimately implemented.  Landlord discourages Tenant from the practice of requesting that Landlord consider immaterial or “frivolous” changes or that Landlord price out and estimate the possible delay associated with a broad range of possible changes, alterations and additions, and in each such instance Tenant is strongly encouraged to narrow the scope of its proposal to a finite number of “alternatives” acceptable to Tenant and therefore the time and expense associated with Landlord’s review of the same.  Tenant is advised that excessive use of the change order process will invariably result in additional Tenant Delays.

Tenant Delays arising under Section C of this Work letter in regard to proposed changes, additions or alterations in Tenant Work are sometimes herein or in the Lease referred to as “Change Order Delays.”

D.            Job Meetings.  Representatives of Tenant and Tenant’s architect shall be permitted to attend all job meetings during the course of construction of Landlord’s Work and, if so elected by Tenant as hereinabove provided, the Tenant’s Work.  Tenant’s initial construction representative will be Frank Lucas of Charles Matsinger Associates, Telephone: 215-925-9257, Facsimile:                                   ; e-mail: fvl@matsinger.com.

E.             Possession and Commencement Date.  Landlord shall endeavor to have the Landlord’s Work and, if timely elected by Tenant as hereinabove provided, the Tenant Work substantially completed by April 1, 2004 (“Targeted Date”) provided, however, that the Targeted Date shall, in addition to extension for Tenant Delay and Change Order Delay, also be extended for the additional time equal to the aggregate time lost by Landlord due to strikes or other labor disputes not caused by Landlord, intervening governmental restrictions, delay in obtaining governmental permits and approvals, scarcity of labor or materials, war or other emergency, accidents, floods, fire or other casualties, atypical adverse weather conditions, or any cause which is beyond the reasonable control of Landlord (or in the case of a Tenant delay, Tenant) (“Force Majeure Delay”).  The Targeted Date notwithstanding, in no event shall any Tenant Delay or any Change Order Delay in any manner delay or postpone any obligation of Tenant to pay Fixed Rent or Additional Rent as and when such obligation shall have otherwise accrued under the Lease.

Landlord Work and Tenant Work shall be deemed substantially complete (and the “Commencement Date,” as such term is used in the Lease shall be deemed to have occurred) on the date on which the Premises are (or would have been, but for any Tenant Delay or Change Order Delay) ready for occupancy in accordance with Tenant Plans, and any remaining minor punch list work can reasonably be expected to be completed by Landlord’s Contractor within such additional period of time thereafter as shall be reasonable under the circumstances, provided Landlord’s contractor shall have undertaken such remaining work and shall be diligently

E-4

prosecuting the same to completion, in any case without materially adversely affecting Tenant’s ability to occupy and utilize substantially all the Tenant’s Premises for the Permitted Use, and provided, further that Landlord has obtained at least a temporary certificate of occupancy permitting Tenant to occupy Tenant’s Premises and Tenant’s architect has issued a certificate of substantial completion.  Any remaining work shall be fully described by Tenant’s architect on a punch list to be certified to Landlord, Tenant and Landlord’s contractor and shall indicate all remaining work, except for such items as could not be reasonably identified by the parties (latent items) at such time and, except as hereinafter provided, shall be the sole document controlling such remaining work.  Tenant’s acceptance of the punch list shall be Tenant’s acknowledgment that the Tenant’s Premises are substantially complete except for such items as could not be reasonably identified by the parties (latent items) at such time.  Anything herein or in the Lease contained to the contrary notwithstanding, if Tenant’s architect withholds either or both the aforesaid certificate of substantial completion and certified punch list, or withholds any other certifications required hereunder or under the Lease, and if in Landlord’s reasonable opinion there is no reasonable basis for such withholding, Landlord may have the certification(s) made by its own architect; in which event, Landlord’s architect’s certification shall be conclusive evidence of the date of substantial completion of Landlord’s Work and Tenant Work, and the contents of the punch list, if any.

F.             Tenant Delay.  Notwithstanding any provision herein or in the Lease to the contrary, the Landlord Delivery Date for Landlord’s Work and the Commencement Date shall in no event be delayed or extended by any “Tenant Delay” or Change Order Delay, and each such date (as applicable) shall be deemed to have occurred on the day that each such date (as applicable) would have occurred but for any intervening Tenant Delay or Change Order Delay.  Without limitation of the facts or circumstances also agreed by the parties herein or in the Lease to constitute “Tenant Delay,” “Tenant Delay” shall also mean and include but not be limited to delays resulting from changes, revisions or supplements to the scope of Landlord’s Work or Tenant Work requested by Tenant; Tenant’s failure to provide information, materials, documents, plans or specifications, or to furnish Tenant’s cooperation as required by Landlord in connection with Landlord’s Work or Tenant Work within the required time periods, including Tenant’s initial submission of Tenant Plans; delays in the preparation, finalization or approval of the Tenant Plans caused by Tenant or its architect, contractors, authorized representative, agents or employees; delays caused by modifications, revisions or changes to Tenant Plans caused or required by Tenant or its architect, contractors, authorized representative, agents or employees, or by any state or municipal authority (including, without limitation, modifications, revisions or changes required to Tenant Plans or Landlord’s Plans upon presentation of Tenant Plans (or revisions thereto) for permitting; delays in the delivery or installation of any special, long-lead or non-standard items specified by Tenant; or delays caused by delivery, installation or completion of any Tenant finish work performed by Tenant’s contractors; or any other delay caused by Tenant or its architect, contractors, representatives, agents or employees.  Notwithstanding anything in this Section G to the contrary, with regard to those Tenant Delays which, pursuant to the express provisions of this Work Letter, shall not be assessed or be deemed to have occurred in the absence of Landlord’s notice, Landlord agrees to furnish such notice as soon as reasonably practicable after Landlord shall have actual knowledge of the facts or circumstances giving rise thereto; the parties agreeing that such notice may be delivered telephonically or by facsimile transmission to Tenant’s representative.  In the event any Tenant Delay or Change Order Delay shall occur, substantial completion of the Landlord’s Work and Tenant Work shall be deemed to

E-5

have occurred on the date on which substantial completion thereof would have occurred, but for the Tenant Delays and Change Order Delays.

E-6

EX-10.31

Exhibit 10.31

FIRST AMENDMENT TO LEASE

This First Amendment to Lease made and entered into this 26th day of August, 2003, by and between BRANDYWINE OPERATING PARTNERSHIP, L.P., hereinafter referred to as “Landlord” and MEDQUIST INC., a New Jersey corporation, hereinafter referred to as “Tenant”.

WHEREAS, Landlord leased certain premises consisting of approximately 28,673 rentable square feet of space located at the Building to be built at 1000 Bishops Gate Boulevard, Mt. Laurel, New Jersey 08054 (“Building”), to Tenant pursuant to that certain Lease dated June 17, 2003, hereinafter referred to as “Lease,” the Premises being more particularly described therein; and

WHEREAS, Landlord and Tenant wish to amend the Lease as follows.

NOW, THEREFORE, in consideration of these present and the agreement of each other, and intending to be legally bound hereby, Landlord and Tenant agree that the Lease shall be and the same is hereby amended as follows:

1.             Incorporation of Recitals.  The recitals set forth above and the Lease referred to therein are hereby incorporated herein by reference as if set forth in full in the body of this Amendment.  Capitalized terms not otherwise defined herein shall have the meanings given to them in the Lease.

2.             Premises.  The parties acknowledge and agree that Tenant has not yet finalized its space plan for the Premises.  That certain letter agreement between the parties dated June 16, 2003 is hereby null and void and of no further force or effect.  Tenant shall have until September 15, 2003 to provide final plans of Tenant’s Premises and authorize the drawing of construction documents.  If Tenant does not satisfy this obligation by September 15, 2003, then Landlord’s obligation to pay the holdover portion of the 5 Greentree Premises rent is deferred one day for each day after September 15, 2003 such final plans and authorization are not provided.  Tenant has advised Landlord that it anticipates the Premises will be 29,973 rentable square feet.  On or before sixty (60) days of the Commencement Date, Landlord’s architect shall utilize the 1996 BOMA standard to determine Tenant’s rentable square footage of the Premises, the Building, the Fixed Rent and Tenant’s Allocated Share.

3.             Term.  The Lease Term is hereby extended for three (3) additional years so that the aggregate Term is 120 months from the Commencement Date (“Term”).

4.             Fixed Rent.  Tenant shall pay to Landlord Fixed Rent as follows:

TIME PERIOD	PER RSF			MONTHLY INSTALLMENT		ANNUAL FIXED RENT
Months 1-60	$	20.30	*	$	50,704.33	$	608,451.90
Months 61-84	$	21.30	*	$	53,202.08	$	638,424.90
Months 85-120	$	22.00	*	$	54,950.50	$	659,406.00

* plus amounts pursuant to Articles 6 and 7 of the Lease.

5.             Tenant’s Allocated Share.  Tenant’s Allocated Share is hereby amended to be 56.56% (based upon the anticipated 29,973 rentable square feet), subject to adjustment as aforesaid.

6.             Construction by Landlord.  Landlord’s Work is hereby amended to include the cost of installing (i) a dry sprinkler system in Tenant’s computer room, and (ii) standard identification signage on the Premises door, floors, Building directory and facade and monument sign; up to the total amount of $22,000.  If the final cost to install (i) and (ii) above exceeds $22,000, then Tenant shall pay to Landlord the difference in such costs within thirty (30) days of invoice.

7.             Early Termination.  Tenant shall have a one-time right to terminate this Lease, effective as of the end of the 84th month of the Term (the “Early Termination Date”), provided Tenant (i) is not then in default beyond any applicable notice and cure period under this Lease, (ii) gives Landlord not less than twelve (12) months prior written notice, and (iii) pays to Landlord, at the time of said notice, a termination fee (the “Termination Payment”) in an amount equal to the unamortized cost of the transaction, as of the Early Termination Date, which the parties agree is $27.00 multiplied by the rentable square footage of the Premises, amortized over 120 months at 12% interest.  Failure to provide written notice and the Termination Payment within the prescribed time frame will be considered by Landlord, without the necessity of additional notice, as a waiver of this right to terminate.  Tenant acknowledges and agrees that the Termination Payment is not a penalty and is fair and reasonable compensation to Landlord for the loss of expected rentals from Tenant over the remainder of the scheduled Term.

8.             Brokerage Commission.  Landlord and Tenant mutually represent and warrant to each other that they have not dealt, and will not deal, with any real estate broker or sales representative in connection with this proposed transaction other than CB Richard Ellis Services, Inc.  Each party agrees to indemnify, defend and hold harmless the other and their directors, officers and employees from and against all threatened or asserted claims, liabilities, costs and damages (including reasonable attorney’s fees and disbursements) which may occur as a result of a breach of this representation.

9.             Binding Effect.  Except as expressly amended hereby, the Lease remains in full force and effect in accordance with its terms.

2

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this agreement on the date first above written.

	LANDLORD:
	BRANDYWINE OPERATING PARTNERSHIP, L.P.
	By: Brandywine Realty Trust, its general partner
WITNESS:
	By:	/s/ George D. Sowa
		George D. Sowa
		Senior Vice President
	TENANT: MEDQUIST INC.
ATTEST:
	By:	/s/ John M. Suender
		John M. Suender
		Executive Vice President

3

EX-10.32

Exhibit 10.32

SECOND AMENDMENT TO LEASE

This Second Amendment to Lease made and entered into this 30th day of November, 2003, by and between BRANDYWINE OPERATING PARTNERSHIP, L.P., hereinafter referred to as “Landlord” and MEDQUIST INC., a New Jersey corporation, hereinafter referred to as “Tenant”.

WHEREAS, Landlord leased certain premises consisting of approximately 29,973 rentable square feet of space located at the Building to be built at 1000 Bishops Gate Boulevard, Mt.  Laurel, New Jersey 08054 (“Building”), to Tenant pursuant to that certain Lease dated June 17, 2003, as amended by the First Amendment to Lease dated August 26, 2003, hereinafter collectively referred to as “Lease,” the Premises being more particularly described therein; and

WHEREAS, Landlord and Tenant wish to amend the Lease as follows;

NOW, THEREFORE, in consideration of these present and the agreement of each other, and intending to be legally bound hereby, Landlord and Tenant agree that the Lease shall be and the same is hereby amended as follows:

1.Incorporation of Recitals.  The recitals set forth above and the Lease referred to therein are hereby incorporated herein by reference as if set forth in full in the body of this Amendment.  Capitalized terms not otherwise defined herein shall have the meanings given to them in the Lease.

2.Additional Premises.

a.The Lease is hereby amended to provide that Landlord hereby demises and lets unto Tenant, and Tenant hereby leases and hires from Landlord, the remainder of the space on the second floor of the Building containing approximately 6,399 rentable square feet of space (the “Additional Premises”), as shown on Exhibit “A” and made a part hereof.  The term of the Lease for the Additional Premises shall commence on the Commencement Date.  It is the mutual intention of Landlord and Tenant that the Additional Premises shall be leased to and occupied by Tenant on and subject to all of the terms, covenants and conditions of the Lease except as otherwise expressly provided to the contrary in this Amendment, and to that end Landlord and Tenant hereby agree that effective the date hereof the word “Premises”, as defined in the Lease, shall mean the Premises and the Additional Premises containing approximately 36,372.  In accordance with the Lease, on or before sixty (60) days of the Commencement Date, Landlord’s architect shall utilize the 1996 BOMA standard to determine Tenant’s rentable square footage of the Premises, the Building, the Fixed Rent and Tenant’s Allocated Share.

b.Landlord shall construct and do such other work to the Additional Premises in substantial conformity with the plans and outline specifications of the plan prepared by Charles Matsinger Associates and mutually agreed upon by Landlord and Tenant (collectively, the “Tenant’s Work”).  Landlord shall be responsible for payment of a cost of $25.00 per rentable square foot of Tenant’s Work for the Additional Premises.  In addition to Landlord’s contribution for Tenant’s Work, Landlord shall provide an additional allowance up to

$2.00 per rentable square foot of the Additional Premises to be used solely by Tenant for moving expenses (“Moving Allowance”).  The Moving Allowance shall be paid upon receipt of paid invoices evidencing the moving expense

3.Fixed Rent.  Tenant shall pay to Landlord Fixed Rent for the Additional Premises as follows:

TIME PERIOD	PER RSF			MONTHLY INSTALLMENT		ANNUAL FIXED RENT
Months 1-12	$	22.50	*	$	11,998.13	$	143,977.50
Months 13-24	$	23.00	*	$	12,264.75	$	147,177.00
Months 25-36	$	23.50	*	$	12,531.38	$	150,376.50
Months 37-48	$	24.00	*	$	12,798.00	$	153,576.00
Months 49-60	$	24.50	*	$	13,064.63	$	156,778.50
Months 61-72	$	25.00	*	$	13,331.25	$	159,975.00
Months 73-84	$	25.50	*	$	13,597.88	$	163,174.50
Months 85-96	$	26.00	*	$	13,864.50	$	166,374.00
Months 97-108	$	26.50	*	$	14,131.13	$	169,573.50
Months 109-120	$	27.00	*	$	14,397.75	$	172,773.00

* plus amounts pursuant to Articles 6 and 7 of the Lease.

4.Tenant’s Allocated Share.  Tenant’s Allocated Share for the Premises and the Additional Premises is hereby amended to be 66.13% (based upon the anticipated 36,372 rentable square feet), subject to adjustment as aforesaid.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

2

5.Binding Effect.  Except as expressly amended hereby, the Lease remains in full force and effect in accordance with its terms.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this agreement on the date first above written.

	LANDLORD:
	BRANDY WINE OPERATING PARTNERSHIP, L.P.
WITNESS:	By:	Brandywine Realty Trust, its general partner
	By:	/s/ GEORGE D. JOHNSTONE
		George D. Johnstone
		Vice President — Asset Management
	TENANT:
ATTEST:	MEDQUIST INC.
	By:	/s/ JOHN M. SUENDER
		John M. Suender
		Executive Vice President

3

EX-10.33

Exhibit 10.33

THIRD AMENDMENT TO LEASE

This Third Amendment to Lease (“Amendment”) made and entered into this 10th day of March, 2006, by and between BRANDYWINE OPERATING PARTNERSHIP, L.P., hereinafter referred to as “Landlord” and MEDQUIST INC., hereinafter referred to as “Tenant”.

WHEREAS, Landlord leased certain premises consisting of 36,372 rentable square feet of space commonly referred to Suite 200 and 300 (“Original Premises”) located at 1000 Bishops Gate Boulevard, Mt.  Laurel, New Jersey 08054 (“Building”), to Tenant pursuant to that certain Lease dated June 17, 2003 (“Original Lease”), as amended August 26, 2003 (“First Amendment”) and November 30, 2003 (“Second Amendment”), hereinafter collectively referred to as “Lease,” the Original Premises being more particularly described therein; and

WHEREAS, Tenant desires to expand the size of the Original Premises by adding an additional 2,941 rentable square feet (“RSF”) of space under the Lease;

WHEREAS, Landlord and Tenant wish to amend the Lease as follows;

NOW, THEREFORE, in consideration of these present and the agreement of each other, Landlord and Tenant agree that the Lease shall be and the same is hereby amended as follows:

1.Incorporation of Recitals.  The recitals set forth above, the Lease referred to therein and the exhibits attached hereto are hereby incorporated herein by reference as if set forth in full in the body of this Amendment.  Capitalized terms not otherwise defined herein shall have the meanings given to them in the Lease.

2.Lease of Additional Premises.

a.The Lease is hereby amended to provide that Landlord hereby demises and lets unto Tenant, and Tenant hereby leases and hires from Landlord, all that certain space on the first floor of the Building containing approximately 2,941 RSF of space (the “Additional Premises”), as shown on Exhibit “A” and made a part hereof The term of the Lease for the Additional Premises shall commence upon substantial completion of the Landlord’s Work (as defined in subparagraph (b) hereof) (“Additional Premises Commencement Date”).  The Additional Premises shall be deemed “substantially completed” when the Landlord’s Work has been completed to the extent that the Additional Premises maybe occupied by Tenant for its Permitted Uses, subject only to completion of minor finishing, adjustment of equipment, and other minor punchlist items and construction aspects, and Landlord has procured a temporary or permanent certificate of occupancy permitting the occupancy of the Premises (hereafter, “substantially completed”).  It is the mutual intention of Landlord and Tenant that the Additional Premises shall be leased to and occupied by Tenant on and subject to all of the terms, covenants and conditions of the Lease except as otherwise expressly provided to the contrary in this Amendment, and to that end Landlord and Tenant hereby agree that from and after the Additional Premises Commencement Date the word ‘Premises”, as defined in the Lease, shall mean and include both the Original Premises and the Additional Premises, containing a total of

39,313 RSF, unless the context otherwise requires.  On or before sixty (60) days following the Additional Premises Commencement Date, Landlord’s architect shall utilize the 1996 BOMA standard to determine Tenant’s rentable square footage for the Additional Premises, thereafter Tenant’s Fixed Rent for the Additional Premises and Tenant’s Allocated Share of the Building shall be adjusted to accurately reflect their respective values based on the rentable square footage so determined.

b.Landlord shall construct and do such other work in the Additional Premises (collectively, the “Landlord’s Work”) in substantial conformity with the plans and outline specifications of the plan, SK/4-0l prepared by Space Designs, Inc. dated January 19, 2006, which have been initialed by the parties, and which arc herein incorporated by reference.  Tenant shall deliver final plans and finish specifications on or before the date that is the earlier of (i) five (5) days after the date of this Amendment, or (ii) March 15, 2006.  Landlord shall have five (5) business days in which to review such final plans and finish specifications and to notify Tenant of Landlord’s approval or disapproval, which, in either event, shall not be unreasonably withheld, conditioned or delayed.  Landlord shall only be responsible for payment of a maximum cost of $106,905.35 (i.e., $36.35 per rentable square foot for the Landlord’s Work) (the “Tenant Allowance”), all such costs in excess thereof to be borne by Tenant, and shall be paid to Landlord within thirty (30) days of delivery of an invoice and reasonable documentation there for.  If any material revision or supplement to Landlord’s Work is deemed necessary by Landlord, those revisions and supplements shall be submitted to Tenant for approval, which approval shall not be unreasonably withheld or delayed (provided that such revisions or supplements do not materially Increase Tenant’s costs hereunder).  If Landlord shall be delayed in such “substantial completion” as a result of (i) Tenant’s failure to furnish plans and specifications within the time frame stated herein above; (ii) Tenant’s request for materials, finishes or installations other than Landlord’s standard, (iii) Tenant’s changes in said plans; (iv) the performance or completion of any work, labor or services by a party employed by Tenant; or (v) Tenant’s failure to approve final plans, change orders, working drawings or reflective ceiling plans within five (5) business days following Landlord’s written request for the same (each, a “Tenant’s Delay”); then the Additional Premises Commencement Date and the payment of Fixed Rent hereunder shall be accelerated by the number of days of such delay.  If any change, revision or supplement to the scope of the Landlord’s Work is requested by Tenant and such change, revision or supplement results in an increase in cost to Landlord, then Landlord will notify Tenant in writing of such increased cost before preceding with such change, revision or supplement.  If after such notification from Landlord, Tenant notifies Landlord to proceed with such change, revision or supplement, then such increased costs associated with such change, revision or supplement shall be paid by Tenant within five (5) days of notice form Tenant to proceed, and such occurrence shall not change the Additional Premises Commencement Date and shall not alter Tenant’s obligations under this Lease as amended hereby.  Notwithstanding anything to the contrary stated in Section 2(a) above, the Additional Premises Commencement Date shall occur on the date the Additional Premises would have been delivered to Tenant but for Tenant’s Delay or Tenant’s change order.  Landlord’s Work will not constitute an Alteration under Article 10 of the Original Lease.  Notwithstanding anything to the contrary contained herein, lithe entire Tenant Allowance is not spent by Tenant on Landlord’s Work, the balance may be spent by Tenant for furniture, fixtures, or equipment.

2

c.Upon notification by Landlord, Landlord and Tenant shall schedule a pre-occupancy inspection of the Additional Premises at which time a punchlist of outstanding items, if any, shall be completed.  For the purpose of the Lease, punchlist items are those minor adjustments, repairs, replacements and the failure to complete associated with Landlord’s Work of which, taken as a whole shall not interfere with or disrupt Tenant’s Permitted Uses of the Premises.  Landlord shall complete the punchlist items to Tenant’s reasonable satisfaction within thirty (30) days thereafter or the expiration of such additional time period as is reasonably necessary to cure such obligation, provided Landlord immediately commences and thereafter proceeds with all due diligence and in good faith to cure such obligation. During completion of the punchlist items, Landlord will take commercially reasonable measures to not unreasonably interfere with Tenant’s business operations in the Additional Premises.

d.The Additional Premises Commencement Date shall be confirmed by Landlord and Tenant by the execution of a Confirmation of Lease Term in the form attached hereto as Exhibit “B”.  If Tenant fails to execute or object to the Confirmation of Lease Tern within ten (10) business days of its delivery, Landlord’s determination of such dates shall be deemed accepted.

e.Landlord anticipates that the Additional Premises Commencement Date will occur on or before the date which is one hundred forty (140) days after the date of this Amendment (the “Outside Delivery Date”).  If the Additional Premises Commencement Date has not occurred by the Outside Delivery Date, subject to the provisions herein relating to a Tenant’s Delay or Force Majeure, then Tenant shall be entitled to a rent credit equal to one day’s Fixed Rent for each day that the Additional Premises Commencement Date is delayed beyond the Outside Delivery Date.

3.Term:  The Lease Term for the Additional Premises shall commence on the Additional Premises Commencement Date and terminate on June 30, 2014, coterminously with the Lease.

a.From and after the Additional Premises Commencement Date (“APCD”), Tenant Shall pay to Landlord Fixed Rent for the Additional Premises (2,941 RSF) as follows:

TIME PERIOD	PER RSF			MONTHLY INSTALLMENT		ANNUAL BASE RENT
APCD-06/30/07	$	23.50	*	$	5,759.46	$	69,113.50
07/01/07-06/30/08	$	24.00	*	$	5,882.00	$	70,584.00
07/01/08-06/30/09	$	24.50	*	$	6,004.54	$	72,054.50
07/01/09-06/30/10	$	25.00	*	$	6,127.08	$	73,525.00
07/01/10-06/30/11	$	25.50	*	$	6,249.63	$	74,995.50
07/01/11-06/30/12	$	26.00	*	$	6,372.17	$	76,466.00
07/01/12-06/30/13	$	26.50	*	$	6,494.71	$	77,936.50
07/01/13-06/30/14	$	27.00	*	$	6,617.25	$	79,407.00

3

*Plus costs associated with Article 6 and Article 7 of the Original Lease.

Tenant’s Fixed Rent shall be adjusted, if required, following Landlord’s Architect’s re-measurement of the Additional Premises as provided in Article 2(a) above.

b.Notwithstanding anything in the Lease to the contrary, Tenant shall pay to Landlord without notice or demand, and without set-off except as set forth in this Lease, the annual Fixed Rent payable in the monthly installments of Fixed Rent as set forth above, in advance on the first day of each calendar month during the Term by (i) check sent to Landlord, P.O. Box 8538-363, Philadelphia, PA 19171 or (ii) wire transfer of immediately available funds to the account at Wachovia Bank, Salem NJ account no. 2030000359075 ABA #031201467; such transfer to be confirmed by Landlord’s accounting department upon written request by Tenant.  All payments must Include the following Information: Building #292 and Lease #             .  Such numbers shall be provided by Landlord within a reasonable time following execution of this Amendment.

4.Tenant’s Allocated Share.  From and after the Additional Premises Commencement Date, Tenant’s Allocated Share shall be 73.56% (based upon the anticipated 39,313 RSF), subject to adjustment as provided in Article 2(a) above.

5.Base Year for Additional Premises.  From and after the Additional Premises Commencement Date, the term “Base Year”, as it applies to the Additional Premises only, shall mean the calendar year 2006.

6.Notice Addresses:  All notices wider the Lease shall be sent to Tenant at the following address:

MedQuist Inc.
1000 Bishops Gate Boulevard
Mt. Laurel, NJ  08054
Attn:  General Counsel

and to Landlord at:

Brandywine Operating Partnership, L.P.
10000 Midlantic Drive, Suite 300 West
Mt.  Laurel, NJ 08054
Attn:  George D. Sowa, Senior Vice President
Phone No. 856-787-1600
Fax No. 856-787-1310
E-mail:  George.Sowa@brandywinerealty.com

with a copy to:

Brandywine Realty Trust
401 Plymouth Road, Suite 500
Plymouth Meeting, PA 19462
Attn:  Brad A. Molotsky

4

Phone No. 610-325-5600
Fax No. 610-832-4928
E-mail:  brad.molotsky@brandywinerealty.com

7.Tenant Representations : Tenant hereby confirms that (i) the Lease is in full force and effect and Tenant is in possession of the Premises; (ii) to Tenant’s actual knowledge as of the date hereof, Landlord has performed all outstanding Tenant improvements and Landlord’s Work obligations, except as provided in Article 2(b) above; (m) to Tenant’s actual knowledge as of the date hereof, there are no defaults by Landlord under the Lease, (iv) Tenant’s security deposit is $0.00; and (v) the Base Year for the Original Premises is 2004.

8.Brokerage Commission.  Landlord and Tenant mutually represent and warrant to each other that they have not dealt, and will not deal, with any real estate broker or sales representative in connection with this proposed transaction, except CBRE (“Broker”).  Landlord will pay the Broker’s commission pursuant to a separate written agreement.  Each party agrees to indemnify, defend and hold harmless the other and their directors, officers and employees from and against all threatened or asserted claims, liabilities, costs and damages (including reasonable attorney’s fees and disbursements) which may occur as a result of a breach of this representation.

9.Binding Effect.  Except as expressly amended hereby, the Lease remains in full force and effect in accordance with its terms.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this agreement on the dale first above written

	LANDLORD:
	BRANDY WINE OPERATING PARTNERSHIP, L.P.
WITNESS:	By:	Brandywine Realty Trust, its general partner
	By:	/s/ George D. Sowa
		George D. Sowa
		Senior Vice President
	TENANT:
ATTEST:	MEDQUIST INC.
	By:	/s/ Frank W. Lavelle
		Frank W. Lavelle
		President

5

EX-10.34

Exhibit 10.34

CONFIRMATION OF LEASE TERM

THIS MEMORANDUM made as of the 10th day of August, 2006, between BRANDYWINE OPERATING PARTNERSHIP, a Delaware Limited Partnership, with an office at 401 Plymouth Road.  Suite 500, Plymouth Meeting, Pennsylvania 19462 (“Landlord”) and MEDQUIST INC. (“Tenant”), who entered into a lease amendment dated for reference purposes as of March 10, 2006 covering certain premises located at 1000 Bishops Gate Boulevard, Mt.  Laurel, New Jersey 08054.  All capitalized terms, if not defined herein, shall be defined as they are defined in the Lease.

1.The Parties to this Memorandum hereby agree that the date of July 24, 2006 is the “Additional Premises Commencement Date” of the Term, that the date June 30, 2014 is the expiration date of the Lease.

2.Tenant hereby confirms the following:

a.That it has accepted possession of the Additional Premises pursuant to the terms of the Amendment;

b.That the improvements, if any, including the Landlord Work, required to be furnished according to the Amendment by Landlord have been substantially completed in accordance with the terms and conditions of the Amendment;

c.That Landlord has fulfilled all its duties of an inducement nature or as otherwise set forth in the Lease;

d.That there are no offsets or credits against rentals.

e.That there is no default by Landlord or Tenant under the Lease or Amendment and the Lease and Amendment is in full force and effect.

f.The Rentable Square Footage of the Additional Premises is 2,941.

g.Tenant’s Fixed Rent for the Additional Premises (2,941 RSF) is as follows:

LEASE YEAR	PER SF		MONTHLY INSTALLMENT		ANNUAL FIXED RENT
APCD-06/30/07	$	23.50	$	5,795.46	$	69,113.52
7/1/07-6/30/08	$	24.00	$	5,882.00	$	70,584.00
7/1/08-6/30/09	$	24.50	$	6,004.54	$	72,054.48
7/1/09-6/30/10	$	25.00	$	6,127.08	$	73,524.96
7/1/10-6/30/11	$	25.50	$	6,249.63	$	74,995.56
7/1/11-6/30/12	$	26.00	$	6,372.17	$	76,466.04
7/1/12-6/30/13	$	26.50	$	6,494.71	$	77,936.52
7/1/13-6/30/14	$	27.00	$	6,617.25	$	79,407.00

*Plus costs associated with Article 6 and Article 7 of the Original Lease.

h.Tenant’s Allocated Share of the Building is 73.56%.

3.Landlord hereby confirms to Tenant that its Building Number is 292 and its Lease Number is 005342.  This information must accompany each Rent check or wire payment.

4.Tenant’s Notice Address is:

Medquist Inc.
1000 Bishops Gate Boulevard
Mt. Laurel, NJ  08054
Attn:  General Counsel
Phone No.:  (856) 206-4000
Fax No.:  (856) 206-4020
E-mail:  msullivan@medquist.com

Tenant’s Billing Address is:

Medquist Inc.
1000 Bishops Gate Boulevard
Mt. Laurel, NJ  08054
Attn:  Real Estate
Phone No.:  (856) 206-4227
Fax No.:  (856)206-4228
E-mail:                                

2

5.This Memorandum, each and all of the provisions hereof, shall inure to the benefit, or bind, as the case may require, the parties hereto, and their respective successors and assigns, subject to the restrictions upon assignment and subletting contained in the Lease.

	LANDLORD:
	BRANDYWINE OPERATING PARTNERSHIP, L.P.
WITNESS:	By:	Brandywine Realty Trust, its general partner
	By:	/s/ George D. Sowa
		George D. Sowa
		Senior Vice President
	TENANT:
ATTEST:	MEDQUIST INC.
	By:	/s/ Kathleen Donovan
		Kathleen Donovan
		Senior Vice President & Chief Financial Officer

3

EX-10.35

Exhibit 10.35

LEASE AGREEMENT

THIS LEASE AGREEMENT (the “Lease”) made and entered into this 6th day of September, 2002, by and between LA/GA BUSINESS CENTERS, INC., A GEORGIA CORPORATION (hereinafter “Landlord”) and MEDQUIST TRANSCRIPTIONS, LTD., A NEW JERSEY CORPORATION (hereinafter “Tenant”).

WITNESSETH:

Landlord, for and in consideration of the covenants and agreements set forth hereinafter, leases to Tenant, and Tenant rents from Landlord the Demised Premises described below, for the Use set forth and for the Term and at the rent reserved herein, and subject to the terms and conditions of the Lease.

1.REFERENCE PROVISIONS AND DEFINITIONS.

Landlord and Tenant covenant and agree that for purposes of the Lease, the following terms shall have the meanings set forth herein.

1.1.          Center.  American Business Center, which is located at 1395 South Marietta Parkway in the City of Marietta, Cobb County, Georgia, 30067.

1.2.          Demised Premises.  Building 600, Suite 606/608 at the Center, and being approximately 19,761 rentable square feet as outlined in red on the floor plan attached hereto as Exhibit “A” and incorporated herein by this reference, which space is more particularly defined by Article 1.10 hereof and the right to use in common with others the Common Area of the Center as defined in Article 1.11 hereof.

1.3.          Term of the Lease or Term.  A period of 60 months, commencing on (the “Commencement Date”) the later to occur of December 1, 2002 or the date when the Demised Premises shall be substantially completed (meaning such state of completion, exclusive of improvements to be performed by Tenant or Tenant’s contractors, as will lawfully allow Tenant to utilize the Demised Premises for its intended purpose, without material interference by reason of final completion) and when a Certificate of Occupancy for the Demised Premises has been issued by the municipal authority or agency having jurisdiction over the Demised Premises; provided that substantial completion shall be deemed to have occurred if the foregoing standards are not met because of any work remaining to be performed by Tenant or if there are delays caused by Tenant; further provided that if Tenant shall occupy the Demised Premises for the purposes of conducting its business for the permitted use set forth herein, prior to either of the foregoing dates, then the Term of this Lease shall commence on the date on which Tenant commences such occupancy.  When the Commencement Date of this Lease is established, Landlord and Tenant shall promptly execute and acknowledge a memorandum in form substantially as set forth in Exhibit “E” hereto, containing the information set forth in said Exhibit.

1.4.          Use.  To be used as general office and warehouse space and for no other purpose.

1.5.          Security Deposit.  $6,157.24 to be held as a Security Deposit pursuant to Article 10.4 hereof.  The parties acknowledge that the entire $6,157.24 has been previously delivered to the Landlord by the Tenant pursuant that certain Lease Agreement dated September 10, 1998 between The Rubenstein Company L.P., as landlord and MedQuist Transcriptions Ltd., f/k/a The MRC Group as tenant (the “Prior Lease”).  Such entire amount was paid to the then landlord in November 1998.  Upon the termination of the Prior Lease, provided that the Landlord as landlord under the Prior Lease does not utilize any portion of the security deposit under the Prior Lease for amounts owed thereunder, the Landlord shall apply the security deposit under the Prior Lease and utilize same as the security deposit under this Lease.  In the event the Landlord applies any portion of the security deposit under the Prior Lease for amounts owed thereunder, the Tenant shall pay to the Landlord hereunder on demand the difference between the amount applied and the amount of $6,157.24.

1.6.          Minimum Annual Rent.  Minimum Annual Rent will abate the first six (6) months of the Term on 3,973 rentable square feet.  For months 1-6 from the Commencement Date, the Minimum Annual Rent for the remainder of the Demised Premises shall be One Hundred Forty-Six Thousand, Thirty-Nine Dollars and no cents ($146,039.00) payable in equal monthly installments of Twelve Thousand, One Hundred Sixty-Nine Dollars and Ninety-Two Cents ($12,169.92).  For months 7-12 from the Commencement Date, the Minimum Annual Rent shall be One Hundred Eighty-Two Thousand, Seven Hundred Eighty-Nine Dollars and Twenty-Five Cents ($182,789.25) payable in equal monthly installments of Fifteen Thousand, Two Hundred Thirty-Two Dollars and Forty-Four Cents ($15,232.44).  The Minimum Annual Rent shall for the remainder of the Term be subject to increase as provided for in Article 2.2 hereof, which increases when effective shall be deemed part of the “Minimum Annual Rent”.  Attached hereto and incorporated herein, in Paragraph 2 of Exhibit “B” is a schedule which shows the Minimum Annual Rental amounts due for the entire Term, which amounts include the increase provided for in Article 2.2.

1.7.          Additional Rent.  Pursuant to Article 2.3 hereof, Tenant’s Proportionate Share of the total cost of Real Estate Taxes, Insurance Premiums, and Common Area Operating Costs (all as defined in 1.12, 1.13 and 1.14 below) to the extent such cost to Landlord exceeds $0.45 per rentable square foot (hereinafter “Operating Allowance”) and such other costs to Landlord hereinafter claimed from Tenant as “Additional Rent”.  Additional Rent and Minimum Annual Rent are at times herein collectively referred to as “Rent”.

1.8.          Landlord and Tenant Construction Obligations.  As specified in Exhibit ”B” attached hereto and incorporated herein by this reference, which shall be deemed to be Landlord’s and Tenant’s obligations as to construction and interior fit-out of the Demised Premises.

2

1.9.          Notice Address of Landlord and Tenant:

To Landlord:	To Tenant:
LA/GA Business Centers, Inc.	MedQuist Transcriptions, Ltd.
C/o Advantis Real Estate Services Company	Attention: General Counsel
Regional Director of Management Services	Five Greentree Centre
3455 Peachtree Road NE, Suite 400	Suite 311
Atlanta, GA 30326	Marlton, NJ 08053
Address for Rental and other Payments:
LA/GA Business Centers, Inc.
American Business Center, c/o Advantis
P.O. Box 932466
Atlanta, GA 31193-2466

or such other address as Landlord or Tenant notifies the other of in writing from time to time.

1.10.        Demised Premises.  The term “Demised Premises” as described in Article 1.2 of this Lease shall be as outlined in red on the floor plan attached hereto as Exhibit “A” and shall include the appurtenances specifically granted in this Lease, but reserving and excepting to Landlord the right to install, maintain, use, repair and replace pipes, ductwork, conduits, utility lines and wires through hung ceiling space, column space and partitions, in or beneath the floor slab or above the Demised Premises, or other parts of the Center, except that Landlord shall not unreasonably interfere with or interrupt the business operations of Tenant within the Demised Premises except when necessary as determined by Landlord, and except where necessary as determined by Landlord’s architect, no pipes, conduits, utility lines or wires installed by Landlord shall be exposed in the Demised Premises.  Tenant understands, acknowledges and agrees (i) that the amount of rentable square feet set forth in Article 1.2 above is an approximation only, and (ii) that such amount of rentable square feet is hereby accepted by Tenant for all purposes of this Lease.

1.11.        Common Area.  The term “Common Area” (as initially constructed or as the same may at any time thereafter be enlarged or reduced) shall mean all areas, spaces, facilities, equipment, signs and special services from time to time made available by Landlord for the common and joint use and benefit of Landlord, the Tenant and other tenants and occupants of the Center, and their respective employees, agents, customers and invitees.

1.12.        Real Estate Taxes.  The term “Real Estate Taxes” shall mean all taxes and assessments (special or otherwise) levied or assessed against the Center (land, building, and improvements) and other taxes arising out of the use and/or occupancy of the Demised Premises imposed by Federal, State, or local governmental authority or any other taxing authority having jurisdiction over the Center, but shall exclude franchise, capital stock, estate or inheritance taxes personal in nature to Landlord.

1.13.        Insurance Costs.  The term “Insurance Costs” shall be deemed to be premiums and other charges paid by the Landlord for fire insurance, liability insurance, and all

3

special and extended insurance coverage for the Center in amounts and in types of coverage at the sole discretion of Landlord.

1.14.        Common Area Operating Costs.  The term “Common Area Operating Costs” shall mean the total costs and expenses incurred by Landlord in operating, maintaining, managing, repairing and replacing the Common Area and the Center.  There shall be excluded from Common Area Operating Costs the original costs of constructing the Common Area and the Center, including any portions of the Common Area or the Center constructed subsequent to the date of this Lease; however, Common Area Operating Costs shall include, if any, the annual amortization (over the useful life) of a capital improvement falling within any of the following categories:  (i) a labor saving device or improvement which is intended to reduce or eliminate any component of Common Area Operating Costs; (ii) an installation or improvement required by reason of any law, ordinance or regulation which is generally applicable to similar office centers; and (iii) an installation or improvement which directly enhances safety or comfort of Tenants in the Common Area or the Center generally.

1.15.        Exclusion from Common Area Operating Costs.  Depreciation; interest on and amortization of debts; leasehold improvements made in connection with spaces occupied or to be occupied by tenants of the Center; costs of performing any clean-up of “Waste” (defined in section 3.3) provided that such costs are:  (1) for clean up of Waste existing at the Center as of the date of this Lease or (2) provided that such costs incurred are not incurred because of the acts of Tenant, its successors, assigns, agents or employees; brokerage commissions and advertising expenses and other costs and expenses (including, without limitation, attorney fees) for procuring new tenants in the Center; refinancing costs; the cost of any item included in Common Area Operating Costs to the extent that such cost is reimbursed by an insurance company or a condemnor; costs relating to disputes with other tenants; costs, fines or penalties incurred by Landlord to cure any existing violations in the Common Area, if any, that exist as of the date of this Lease, of the provisions of any applicable building code, regulation or law which applies to the Center as of the date of this Lease, including but not limited to the Americans With Disabilities Act, provided that such violations exist as of the date of this Lease; and the cost of capital improvements, except for those falling within the categories specifically set forth in Section 1.14 above or in Section 5.5 herein.

1.16.        Tenant’s Proportionate Share.  The term “Tenant’s Proportionate Share” shall mean a fraction the numerator of which shall be the number of rentable square feet in the Demised Premises as stated in Article 1.2 of the Lease and the denominator of which shall be the total number of rentable square feet of space in the Center (as such total number of rentable square feet may increase or decrease from time to time) on an average basis for the calendar year for which charges are being computed.

2.RENT AND OTHER CHARGES.

2.1.          Minimum Annual Rent.  Tenant shall pay to LA/GA Business Centers, Inc., American Business Center, c/o Advantis, P.O. Box 932466, Atlanta, Ga., 30326, or such place as Landlord may designate in writing, without abatement, deduction, or setoff the Minimum Annual Rent provided in Article 1.6 in equal monthly installments on the first day of each calendar month throughout the Term in advance, without notice or demand.  If the Term

4

commences on a day other than the first day of a month, Tenant shall pay Landlord on the first day of the Term (i.e., the Commencement Date), a pro-rata portion of such Minimum Annual Rent, calculated on a thirty (30) day calendar month.  Tenant shall pay the first full monthly installment of Minimum Annual Rent upon execution of the Lease as set forth in Article 1.6 of the Lease.

2.2.          Minimum Annual Rent Escalation.  On each July 1, during the Term of the Lease, the amount of Minimum Annual Rent (as previously adjusted by this Article) shall be adjusted upwards by three and one half percent (3.5%) thereof, with the amount of each monthly installment of Minimum Annual Rent to be adjusted for the following twelve (12) months so as to be equal to one twelfth (1/12) of the adjusted Minimum Annual Rent.  Attached hereto and incorporated herein by reference in Paragraph 2 of Exhibit “B” is a Schedule showing the Minimum Annual Rental amounts due over the Term of the Lease, with the adjustments included.

2.3.          Reimbursement for Real Estate, Insurance Costs and Common Area Operating Costs.  As Additional Rent, Tenant shall pay Tenant’s Proportionate Share as defined in Article 1.16 of this Lease, of the amount by which the Real Estate Taxes, Insurance Costs, and Common Area Operating Costs, all as defined in Articles 1.12, 1.13 and 1.14, for any year during the Term exceed the Operating Allowance as defined in Article 1.7 of the Lease.  Landlord, on or before The first day of each year, shall, as soon as practically possible, estimate and send notice to Tenant of the amount of such excess for the upcoming year and after notice Tenant shall pay to Landlord one twelfth (1/12) thereof in equal monthly installments, as Additional Rent, together with the payment of Minimum Annual Rent.  In the event the aggregate of Tenant’s installments during any year shall be less than or more than the amount actually due from Tenant when the actual costs are determined, there shall be an adjustment between Tenant and Landlord immediately upon notice from Landlord or with the next Minimum Annual Rent payment, if any (the “Adjustment”).  For any period within the Term, which is less than a full year, Tenant’s share of the excess of such charges shall be prorated on a per diem basis.

2.4.          Right to Audit.  Within 180 days from the date of the Adjustment, if any, but in no event later than 210 days after the end of each calendar year, Tenant shall have the right to dispute the Taxes and Operating Costs for the prior calendar year and conduct an audit of same pursuant to the provisions set forth herein.  In the event Tenant disputes the amount of Operating Costs and Taxes for a prior calendar year, Landlord shall permit Tenant, within 180 days of the date of the Adjustment but in no event later than 210 days from the end of the particular calendar year, at Tenant’s sole cost and expense upon at least (10) ten days prior written notice to Landlord to have an audit made of Landlord’s books, records, and accounts relative to the Taxes and Operating Costs for such prior year by Tenant’s in house accountants, or a reputable independent certified public accountant or Tenant’s counsel.  Such inspection shall be made on such date and time reasonably set by Landlord in Landlord’s office during normal business hours.  If such audit is not completed by Tenant within 180 days from the date of the Adjustment and if no Adjustment has been made, within 210 days from the end of the particular calendar year, Tenant shall have no further right of audit for that particular calendar year and the amount claimed to be owed by Landlord shall be conclusive and binding on Tenant.  Notwithstanding anything to the contrary contained herein, Tenant or Tenant’s authorized

5

representative (as set forth above) may conduct such audit no more than one (1) time during any twelve (12) month period.  If the examination made by the Tenant discloses a discrepancy in the Taxes and Operating Costs charged to the Tenant, Tenant shall contest such charge within such 180 day period or 210 day period as set forth above.  In the event that Tenant does not provide written notice to Landlord of Tenant’s intent to dispute or contest such expenses within such 180 day or 210 day period, as applicable, or if Tenant’s audit is not completed within such 180 or 210 day period, as applicable, Tenant waives the right to dispute or contest the Taxes and Operating Costs for the prior year.  It is further understood and agreed that Tenant, Tenant’s accountant and Tenant’s outside counsel will retain as confidential the information contained in the above-described books, records and accounts.

2.5.          Utility Charges.  As Additional Rent, Tenant shall pay promptly, as and when the same become due and payable without penalties, all rents, rates, taxes and charges for all utilities including electricity, gas, heat, steam, hot and/or chilled water, and sewer supplied to the Demised Premises whether supplied by Landlord or the utility company serving the Center and whether separately metered or not.  Landlord shall have no liability to Tenant for disruption of any utility service, and in no event shall such disruption constitute an eviction or entitle Tenant to an abatement of rent or other charges.  Provided, however, that if as a result of causes solely within Landlord’s control, a cessation of the electric, heating, sewer service, ventilation or air conditioning service occurs and if such occurrence shall result in a “Shut-Down Condition” which shall exist for more than five (5) consecutive business days, then the Minimum Annual Rent hereunder shall abate for each day that the Shut-Down Condition shall thereafter persist (i.e., each day after the five (5) day period). “Shut-Down Condition” means that (i) Tenant’s personnel cannot reasonably perform their normal functions in the Demised Premises, and (ii) Tenant shall have closed its business operations in the Demised Premises as a result.

2.6.          Personal Property and Other Taxes.  As Additional Rent, Tenant shall pay when due all taxes imposed upon all personal property of Tenant and upon the Demised Premises.  Furthermore, as Additional Rent, Tenant shall pay when due, whether collected by Landlord or directly by the governmental agency assessing same, any taxes imposed or calculated on Tenant’s rent or with respect to Tenant business or right to do business in the Demised Premises such as, but not limited to, a gross receipts tax on rents or a business privilege tax, whether such tax exists at the date of the Lease or is adopted thereafter.

2.7.          Late Payment Charges.  Should Tenant fail to pay when due any installment of Minimum Annual Rent within ten (10) days of the date when due, or any other sum payable to Landlord under the terms of the Lease within ten (10) days of the date when due, then Interest shall accrue from and after the date on which any sum shall be due and payable, and such Interest together with a Late Charge of five percent (5%) of the amount due to cover the extra expense involved in handling such delinquency shall be paid by Tenant to Landlord at the time of payment of the delinquent sum.

2.8.          Interest.  Whenever the Lease refers to “Interest”, the same shall be computed at a rate equal to fifteen percent (15%).  If, however, payment of interest at such rate by Tenant should be considered by law as usurious, then Interest shall be computed at the maximum rate allowable by law for such party.

6

3.CONDITION AND USE OF THE DEMISED PREMISES AND CENTER.

3.1.          Condition of the Demised Premises.  Tenant acknowledges that it has examined and inspected the Demised Premises and the plans for the Demised Premises referenced on Exhibit “C”; and is familiar with the physical condition thereof.  If Exhibit “B” indicates delivery of the Demised Premises “as is”, then Tenant further acknowledges (i) that Landlord has not made and does not hereby make any representations regarding the physical condition of the Demised Premises, (ii) that there are no warranties, either express or implied, regarding the condition of the Demised Premises, (iii) any such warranties which may exist are hereby expressly released and waived, and (iv) Tenant hereby agrees to accept the Demised Premises in its “as is” condition which shall be deemed to be acknowledged upon Tenant’s failure to object to the condition of the Demised Premises prior to the commencement of the Term as defined in Article 1.3 hereof.  In the case where Exhibit “B” requires Landlord to perform certain defined work, Tenant acknowledges that the existing condition of the Demised Premises with only the defined work completed shall complete Landlord’s responsibility for delivery of the Demised Premises.  Landlord will substantially complete construction of the Demised Premises in accordance with the defined work in Exhibit “C” prior to the commencement of the Lease.  Tenant agrees to cooperate with Landlord with respect to such work.  Any delays in completing the construction in the Demised Premises caused by Tenant’s actions or failure to act shall not be the responsibility of the Landlord and shall not modify Tenant’s obligation to commence payment of rent and other charges on the commencement date of the Term.

3.2.          Use and Occupancy of the Demised Premises.  Subject to and in accordance with all rules, regulations, laws, and ordinances, statutes and requirements of all governmental authorities, the Board of Fire Insurance Underwriters, and Landlord’s insurance carrier, Tenant shall use the Demised Premises solely as provided for in Article 1.4 and for no other purpose.  Tenant will not use the Demised Premises in any way that would disturb other tenants of the Center.  A vacation of premises or cessation of operations by Tenant in the Center shall not in any way release Tenant from its obligations under the Lease.  Tenant’s use of the Demised Premises shall be subject at all times and from time to time to the rules and regulations established by Landlord, a current copy of which is attached as Exhibit “D” hereto and made a part hereof.

3.3.          Environmental Representation.  Tenant will not store, treat, dispose of, discharge, transport or produce “Waste” (as hereinafter defined) at the Demised Premises or at the Center.  As used herein, the term “Waste” shall mean any substance or material which has been determined by any state, federal or local governmental authority to be capable of posing a risk of injury to health, safety or property, including all of those materials and substances designated as hazardous or toxic by the city or county in which the Demised Premises are located, the U.S.  Environmental Protection Agency, the Consumer Product Safety Commission, the Food and Drug Administration, or any other governmental agency now or hereafter authorized to regulate materials and substances in the environment.  Tenant covenants and agrees that Tenant will be and will remain in full compliance with all applicable laws governing use and occupancy of the Demised Premises including, without limitation, the manufacturing, treatment, storage, disposal, discharge, use, and transportation of Waste, and any Waste regulated under any local, state or federal law.

7

3.4.          Liability.  The parties hereto agree that the Tenant, its affiliates, shareholders, directors, officers, employees and agents shall not be liable for any cost or expense of any kind or nature in connection with or arising out of the discharge or release of any Waste at the Demised Premises or the Center which has occurred (if any) prior to the date of this Lease, unless such discharge or release was caused by the Tenant.

3.5.          Use, Condition and Operation of the Common Area.  Tenant acknowledges that it has inspected the Common Area of the Center.  Tenant further acknowledges that Landlord has not made and does not hereby make any representations or warranties with respect to the Common Area of the Center.  All Common Area made available by Landlord, in or about the Center, shall be subject to the exclusive control and management of Landlord, without limitation, the right to erect and install within the Common Area any object or building or any other installation.  Tenant is hereby given a license (in common with all others to whom Landlord has or may hereafter grant rights) to use, during the Term, the Common Area of the Center as it may now or at any time during the Term exist.  Tenant hereby acknowledges, consents, and agrees that any and/or all services, facilities and access by the public to the Common Area may be suspended in whole or in part without any liability to Landlord.  The Landlord shall make a commercially reasonable effort to provide Tenant at least 48 hours notice of such services, facilities and access by the public to the Common Area that is being suspended.  Failure to give such notice shall not impose any liability upon the Landlord.  Tenant hereby covenants and agrees to comply with, and cause its employees, agents, visitors, and customers to comply with all rules and regulations established by Landlord with respect to the Common Area including current rules and regulations attached hereto as Exhibit “D”.

4.INSURANCE AND INDEMNIFICATION.

4.1.          Insurance Required of Tenant.  Tenant shall obtain and provide, on or before the earlier of the commencement of the Term or Tenant’s entering the Demised Premises for any purpose, and keep in force at all times thereafter, the following insurance coverage with respect to the Demised Premises: (a) Comprehensive General Liability Insurance, with contractual liability endorsement, relating to the Demised Premises and its appurtenances on an occurrence basis with a minimum single limit of Two Million Dollars ($2,000,000.00); (b) fire and extended coverage including vandalism and malicious mischief insurance (and in sprinklered buildings, sprinkler damage insurance) in an amount adequate to cover the replacement value of all personal property, decorations, trade fixtures, furnishings, equipment, alterations, leasehold improvements, betterments, and all contents therein; and (c) such other insurance as may be required from time to time by Landlord or Landlord’s insurance carrier.  All of the aforesaid insurance shall be written by responsible insurance companies satisfactory to Landlord and shall be written naming Landlord and Landlord’s agent (and such other parties as Landlord may request) as additional insureds, and with agreement of the insurance company to give Landlord 30 days notice of cancellation.  Certificates of Insurance shall be given to Landlord 30 days prior to each expiration date.

4.2.          Landlord’s Insurance.  Landlord shall maintain and keep in force at all times during the Term of the Lease, fire insurance and liability insurance covering the Demised Premises and the Center in commercially reasonable amounts.

8

4.3.          Waiver of Subrogation.  Landlord and Tenant hereby grant to each other on behalf of any insurer providing insurance to either Landlord or Tenant covering the Demised Premises, improvements therein or contents thereof a waiver of any right of subrogation any such insurer of one party may acquire against the other by virtue of payment of any loss under such insurance.  Such waivers shall stand mutually terminated as of the date either Landlord or Tenant ceases to be empowered to grant same.

4.4.          Tenant’s Indemnification.  Tenant shall indemnify and save harmless the Landlord, Landlord’s agents, servants and employees from and against any and all claims, demands, costs and expenses, including attorney fees incurred by Landlord, related to or arising in any manner whatsoever out of the use and occupancy of the Demised Premises by Tenant, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, invitees and customers.  Landlord shall not be liable for any injury or damage to persons or property on the interior of the Demised Premises from any cause or of any nature whatsoever, unless caused by the gross negligence of Landlord, its agents or contractors.

4.5.          Insurance Rating.  Tenant will not do or permit anything to be done in the Demised Premises or the building of which they form a part or bring or keep anything therein which shall in any way increase the rate of fire or other insurance on said building, or on the property kept therein, or obstruct, or interfere with the rights of other tenants, or in any way injure or annoy them, or conflict with the fire laws or regulations, or with any insurance company rules upon said building or part thereof, or with any statutes, rules or regulations of governmental authorities.

5.REPAIRS, MAINTENANCE AND ALTERATIONS.

5.1.          Repairs and Services by Landlord.  Landlord shall (a) make necessary structural repairs to the Demised Premises, except those repairs set forth below which are the responsibility of the Tenant and those repairs made necessary by any act or omission or negligence of Tenant, Tenant’s employees, agents, invitees or except as provided in Article 6 of the Lease and (b) maintenance of the Common Areas including general landscaping of the grounds.  Landlord shall not be liable by reason of any injury to or interference with Tenant’s business, or any damage to personal property of Tenant arising from the making or not making of any repairs, alterations, additions, or improvements in or to the Demised Premises, the building in which the Demised Premises is located, or the Center.

5.2.          Repairs and Maintenance by Tenant.  Tenant shall make and pay for all repairs to the Demised Premises, and all equipment and systems serving the Demised Premises exclusively and shall replace all things which are necessary to keep same in a good state of repair and operating condition.  Included therein, but not limited thereto, Tenant shall maintain, replace and keep in good repair and operating order all air conditioning, ventilating, plumbing, sprinklering, heating and electrical installations, ceilings, plate glass window, inside walls and carpeting, and floor surfaces within or serving the Demised Premises.  Tenant agrees to keep in force a standard maintenance agreement on all heating and air conditioning equipment and provide a copy of said agreement to Landlord.  Tenant shall at all times keep the Demised Premises and all exterior entrances and windows in good order and repair and in a satisfactory condition of cleanliness.

9

If (i) Tenant does not maintain and repair properly as required hereunder and to the reasonable satisfaction of Landlord, or (ii) Landlord, in the exercise of its sole discretion, determines that emergency repairs are necessary, or (iii) repairs or replacements to the any part of the Center are made necessary by any act or omission or negligence of Tenant, its agents, employees or invitees, then in any such event Landlord may make such repairs without liability to Tenant for any loss or damage that may accrue to Tenant’s personal property or business by reason thereof, and upon completion thereof, Tenant shall pay Landlord’s costs for making such repairs plus a reasonable amount for Landlord’s overhead, not to exceed fifteen percent (15%), upon presentation of a bill therefor, as Additional Rent.  Such payment shall be due ten days after receipt of a bill therefor and after said date shall bear Interest.

5.3.          Inspection.  Landlord or its representative shall have the right to enter the Demised Premises and inspect same during any business day with 48 hours notice (and without notice in an emergency or suspected emergency at any time) during the Term.  During the last six (6) months of the Term, Landlord shall have a right to show the Demised Premises to prospective tenants.

5.4.          Tenant Alterations.  Tenant will not make any alterations, installations, changes, replacements, additions or improvements (structural or otherwise) in or to the Demised Premises or any part thereof without the prior written consent of Landlord and Landlord agrees that for non-structural alterations that do not affect any of the systems of the Demised Premises it will not unreasonably withhold its consent.  Tenant shall not install any equipment, which would necessitate any changes, replacements or additions to the plumbing, heating, air conditioning or electrical systems of the Demised Premises without the prior consent of Landlord.  All alterations, installations, changes, replacements, additions, or improvements to or within the Demised Premises (whether with or without Landlord’s consent) shall, at the election of the Landlord, remain upon the Demised Premises and be surrendered with the Demised Premises at the expiration of the Lease or, at the election of Landlord, be removed by Tenant and the Demised Premises returned to its original condition, normal wear and tear excepted.  Notwithstanding the foregoing, the initial improvements made pursuant to Exhibit “C” shall remain at the Demised Premises at the expiration or earlier termination of the Lease and shall become the property of the Landlord without payment therefor by Landlord unless as a condition at the time the Landlord consents to such work, the Landlord expressly requires Tenant to remove the same at the end of the Term.  Notwithstanding the above, Tenant may remove Tenant’s operating systems, furniture and other items of movable personal property at the end of the Term of this Lease provided that such systems, furniture or personal property were not part of the initial fit-out work by Landlord as shown in Exhibit “C” and further provided that the removal of such systems, furniture or personal property does not cause any damage to the Demised Premises.

5.5.          Compliance with Law; Life Safety.  Landlord shall install and maintain within the Building in which the Demised Premises are a part, fire alarms, emergency lighting, and other related life safety equipment, and exits from the Demised Premises to comply with all present and future requirements of federal, state, county and city governments and all other governmental authorities having or claiming jurisdiction with respect to the occupancy of the Demised Premises initially and throughout the Term and the cost thereof (excluding the cost for such items pursuant to the initial tenant fit-out work performed pursuant to the specifications

10

referenced on Exhibit “C” attached hereto), shall be either expensed on an annual basis by Landlord or amortized over the items useful life of such item (but not more that ten (10) years) and shall be included within the Common Area Operating Expense to be paid by Tenant.

6.DAMAGE AND CONDEMNATION.

6.1.          Fire or Casualty Damage.  In the event of damage or destruction of the Demised Premises by fire or other casualty, the Lease shall not be terminated, but the Demised Premises shall be promptly and fully repaired and restored by Landlord at its own cost and expenses to the condition prior to the commencement of the Lease, normal wear and tear excepted.  If the Demised Premises are damaged but not wholly destroyed by any such casualty, rental shall abate in proportion of the Demised Premises which has been rendered untenantable until substantial completion of its repair, at which time full rental shall again commence under the Lease.  In the event either (i) the damage to the Demised Premises is of such a nature that it cannot be repaired by Landlord within ninety (90) days from the date of the casualty; or (ii) the casualty occurs during the last two (2) years of the Term of the Lease; or (iii) the insurance proceeds available and paid to Landlord are not sufficient to restore the Demised Premises, then Landlord shall, at its option, have the right to terminate the Lease and all further rights and obligations hereunder.  In the event the damage to the Demised Premises is of such a nature that it cannot be repaired by the Landlord within One Hundred and Eighty (180) days from the date of the casualty, as determined by the Landlord’s architect, then the Tenant may at its option terminate this Lease.

6.2.          Condemnation.  Tenant agrees that if the Demised Premises, or any part thereof which affects Tenant’s ability to occupy the space, shall be taken or condemned for public use or purpose by any authority, Tenant shall have no claim against Landlord and shall not have any claim or right to any portion of the amount that may be awarded as damages or paid as a result of any such condemnation.  All rights of Tenant to damages therefor, if any, are hereby assigned by Tenant to Landlord.  Upon such condemnation or taking, the Term of the Lease shall cease and terminate from the date of such governmental taking or condemnation, and Tenant shall have no claim against Landlord for the value of any unexpired term of the Lease.  Nothing in this paragraph shall preclude Tenant from filing a separate claim against the condemning authority for relocation costs, loss of business, unamortized cost of any leasehold improvements that Tenant directly paid for and loss of business provided that any award or claim to or by Tenant will not result in a diminution of any award to Landlord or affect any claim by Landlord.

7.SUBORDINATION, ATTORNMENT, ESTOPPEL, MODIFICATIONS.

7.1.          Subordination.  The Lease and all of Tenant’s rights hereunder are subject and subordinate to all ground or underlying leases and to all mortgages and/or deeds of trust (or deeds to secure debt) which may now or hereafter affect such leases or the real property of which the Demised Premises form a part and to all renewals, modifications, consolidations, replacements and extensions thereof.  This clause shall be self-operative and no further instrument or subordination shall be required by any mortgagee or trustee; provided, however, Tenant, upon request of any party in interest, shall promptly execute and deliver in recordable form such instruments as are necessary to effectuate or confirm this subordination.

11

Landlord agrees to commercially reasonable efforts to deliver a Non-Disturbance Agreement to Tenant from the holder of any mortgagee holding a mortgage or Deed of Trust encumbering the Demised Premises on such mortgagee’s form.

7.2.          Attornment.  If the holder of any mortgage, deed to secure debt, or other instrument affecting or encumbering the fee title to the Demised Premises shall hereafter succeed to the rights of the Landlord under this Lease, through whatever means, then Tenant shall, at the option of such holder, attorn to and recognize such successor as Tenant’s Landlord under the Lease and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment, and upon such attornment, this Lease shall continue in full force and effect as a direct Lease between such successor Landlord and Tenant, subject to all terms of the Lease.

7.3.          Estoppel Certificates.  At anytime, and from time to time, upon the written request of Landlord or any mortgagee of the Center, Tenant, within ten (10) days of the date of such written request, agrees to execute and deliver to Landlord and/or mortgagee, without charge and in a form satisfactory to Landlord and/or such mortgagee, a written statement (i) ratifying the Lease; (ii) confirming the commencement and expiration dates of the Term of the Lease; (iii) certifying that Tenant is in occupancy of the Demised Premises, and that the Lease is in full force and effect and has not been modified, assigned, supplemented or amended except by such writings as shall be stated; (iv) certifying to the best of the Tenant’s knowledge that all conditions and agreements under the Lease to be satisfied or performed by Landlord have been satisfied or performed except as shall be stated; (v) certifying to the best of the Tenant’s knowledge that Landlord is not in default under the Lease and there are no defenses or offsets against the enforcement of the Lease by Landlord, or stating the defaults and/or defenses or offsets against the enforcement of the Lease by Landlord, or stating the defaults and/or defenses claimed by Tenant; (vi) reciting the amount of advance rent, if any, paid by Tenant and the date to which such rent has been paid; (vii) reciting the amount of security deposited with Landlord, if any; and (viii) any other information which Landlord or mortgagee shall require.  The failure of Tenant to execute, acknowledge and deliver to Landlord and/or any mortgagee or perspective mortgagee of Landlord a statement in accordance with the provisions herein within the period set forth herein shall constitute an acknowledgment by Tenant which may be relied upon by any person holding or intending to acquire any interest whatsoever in the Demised Premises or the Center that the Lease has not been assigned, amended, changed or modified, is in full force and effect and that the Minimum Annual Rent and Additional Rent have been duly and fully paid not beyond the respective due dates immediately preceding the date of the request for such statement and shall constitute as to any persons entitled to rely on such statements a waiver of any defaults by Landlord or defenses or offsets against the enforcement of the Lease by Landlord which may exist prior to the date of the written request, and Landlord, at its option, may treat such failure as a event of default.

7.4.          Mortgagee’s Unilateral Subordination.  Notwithstanding anything in this Lease to the contrary, if a mortgagee shall so elect by notice to Tenant and the recording of a unilateral declaration of subordination, this Lease and Tenant’s rights hereunder shall be superior and prior in right to the mortgage or deed to secure debt of which such mortgagee has the benefit, with the same force and effect as if this Lease had been executed, delivered and recorded prior to the execution, delivery and recording of such mortgage or deed to secure debt, subject to such conditions as may be set forth in any such notice or declaration.

12

7.5.          Notice to Mortgagee.  If any mortgagee shall notify Tenant that it is the holder of a mortgage or deed to secure debt affecting the Demised Premises, Tenant shall thereafter provide such mortgagee with (a) copies of all notices of default delivered by Tenant to Landlord and (b) prior to exercising any right Tenant may have to terminate this Lease or to claim a partial or total eviction, Tenant agrees that such mortgagee shall have a reasonable period of time for remedying such act or omission following the giving of such notice.

7.6.          Modifications.  Tenant agrees, upon fourteen (14) days written notice that, upon the request of any mortgagee or prospective mortgagee, Tenant will enter into an agreement amending any of the terms and conditions of the Lease provided such amendment does not affect or change any of the economic terms, business operations or use or any of the rights granted under this Lease.

8.ASSIGNMENT AND SUBLETTING.

8.1.          Assignment and Subletting.  Tenant shall not assign or mortgage the Lease or any interest therein or sublet the Demised Premises or any part thereof without the prior written consent of the Landlord, which shall not be unreasonably withheld.  For the purposes of this paragraph, the sale or assignment of a controlling interest in the Tenant corporation or a majority interest in the Tenant’s partnership, as the case may be, shall be deemed an assignment, but the assignment to a parent or a wholly owned subsidiary of the Tenant shall be permitted; provided that Landlord is provided advance written notice of such assignment and provided that such assignee assumes the obligation of Tenant in writing in a form acceptable to the Landlord and that such assignment not relieve Tenant of its obligations hereunder.

9.DEFAULTS, REMEDIES AND WAIVER.

9.1.          Events of Default.  The occurrence of any of the following shall constitute a default (“Event of Default”) and breach of the Lease by Tenant: (i) failure of Tenant to take possession of the Demised Premises within ten (10) days after the commencement date of the Lease; (ii) the Tenant shall do or permit to be done anything which creates a lien of any nature whatsoever upon the Demised Premises or the Center; (iii) a failure by Tenant to pay, when due, any installment of Minimum Annual Rent or Additional Rent hereunder or any such other sum herein required to be paid by Tenant where such failure continues for ten (10) days after written notice thereof from Landlord to Tenant provided that Landlord shall not be obligated to send such notice more than two (2) times in any twelve month period; (iv) a failure of the Tenant to in any respect adhere or conform to Tenant’s environmental representation in Article 3.3 of the Lease; (v) a failure by Tenant to observe and perform any other terms or conditions of the Lease to be observed or performed by Tenant, where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of the default is such that the same cannot be reasonably cured within such period, Tenant shall not be deemed to be in default and no Event of Default shall have occurred, if within such period Tenant shall commence such cure and thereafter diligently prosecute the same to completion; (vi) the making by Tenant (or any guarantor of Tenant) of any assignment for the benefit of creditors; and adjudication that Tenant is bankrupt, insolvent, or unable to pay its debts; the filing by or against Tenant (or any guarantor of Tenant) of a petition in bankruptcy or of a petition for reorganization or (vii) arrangement under any law relating to bankruptcy (unless,

13

in the case of a petition filed against Tenant, the same is dismissed within thirty (30) days after the filing thereof); (viii) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s (or any guarantor’s) assets or of Tenant’s interest in the Lease (unless possession is restored to Tenant within thirty (30) days after such appointment); or (ix) the attachment, execution or levy against, or other judicial seizure of, substantially all of Tenant’s (or any guarantor’s) assets or of Tenant’s interest in the Lease (unless the same is discharged within thirty (30) days after issuance thereof).

9.2.          Remedies.  Upon the occurrence of any of the aforesaid Events of Default, Landlord shall have the option to pursue any one or more of the following causes of action without any further notice or demand whatsoever:

(i)            terminate the Lease, in which event Tenant shall immediately surrender the Demised Premises to Landlord, but if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearage in Rent, enter upon and take possession of the Demised Premises and expel or remove Tenant and its effects and any other person, by force if necessary, without being liable for prosecution or any claim of damages therefore; and Tenant hereby agrees to indemnify Landlord for loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Demised Premises or through decrease in Rent or otherwise; and/or

(ii)           terminate this Lease as provided in clause (i) of this Paragraph 9.2 and recover from Tenant all damages Landlord may incur by reason of Tenant’s default, including, without limitation, a sum which, at the date of such termination, represents the value of the excess, if any, of (1) the Minimum Annual Rent, all Additional Rent and all other sums which would have been payable hereunder by Tenant for the period commencing with the day following the date of such termination and ending with the expiration date had this Lease not been terminated, over (2) the aggregate reasonable rental value of the Demised Premises for the period commencing with the day following the date of such termination and ending with the expiration date had this Lease not been terminated, plus (3) the costs of recovering possession of the Demised Premises and all other expenses incurred by Landlord due to Tenant’s default, including, without limitation, reasonable attorney’s fees, plus (4) the unpaid Minimum Annual Rent and all Additional Rent earned as of the date of termination plus any interest and late fees due hereunder, plus other sums of money and damages owing on the date of termination by Tenant to Landlord under this Lease or in connection with the Demised Premises, all of which excess sum shall be deemed immediately due and payable; provided, however, that such payments shall not be deemed a penalty but shall merely constitute payment of liquidated damages, it being understood and acknowledged by Landlord and Tenant that actual damages to Landlord are extremely difficult, if not impossible, to ascertain.  The excess, if any, of subclause (1) over subclause (2) herein shall be discounted to present value at 200 basis points below the Treasury Yield rate.  Treasury Yield shall mean the rate of return in percent per annum of Treasury Constant Maturities for the length of time specified as published in document H.15 (519) (presently published by the Board of Governors of the U.S.  Federal Reserve System titled Federal Reserve Statistical Release) for the calendar week immediately preceding the calendar week in which the termination occurs.  If the rate of return of Treasury Constant Maturities for the calendar week in question is not published on or before the business day preceding the date the Treasury Yield in question is to become effective, then the Treasury Yield shall be based

14

upon the rate of return of Treasury Constant Maturities for the length of time specified for the most recent calendar week for which such publication has occurred.  If no rate of return for Treasury Constant Maturities is published for the specific length of time specified, the Treasury Yield for such length of time shall be the weighted average of the rates of return of Treasury Constant Maturities most nearly corresponding to the length of the applicable period specified.  If the publishing of the rate of return of Treasury Constant Maturities is ever discontinued, then the Treasury Yield shall be based upon the index which is published by the Board of Governors of the U.S. Federal Reserve System in replacement thereof or, if no such replacement index is published, the index which, in Landlord’s reasonable determination, most nearly corresponds to the rate of return of Treasury Constant Maturities.  In determining the aggregate reasonable rental value pursuant to subclause (2) above, the parties hereby agree that, at the time Landlord seeks to enforce this remedy, all relevant factors should be considered, including, but not limited to, (a) the length of time remaining in the term of this Lease, (b) the then current market conditions in the general area in which the building of which the Demised Premises are a part is located, (c) the likelihood of reletting the Demised Premises for a period of time equal to the remainder of the term of this Lease, (d) the net effective rental rates then being obtained by landlords for similar type space of similar size in similar type buildings in the general area in which such building is located, (e) the vacancy levels in the general area in which such building is located, (f) current levels of new construction that will be completed during the remainder of the term of this Lease and how this construction will likely affect vacancy rates and rental rates, and (g) inflation; and/or

(iii)          enter the Demised Premises as agent of Tenant by force, if necessary, without being liable to prosecution or any claim for damages therefor, and relet the Demised Premises as the agent for Tenant and receive the rent therefor and Tenant shall pay Landlord any deficiency that may arise by reason of such reletting on demand at the office of the Landlord; and/or

(iv)          as agent of Tenant, do whatever Tenant is obligated to do by the provision of the Lease and Landlord may enter the Demised Premises, by force if necessary, without being liable to prosecution or any claims for damages therefor, in order to accomplish this purpose.  Tenant agrees to reimburse Landlord immediately upon demand for any expenses, which Landlord may incur, including legal fees, in effecting compliance with the Lease on behalf of Tenant and Tenant further agrees that Landlord shall not be liable for any damages to Tenant from such action.  Any termination of the Lease under this Paragraph 9.2 shall not release Tenant from the payment of any sum then due Landlord or from any claim for damages, Minimum Annual Rent, Additional Rent or any other sum previously accrued or thereafter accruing against Tenant.  In addition to any of the foregoing, Landlord shall be entitled to seek any other available remedy at law or in equity.

Any reletting of the Demised Premises by Landlord as the agent of the Tenant shall not terminate this Lease and may be for such a term, rent amount, and other conditions as Landlord deems desirable, without advertisement and by private negotiations.  Tenant shall reimburse Landlord for all Landlords’ costs, expenses, and attorney fees in connection with such reletting, including, without limitations, all commissions and advertising costs.  No action taken by or on behalf of Landlord shall be construed to be an acceptance or a surrender of the Demised Premises and no agreement to accept a surrender of the Demised Premises shall be valid unless

15

in writing and executed by Landlord.  In determining the amount of loss or damage which Landlord may suffer by reason of termination of the Lease or the deficiency arising by reason of any reletting of the Demised Premises by Landlord as above provided, allowance shall be made for expense of repossession and any repairs and remodeling undertaken by Landlord following repossession, and there shall be added to the amount due to Landlord as herein provided all costs and expenses incurred by Landlord in the enforcement of the Lease, including, without limitation, the fees of Landlord’s attorneys.  So long as other comparable tenant space exists within the Center, which is unleased, Landlord shall have no obligation with respect to reletting the Demised Premises.

9.3.          Waiver.  The failure or delay on the part of Landlord to enforce or exercise at any time any of the terms and conditions of the Lease shall in no way be construed to be a waiver thereof, nor in any way to affect the validity of the Lease or any part hereof, or the right of the Landlord to thereafter enforce each and every such term or condition.  No waiver of any breach of the Lease shall be held to be a waiver of any other or subsequent breach.  The receipt and acceptance by Landlord of rent at a time when rent is in default under the Lease shall not be construed as a waiver of such default.

9.4.          Landlord’s Expenses.  If Landlord in its sole discretion finds it necessary to engage consultants or take actions in order to enforce Landlord’s rights hereunder, Tenant will reimburse Landlord as Additional Rent for the reasonable expenses incurred thereby, including but not limited to court costs and reasonable attorneys’ fee.

9.5.          Waiver of Right of Redemption.  Tenant hereby expressly waives any and all rights of redemption conferred by law or otherwise.

10.MISCELLANEOUS PROVISIONS.

10.1.        Landlord’s Liability.  Landlord’s liability with respect to the Lease shall be limited solely to Landlord’s interest in the Center as such interest is constituted from time to time, and neither Landlord nor any employee or agent of Landlord shall have any personal liability whatsoever.  The term “Landlord” as used in the Lease means only the owner or mortgagee in possession for the time being of the Center so that in the event of a sale of the Center and the assignment of the Lease, then the Landlord shall be and hereby is entirely freed and relieved of all obligations subsequently accruing.

10.2.        Quiet Enjoyment.  If, and so long as, Tenant pays the Minimum Annual Rent and Additional Rent reserved hereunder and observes and performs all the terms and conditions on Tenant’s part to be observed and performed hereunder, Tenant shall and may peaceably and quietly have, hold and enjoy the Demised Premises for the entire Term hereof, subject to all the provisions of the Lease.

10.3.        Force Majeure.  If Landlord is delayed or prevented from performing any of its obligations under the Lease by reason of strike or labor troubles or any cause whatsoever beyond Landlord’s control, the period of such delay or prevention shall be deemed added to the time herein provided for the performance of any such obligation by Landlord.  Landlord shall in no event be in default in the performance of any of its obligations under the Lease unless and

16

until Landlord shall have failed to perform such obligation within thirty (30) days or such additional time as is reasonably required to correct any such default, after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation.

10.4.        Security Deposit.  Tenant has deposited with Landlord as security for the performance by Tenant of the terms of the Lease the sum set forth in Article 1.5 hereto.  Landlord may use, apply or retain (without liability for interest) during the Term the whole or any part of the Security Deposit so deposited to the extent required for the payment of any rent or other sum as to which Tenant may be in default hereunder or for any sum which Landlord may expend by reason of Tenant’s default in respect of any of the terms of the Lease.  Provided Tenant shall comply with all the terms of the Lease, such Security Deposit shall be returned to Tenant, without interest, upon termination of the Lease and after surrender of possession of the Demised Premises to Landlord.  Landlord shall have no obligation to maintain said Security Deposit in an escrow or segregated account or pay interest thereon to Tenant.  Tenant shall restore the Security Deposit to the original amount if all or any portion thereof is used, applied or retained by Landlord in accordance with the provisions of this Paragraph.

10.5.        Notices.  Whenever notice shall or may be given to either party by the other, each such notice shall be given by certified mail or overnight delivery with return receipt requested, at the respective address of the party as contained in Article 1.9 hereof or to such other address as either party may from time to time designate by notice in writing to the other.  Any notice under this Lease shall be deemed to have been given at the time it is placed with the carrier with sufficient postage prepaid.

10.6.        Surrender and Holdover.  Upon termination of this Lease for any reason whatsoever, Tenant shall surrender the Demised Premises and keys thereof to Landlord in the same condition as at the Commencement Date, normal wear, tear and other casualty excepted.  Should Tenant refuse or fail to surrender the Demised Premises upon expiration of the Term or earlier termination thereof, Tenant shall be a tenant at sufferance and shall pay to Landlord as liquidated damages on demand each month during such holdover period a sum equal to (i) one hundred fifty percent (150%) of the Minimum Annual Rent due during the last month of the Term hereunder, plus (ii) all Additional Rent and other sums and charges payable hereunder.  In the event of any unauthorized holding over, Tenant shall indemnify Landlord against all claims for damages by any other tenant to whom Landlord may have leased all or any part of the Demised Premises effective upon the termination of the Term (including damages by reason of Landlord’s inability to have access to the Demised Premises upon the termination of the Term even if the lease with a new tenant of all or any part of the Demised Premises does not commence until sometime thereafter).

If Tenant remains in possession after the expiration of the Term with Landlord’s acquiescence and without any written agreement of the parties, Tenant shall be a Tenant at will, there shall be no renewal of this Lease by operation of law, and all of the provisions in the immediately preceding paragraph (including the provisions therein with respect to the payment of Minimum Annual Rent, Additional Rent and other sums and charges) shall be fully applicable during such holdover.  Notwithstanding the notice provision of the Official Code of Georgia Annotated Section 44-7-7, as the same may be now or hereafter amended such tenancy at will may be terminated upon thirty (30) days notice from Landlord or Tenant.

17

10.7.        Lease Form.  If any term or provision of the Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of the Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of the Lease shall be valid and be enforced to the fullest extent permitted by law.  The captions contained herein are for convenience and reference only and shall not be deemed as part of the Lease or construed as in any manner limiting or amplifying the terms and provisions of the Lease to which they relate.

10.8.        Time.  Time is of the essence of the Lease and wherever a day certain is stated for payment or performance of any obligation of Tenant or Landlord (including, without limitation, those set forth in Paragraph 12), the same enters into and becomes a part of the consideration.

10.9.        Broker.  Tenant represents and warrants to Landlord that Tenant has not dealt with any broker, firm, company or person in connection with the negotiation for or the obtaining of the Lease.  Tenant represents and warrants to Landlord that no broker, firm, company or person was involved in the negotiation for or the obtaining of the Lease.

10.10.      Landlord’s Reliance.  Landlord has executed the Lease in reliance upon certain financial information, which has been submitted by Tenant to Landlord prior to the execution of the Lease.  Tenant confirms that the information submitted is true and correct and a fair representation of Tenant’s financial condition at the time of signing of the Lease.  From time to time, upon five (5) days written request by Landlord, Tenant will submit to Landlord current financial information satisfactory for Landlord to properly determine Tenant’s financial condition.

10.11.      Relationship of Parties.  Nothing contained in the Lease shall be deemed or construed as creating the relationship of principal and agent or of partnership or joint venture between the parties hereto, it being understood and agreed that neither the method of computing rent nor any other provision contained herein nor any acts of the parties hereto shall be deemed to create any relationship between the parties other than that of landlord and tenant.  No estate in land shall pass out of Landlord, and Tenant shall have only a usufruct, not subject to levy and sale and not assignable in whole or in part by Tenant, except as provided herein.

10.12.      No Reservation.  The tender of the Lease by Landlord shall not represent a reservation or commitment for the Demised Premises upon/or by Landlord until it is fully executed by both parties hereto.

11.SIGNS.

Landlord will place Tenant’s name and suite number on the standard directory in the Center on a sign approved by Landlord.  Aside from the aforementioned sign, Tenant may not erect any sign on the interior or exterior of the Demised Premises that is visible from the outside of the Demised Premises nor may it erect a sign in any other location within the Center or on the Demised Premises without the Landlord’s written consent.

18

12.OPTION TO RENEW.

12.1.        Conditions.  Subject to the provisions of this Paragraph 12, Landlord grants to Tenant the right and option to extend the Term of this Lease with respect to all (but not less than all) of the Demised Premises for a period of five (5) years (the “Renewal Term”).  The Renewal Term shall commence at the expiration of the initial Term of the Lease provided that: (a) such option must be exercised, if at all, by written notice to Landlord given at least eight (8) months prior to the end of the initial Term; (b) at the time of the exercise of such option and at the commencement of the Renewal Term, the Lease shall be in full force and effect and no event shall exist at the time of the exercise of such option which event by notice and/or passage of time would constitute an Event of Default if not cured within the applicable cure period and (c) all provisions of this Paragraph 12 are complied with by Tenant.

12.2.        Renewal Provisions.  In the event the Tenant properly exercises the foregoing renewal option, all the terms and conditions contained in this Lease shall continue to apply during the Renewal Term, except that after the Renewal Term, there shall be no further right of renewal and during the Renewal Term, the Minimum Annual Rent shall be the “Market Rate of Rent” as defined below in Section 12.3.  In the event the Tenant: (a) properly exercises its option to extend the term of this Lease as set herein, all references to the word “Term” in the Lease shall be deemed to include the Renewal Term; or (b) improperly exercises its option to extend the Term of this Lease as set forth herein or fails to exercise such option, then this Lease shall automatically expire at the end of the Term as provided for herein, and any such option shall automatically become null and void.

12.3.        Market Rate of Rent and Procedure. “Market Rate of Rent” shall mean Landlord’s good faith determination of the prevailing rental rate (taking into account all tenant concessions, which may include, for example, free rent, tenant improvements, a design allowance, or a brokerage commission) typically furnished for renewals of tenancies of similar size, renewal term and location in the Center and/or renewal rents for comparable tenancies in comparable buildings or office parks in the vicinity of the Center, commencing on or about the commencement date of the Renewal Term.  Such prevailing rental rate shall be adjusted in order to reconcile any differences in the manner of charging operating costs, taxes or other items of escalation or utilities, and to reconcile differences in square footage, term, commencement date and location.  Landlord’s good faith determination shall be based upon rents being obtained by Landlord for renewal tenancies that are to commence at approximately the commencement date of the Renewal Term as well as previous renewal rental rates obtained by Landlord for the Building or the Center and/or renewal rents for comparable tenancies in comparable buildings, subject to the adjustments as set forth above.  Landlord agrees to give Tenant written notice setting forth the Market Rate of Rent within thirty (30) days after Tenant has timely and properly exercised its option to extend the Renewal Term.  Tenant shall have thirty (30) days after its receipt of written notice from Landlord to withdraw its exercise of its option to extend for the Renewal Term if said Market Rate of Rent is unacceptable.  Tenant’s failure to give said notice within the foregoing thirty (30) day period shall automatically be deemed to be Tenant’s acceptance of Landlord’s determination of the Market Rate of Rent for the Renewal Term.

19

12.4.        Additional Terms.  In the event the Tenant properly exercises its option to extend the term of the Lease for the Renewal Term:

A.            Tenant shall have no further option to renew any term of this Lease beyond the expiration date of the Renewal Term.

B.            Landlord shall not be obligated to perform any leasehold improvement work in the Demised Premises or give Tenant an allowance for any such work or for any other purposes.

C.            Except as otherwise provided herein, all of the terms and provisions of this Lease shall remain the same and in full force and effect during the Renewal Term.

D.            If Tenant exercises its right to extend the term of this Lease for the Renewal Term, Tenant at the request of Landlord shall execute and deliver an amendment to this Lease reflecting the lease of the Demised Premises by Landlord to Tenant for the Renewal Term on the terms provided above, which amendment shall be executed and delivered prior to the commencement date for the Renewal Term.

12.5.        Termination.  The option to extend the term of this Lease for the Renewal Term shall automatically terminate and become null and void and of no force and effect upon the earlier to occur of: (i) the expiration or termination of this Lease, (ii) the termination of the Tenant’s right to possession of the Demised Premises, (iii) the assignment of this Lease by Tenant in violation of the terms of this Lease, (iv) the sublease by Tenant of all or part of the Demised Premises in violation of the terms of this Lease, or (v) the failure of Tenant to timely or properly exercise the right to extend the term pursuant to the provisions set forth hereinabove, or (vi) the default by Tenant under the Lease beyond any applicable grace period.

13.PARKING

Tenant and its employees, agents, and invitees shall park their vehicles only in those portions of the parking areas designated for that purpose by Landlord pursuant to Exhibit ”F” attached.  Tenant shall, within five days of the request from Landlord, furnish Landlord with the license numbers of Tenants’ and Tenant’s employees’ vehicles and thereafter notify Landlord of any change in same.  In no event will Tenant permit any cars associated with Tenant to be parked in any designated fire safety areas or no parking zones.  This provisions does not imply a reservation of any particular space in the parking area, nor does it imply an obligation on the part of the Landlord to police the utilization of spaces and Landlord shall have no liability to Tenant, if by reason of utilization of parking spaces by others the parking areas are not at any particular time available to Tenant, its employees or invitees.

14.TERMINATION OF PRIOR LEASE

14.1.        Termination.  The parties hereto agree that upon the Commencement Date of this Lease, as determined in paragraph 1.3 hereto, the Prior Lease shall terminate on the Commencement Date (the “Termination Date”), provided that the following events shall have occurred:  (i) the Commencement Date under this Lease shall have occurred; (ii) Tenant shall

20

have completely vacated the premises covered by the Prior Lease (the “Existing Premises”) and left the Existing Premises clean and neat and in the same condition, order and repair as the Existing Premises is required to be surrendered under the Prior Lease; (iii) Tenant has entered into possession and occupancy of the Demised Premises under the terms and conditions of this Lease; (iv) there shall exist no default by Tenant with respect to either the Prior Lease or this Lease.  In no event shall the foregoing termination be deemed to be a release of any of the Tenant’s obligations as tenant with respect to the Existing Premises under the Prior Lease for obligations that shall have accrued up to and including the Termination Date, or which shall survive the termination of the Prior Lease by its express terms.

15.SPECIAL STIPULATIONS

15.1.        Special Stipulations.  The Special Stipulations, if any, shall hereby be incorporated herein and made a part hereof as Exhibit “B,” and in the event they conflict with any of the foregoing provisions, the Special Stipulations shall control.

IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have caused the Lease to be duly executed and sealed the day and year first above written.

LANDLORD:
LA/GA BUSINESS CENTERS, INC.
BY:	/s/ Mark B. Greco
	Name: Mark G. Greco
	Title:   Vice President
TENANT:
MEDQUIST TRANSCRIPTIONS, LTD.,
a corporation organized and existing under the
laws of New Jersey
By:	/s/ John M. Suender	/s/ Dawn Parent		(attest)
	Name: John M. Suender
	Title:   Senior Vice President
			(seal)

Billing Address:
MedQuist Transcriptions, Ltd.
Five Greentree Centre, Suite 311
Marlton, NJ 08053
Attn: General Counsel

21

EXHIBIT “A”

1395 South Marietta Parkway
Building 600, Suite 606/608
Marietta, Georgia 30067

[INSERT FLOOR PLAN]

EXHIBIT “A1”

1395 South Marietta Parkway
Building 600, Suite 602
Marietta, Georgia 30067

[INSERT FLOOR PLAN]

EXHIBIT “B”
SPECIAL STIPULATIONS

These Special Stipulations are made and entered into contemporaneously with a Lease dated the            day of             , 2002, between LA/GA BUSINESS CENTERS, INC., as Landlord and MEDQUIST TRANSCRIPTIONS LTD., as Tenant.

In the case of any conflict between these Special Stipulations and the Lease, these Special Stipulations shall control.  All terms used herein shall be as defined in the Lease.

1.LANDLORD AND TENANT CONSTRUCTION OBLIGATION:

(a)           Landlord shall complete the Demised Premises pursuant to Tenant’s approved plans and specifications attached hereto as Exhibit “C” and made a part hereof.  Tenant shall be entitled to a construction allowance equal to Two Hundred Seventy-Six Thousand Six Hundred Fifty-Four Dollars and no cents ($276,654.00; $14.00 psf) (the “Allowance”).  Any and all costs exceeding the Allowance shall be at Tenant’s sole cost and expense and shall be due and payable as follows:  (i) one half due at execution of the Lease or change order as the case may be, and (ii) the balance due prior to occupancy.  Any changes, additions, and/or deletions to Exhibit “C” desired by Tenant shall be at Tenant’s sole expense.  If Tenant fails to comply with the aforesaid date, or requires changes to Exhibit “C” which delay the completion of the Demised Premises, Tenant’s obligation to pay Rent from the Commencement Date shall not be affected.  It is understood and agreed that all construction plans and specifications are subject to Landlord’s approval.

(b)           Upon substantial completion of the Demised Premises in accordance with Exhibit “C” Tenant shall accept the Demised Premises in their then-existing condition as suited for the uses intended by Tenant, subject only to the punch list items set forth on a “Tenant Acceptance Agreement” in the form of Exhibit “B” attached hereto and except for any latent defects which Tenant notifies Landlord of in writing within one (1) year of taking possession.  By its entry into the Demised Premises, Tenant acknowledges that it has examined the Demised Premises and accepts the same as being in the condition called for by this Lease, subject only to the punch list items, if any, set forth in the “Tenant Acceptance Agreement.”

2.ANNUAL RENTAL SCHEDULE:

In accordance with Article 1.6 and Article 2.2 of the Lease hereof the Landlord and Tenant agree that the Minimum Annual Rental schedule for the Demised Premises shall be:

Period	Monthly		Annually
Months 1 through 6	$	12,169.92	$	146,039.00
Months 7 through 12	$	15,232.44	$	182,789.25
Months 13 through 24	$	15,765.57	$	189,186.84
Months 25 through 36	$	16,317.37	$	195,808.14
Months 37 through 48	$	16,888.48	$	202,661.76
Months 49 through 60	$	17,479.57	$	209,754.84

3.EARLY OCCUPANCY:

In the event the premises are substantially completed prior to December 1, 2002 and the Landlord delivers the Demised Premises to the Tenant before December 1, 2002 or Tenant opens for business at the Demised Premises prior to December 1, 2002, Tenant shall upon early occupancy pay a per diem rate of $500.79 per day base rent plus Tenant’s prorata share of operating expense pass through for the period from the date of early occupancy to December 1, 2002.  Tenant’s early occupancy of the Demised Premises under this provision shall not change the original occupancy date or the Term of the Lease.

4.RULES AND REGULATIONS:

The Rules and Regulations labeled Exhibit “D”, attached hereto and made a part hereof, are hereby incorporated into and made a part of this Lease, and Tenant agrees to comply therewith.  In the event the Rules and Regulations are changed or amended, the Landlord shall use reasonable standards in determining the new or amended rules or regulations.

5.HVAC:

Upon occupancy, the Landlord will certify to Tenant in writing by providing a copy of the inspection report on the HVAC systems serving the Demised Premises have been checked and serviced by a licensed HVAC contractor.

6.DUMPSTER FEES:

The Landlord shall bill Tenant, as Additional Rent, $35.00 per month for dumpster access subject to change each January 1st of each year.

7.RIGHT OF FIRST REFUSAL:

Tenant shall have a continuous right of first refusal (the “Right of First Refusal”) to lease the area outlined in green on Exhibit “A-1” and representing approximately 6,770 rentable square feet of space in Building 600, Suite 602 of the American Business Center, subject to the following terms and conditions:

(a)           At the time of the exercise of the Right Of First Refusal, Tenant shall not be in default in the performance of any of the terms, covenants, or conditions contained in the Lease.

(b)           At any time during the Term of the Lease, Landlord shall notify Tenant, in writing, as specified in Paragraph 1.9 of this Lease when another bonafide user desires to lease all or a portion of the above referenced space.  Landlord shall also provide Tenant information concerning the terms and conditions under which the bonafide user agrees to lease said space.  Tenant must notify Landlord, in writing, as specified in Paragraph 1.9 of this Lease of its decision regarding the space under consideration within five (5) business days from Landlord’s notification.  If Tenant fails to notify Landlord within the stated five (5) business day period, then Tenant waives its right to lease the space covered in such notice.  If Tenant waives its right to lease said space, Landlord may then proceed to lease the space to said bonafide user or any

25

other interested party upon any terms agreed to between the third party and the Landlord and if the Tenant waives its right to lease said space, the Tenant’s Right of First Refusal, as it pertains to the portion of the space covered by the Landlord’s notice shall be waived and terminated.  Notwithstanding the above, if Landlord does not rent the space that was the subject to any particular notice given to Tenant within one (1) year from the date such notice was given to Tenant, then Landlord must again offer such space to Tenant in accordance with the foregoing procedure.

(c)           If Tenant elects to lease the space covered by the Right of First Refusal in response to the notice given by Landlord as set forth above in (b), then Tenant must commence paying rent on said space within sixty (60) days of its election to lease said space or the completion of improvements (if any), whichever is later.  Tenant shall lease said space under the same terms and conditions offered to the bonafide user, except that the rental rate shall be the higher of the offered rental rate or Tenant’s then escalated rental rate.

(d)           Once Tenant has exercised its right to lease the space covered by Landlord’s notice, Landlord shall immediately prepare a Lease Amendment for execution and the leasing of such space shall not be effective until such amendment is signed by both Landlord and Tenant.  Tenant shall deliver to Landlord, within ten (10) business days of its acceptance of its Right of First Refusal, a final floor plan so that Landlord may commence construction.

26

EXHIBIT “C”

1.             Incorporated herein by reference are the drawings prepared for MEDQUIST TRANSCRIPTIONS, LTD. dated January 24, 2002, by Harris Fritz Associates, labeled 2001-158.

EXHIBIT “D”
RULES AND REGULATIONS

All terms used herein shall be interpreted consistent with the Lease attached hereto.  If the Rules and Regulations conflict with the Lease, the Lease shall govern.

1.             The sidewalks, entrances, passages, courts, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than ingress and egress to and from the Demised Premises.

2.             No awnings or other projections shall be attached to the outside walls of the Building.  No curtains, blinds or shades shall be attached to or hung in, or used in connection with, any window or door of the Demised Premises, without the prior written consent of the Landlord.  Such curtains, blinds, shades, or other fixtures must be of a quality, type, design and color, and attached in the manner approved by Landlord.

3.             No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the Demised Premises or Building without the prior written consent of the Landlord.  In the event of the violation of the foregoing by any Tenant, Landlord may remove the same without any liability, and may charge the expense incurred by such removal to the Tenant violating this rule.  Signs on the building directories shall be inscribed, painted or affixed for each Tenant by the Landlord at the expense of such Tenant, and shall be of a size, color and style determined by the Landlord.

4.             The windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any Tenant, nor shall any bottles, parcels, or other articles be placed on the window sills.

5.             The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein.  All damages resulting from any misuse of the fixtures shall be borne by the Tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same.

6.             No Tenant shall make, paint, drill into, or in any way deface any part of the Demised Premises or the Building.  No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of the Landlord, and as the Landlord may direct.  No Tenant shall lay tile, or other similar or dissimilar floor covering, so that the same shall come in direct contact with the floor of the Demised Premises.

7.             No noise, including, but not limited to music or to the playing of musical instruments, or radio or television, which, in the judgement of the Landlord, might disturb other tenants in the Building, shall be made or permitted by any Tenant.  Nothing shall be done or permitted in the Demised Premises by any Tenant which would impair or interfere with the use or enjoyment by any other tenant of any other space.

8.             No additional locks or bolts of any kind shall be placed upon any of the doors by any Tenant nor shall any changes be made in existing locks or the mechanism thereof Each

Tenant must, upon the termination of its tenancy, restore to the Landlord all keys of offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant, and in the event of the loss of any keys, so furnished, such Tenant shall pay to the Landlord the cost thereof

9.             Except as designated by Landlord, no Tenant shall occupy or permit any portion of the space demised to it to be occupied as an office for a public stenographer or public typist, for the sale of tobacco in any form, for the sale of newspaper and magazines, or as a barber, beauty or manicure shop, or as an employment bureau.  No Tenant shall engage or pay any employees on the Demised Premises, except those actually working for such Tenant in said space, nor advertise for laborers giving an address at said space.  Tenant shall not permit the Demised Premises or any part thereof to be used for the possession, storage, manufacture or sale of liquor, narcotics or dope.

10.           Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord’s judgement, tends to impair the reputation of the Building or its desirability as a Building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising.

11.           The Demised Premises shall not be used for lodging or sleeping or for any immoral or illegal purpose.  No animals or birds shall be brought upon the Demised Premises.

12.           The requirements of the Tenants will be attended to only upon application at the office of the Building or the office of the Landlord.  Employees of Landlord shall not perform any work or do anything outside of the regular duties, unless under special instructions from the office of the Landlord.

13.           Canvassing, soliciting and peddling in the Center is prohibited and each Tenant shall cooperate to prevent same.

14.           There shall not be used in any space, or in the public halls of the Building, either by any Tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards and approved by the Landlord.

15.           Unless Landlord shall furnish electricity hereunder as a service included in the rent, Tenant shall at the Tenant’s expense, provide artificial light and electric current for the employees of Landlord and/or Landlord’s contractors while doing janitor service or other cleaning in said Demised Premises and while making repairs or alterations in said Demised Premises.

16.           Tenant shall not conduct any restaurant, luncheonette or cafeteria for the sale or service of food or beverages to others, or cause or permit any odors of cooking or other process or any unusual or objectionable odors to emanate from the Demised Premises.  Tenant shall not install or permit the installation or use of any food beverage, cigarette, cigar or stamp dispensing machine except in areas specifically designed for same and approved by the Landlord.

17.           No Tenant shall take any action which would interfere with the heating and cooling systems in the Demised Premises.

29

18.           No Tenant shall place anything on the roof of the Buildings.  Antennas shall only be permitted with Landlord’s approval.

19.           Installation of any equipment which could disturb other tenants shall be made only with the approval of Landlord and in a fashion designated by Landlord so as not to affect other Tenants.

30

EXHIBIT “E”
TENANT ACCEPTANCE AGREEMENT

Agreement made this 30th day of December, 2002, between LA/GA BUSINESS CENTERS, INC., A GEORGIA CORPORATION, (hereinafter referred to as “Landlord”) and MedQuist a New Jersey corporation. (hereinafter referred to as “Tenant”).

WHEREAS, Landlord and Tenant entered into a lease dated September 8, 2002 (hereinafter referred to as the “Lease”) for Suite 606/608 containing approximately 19,761 square feet in the Project known as American Business Center, 1395 South Marietta Parkway, Marietta, Georgia 30067 (hereinafter referred to as the “Premises”).

NOW THEREFORE, pursuant to the provisions of the Lease, Landlord and Tenant mutually agree as follows:

1.             The Commencement Date of the Lease Term is January 1, 2003.  The Lease Term shall end on December 31, 2007.

2.             Tenant is in possession of, and has accepted, the Demised Premises demised by the Lease, and acknowledges that all the work to be performed by the Landlord in the Demised Premises as required by the terms in the Lease has been satisfactorily completed except for any punch list items described in Schedule “A” attached hereto and except for any latent defect of which Tenant notifies Landlord of, in writing, within one (1) year of taking possession.  Tenant further certifies that all conditions of the Lease required of Landlord as of this date have been fulfilled and there are no defenses or setoffs against the enforcement of the Lease by Landlord.

3.             Landlord and Tenant are both in agreement that pursuant to Section 14.1 of the Lease, the Prior Lease is terminated effective on the Commencement Date.

IN WITNESS WHEREOF, the Parties hereto have signed and sealed this Agreement, the 15th of January, 2002.

Signed, sealed and delivered in the presence of:		TENANT: MEDQUIST TRANSCRIPTIONS, LTD.
Witness
		By:	/s/ John M. Suender	(SEAL)
By:	/s/ Todi Settlemyre
Todi Settlemyre		Name:	John M. Suender
Director of Technical Support
		Title:	Executive Vice President
Signed, sealed and delivered  in the presence of:		LANDLORD: LA/GA Business Centers, inc., a Georgia Corporation

Witness	By:Ackerman Real Estaet Services Company, Inc.
	By:	/s/ Sharyn Harris, agent
	Its:

32

EX-10.36

Exhibit 10.36

FIRST AMENDMENT TO LEASE AGREEMENT

THIS FIRST AMENDMENT TO LEASE AGREEMENT (the “First Amendment”) is made and entered into effective as of the          , day of March, 2006, by and between LA/GA BUSINESS CENTERS, INC., a Georgia corporation (“Landlord”), and MEDQUIST TRANSCRIPTIONS, LTD., a New Jersey corporation (“Tenant”).

W I T N E S S E T H:

WHEREAS, Landlord, as landlord, and Tenant, as tenant, entered into that certain lease agreement dated September 8, 2002 (as the same may have been amended, modified or supplemented, the “Lease”), relating to certain space known as Suites 606/608 collectively containing approximately 19,761 rentable square feet (the “Premises”) located in building 600 (the “Building”) within the office park known as American Business Center (the “Center”) at 1395 South Marietta Parkway, Marietta, Georgia 30067; and

WHEREAS, Landlord and Tenant desire to enter into this First Amendment for the purpose of evidencing their mutual understanding and agreement regarding Tenant’s installation of a generator and certain other matters relating thereto as set forth hereinbelow.

NOW, THEREFORE, for and in consideration of the premises hereto, the keeping and performance of the covenants and agreements hereinafter contained, and for Ten and No/1 00 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree and amend the Lease as follows:

1.             Defined Terms. All terms used herein and denoted by their initial capitalization shall have the meanings set forth in the Lease unless set forth herein to the contrary.

2.             Generator.

(a)           Provided Tenant is occupying the Premises, Landlord hereby grants to Tenant a non-exclusive license to install, maintain, repair, replace and operate one (1) emergency back-up generator as more particularly set forth on Exhibit “A” attached hereto and incorporated by reference herein (together with any related wires, conduits and other equipment necessary or desirable for the proper operation of such generator, collectively the “Generator”) in a location designated on Exhibit “B” attached hereto and made a part hereof (the “Generator Area”) upon and subject to all of the terms and conditions set forth in this Section. All aspects of the Generator shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall not be obligated to pay any Additional Rent for the space occupied by the Generator.

(b)           The Generator shall be used only by Tenant for Tenant’s own business purposes to provide a source of back-up power for equipment located in the Premises in the event Tenant’s primary electrical service is interrupted; Tenant shall not have the right to use or allow any other person or entity to use the Generator for a fee or otherwise, except as otherwise expressly set forth in the Lease (as amended hereby). The rights under this Section are personal to the Tenant named herein and are not assignable, except as otherwise expressly set forth in the

Lease (as amended hereby). The Generator installed shall be and remain the property of Tenant, and Tenant shall, prior to the expiration or termination of the Lease, as amended hereby, or of the license granted by this Section, remove the Generator and surrender the Generator Area in substantially the same condition existing prior to the installation of the Generator. Tenant shall be liable for, and shall promptly reimburse Landlord for, the actual reasonable cost of repairing all damage done to the Generator Area or to any other portion of the Center by the installation, operation, maintenance, use and/or removal of the Generator, including restoring the landscape to its previous condition. Tenant shall not store any fuel for the Generator on any portion of the Center without the prior written consent of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed provided Tenant complies with all applicable laws, codes, rules, regulations, and ordinances from any and all applicable governing authorities and complies with all applicable provisions of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. (“CERCLA”) and the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (“RCRA”).

(c)           Tenant shall, at its sole cost and expense, obtain all governmental permits or licenses required for the installation, repair, maintenance, operation and removal of the Generator and shall provide Landlord with evidence thereof. Landlord agrees to reasonably cooperate with Tenant in obtaining all such permits and authorization, at no cost or expense to Landlord. Tenant’s installation, repair, maintenance, operation, use and removal of the Generator shall be subject to and performed in accordance with the terms and conditions of the Lease and all applicable Governmental Requirements (as defined below) in effect from time to time. Tenant shall, at its sole cost and expense, and at its sole risk, install the Generator in a good and workmanlike manner, and in compliance with all applicable Governmental Requirements, including, but not limited to, all building, electric, communications, and safety codes, ordinances, standards, regulations and requirements of any governmental authority. Tenant shall conduct the installation, maintenance, operation, use and removal of the Generator in a good and workmanlike manner so as to not materially interfere with any other tenant or occupant of the Building. The operation of the Generator shall not adversely disturb or interfere with the systems of the Building or with any other tenant or occupant of the Building and/or the Center. Attached hereto as Exhibit “A” are the plans and specifications for the Generator. Tenant shall deliver to Landlord Tenant’s plans and specifications for the aesthetic screening of the Generator for review and approval by Landlord (which approval shall not be unreasonably withheld, conditioned, or delayed) not less than fifteen (15) days prior to commencing installation of the Generator. The Generator shall be installed substantially in accordance with the plans and specifications approved by Landlord in its reasonable discretion, and the installation shall be performed by contractors reasonably approved by Landlord. In no event shall the installation, maintenance, operation, use and/or removal of the Generator damage the Building or existing structure on the Building, or materially interfere with the maintenance of the Building and/or the Center, any system currently serving the Building, any equipment currently being operated from or within the Building or from any other building in the Center, or in any manner invalidate or otherwise adversely affect any existing warranties in place on the Building or on any improvements to the Building.

(d)           Landlord shall not be liable to Tenant for any stoppages or shortages of power furnished to the Generator or to the Generator Area because of any act, omission or requirement of the public utility serving the Building, or the act or omission of any other tenant,

2

licensee or contractor of the Building, or for any other cause beyond the reasonable control of Landlord, and Tenant shall not be entitled to any rental abatement for any such stoppage or shortage of power; provided, however, nothing contained in this paragraph shall be deemed to modify or limit any rental abatement rights Tenant may otherwise have pursuant to the Lease. Landlord shall have the right, but not the obligation, to enter the Generator Area at any time in the event of an emergency and at all reasonable times and upon reasonable notice for the purpose of: (i) inspecting same, (ii) making repairs to the Generator Area and performing any work therein, and/or (iii) exhibiting the Generator Area for the purpose of sale, lease, ground lease of financing. Tenant shall maintain and operate the Generator in strict compliance with Landlord’s reasonable rules and regulations, now or hereafter promulgated, and all applicable Governmental Requirements. Tenant shall pay for all utility service (including, without limitation, electricity) required for Tenant’s use of the Generator in compliance with the terms of the Lease, as amended hereby.

(e)           Landlord, at Landlord’s cost, may from time to time relocate the Generator and/or Generator Area, or any part thereof, to other areas in, at or around the Center. Upon relocation of the Generator and/or Generator Area, Tenant’s means of access and cabling will be relocated by Landlord as required to operate and maintain the Generator. Except as expressly provided in this subsection (e), in no event will the relocation of the Generator and/or Generator Area, or any part thereof, affect, alter, modify, or otherwise change any of the other terms and conditions of this Section 2.

(f)            Tenant shall, at Tenant’s expense, be solely responsible throughout the Term for maintaining, servicing and repairing the Generator and for repairing any damage to the Building or any systems or equipment serving the Building caused by the Generator or by any act, negligence or misconduct of Tenant, Tenant’s employees, agents or contractors, while installing, using, servicing, repairing, maintaining or removing the Generator. Subject to Section 4.3 of the Lease, Tenant shall protect, defend, indemnify and save Landlord and its officers, directors, agents, employees, other tenants, licensees and invitees harmless from and against any and all obligations, costs (including reasonable costs of litigation and attorneys’ fees), expenses, claims, damages and liabilities of any nature whatsoever arising out of or in connection with the existence, installation, construction, operation, repair, maintenance and/or removal of the Generator, unless such loss, injury, or damage was caused by the negligence or willful misconduct of Landlord, its agents, employees, invitees, or contractors. Tenant’s license under this Section shall automatically terminate upon the expiration or earlier termination of the Lease. “Governmental Requirements” shall mean any and all applicable laws, codes, rules, regulations and ordinances from any and all applicable governing authorities.

3.             Authority. Tenant hereby represents and warrants that (i) Tenant is a duly organized and validly existing corporation, (ii) Tenant is qualified to do business in the State of Georgia, (iii) Tenant has full right, power and authority to enter into this First Amendment, and (iv) each person signing on behalf of Tenant is authorized to do so. Upon Landlord’s request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing representations and warranties.

4.             Miscellaneous. This First Amendment shall be governed by and construed in accordance with the laws of the State of Georgia, and shall be binding upon and inure to the

3

benefit of the parties hereto and their respective successors, successors-in-title, representatives and permitted assigns. In the event of any inconsistency or conflict between the terms of this First Amendment and of the Lease, the terms of this First Amendment shall control. Time is of the essence of all of the terms of this First Amendment. This First Amendment constitutes and contains the sole and entire agreement of the parties hereto with respect to the subject matter hereof and no prior or contemporaneous oral or written representations or agreements between the parties and relating to the subject matter hereof shall have any legal effect. The submission of this First Amendment for examination does not constitute an offer to enter into a contract and this First Amendment shall be effective only upon execution hereof by Landlord and Tenant. Except as hereinabove provided, all other terms and conditions of the Lease shall remain unchanged and in full force and effect, and are hereby ratified and confirmed by the parties hereto. Tenant hereby acknowledges and agrees that, as of the date hereof, to Tenant’s actual knowledge, the Lease is subject to no offsets, claims, counterclaims or defenses of any nature whatsoever. This First Amendment may not be changed, modified, discharged or terminated orally in any manner other than by an agreement in writing signed by all parties hereto or their respective heirs, representatives, successors and permitted assigns. If any clause or provision of this First Amendment is illegal, invalid or unenforceable under present or future laws, the remainder of this First Amendment shall not be affected thereby, and in lieu of each clause or provision of this First Amendment which is illegal, invalid or unenforceable, there shall be added as a part of this First Amendment a clause or provision as nearly identical to the said clause or provision as may be legal, valid and enforceable.

(Signatures Appear on Following Page)

4

IN WITNESS WHEREOF, Landlord and Tenant have caused this First Amendment to be duly authorized, executed, sealed and delivered as of the day and year first above written.

LANDLORD:
LA/GA BUSINESS CENTERS, INC.,
a Georgia corporation

By:	/s/ Mark B. Greco
	Mark B. Greco, Vice President

TENANT:
MEDQUIST TRANSCRIPTIONS, LTD.,
a New Jersey corporation

By:	/s/ Frank Lavelle
	Frank Lavelle, President
	[CORPORATE SEAL]

5

EX-10.37

Exhibit 10.37

PRIVILEGED SETTLEMENT COMMUNICATION

Steiner v. MedQuist, Inc.
No. 1:04-CV-05487
United States District Court for the District of New Jersey

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding (“MOU”) outlines the essential terms of a proposed settlement (the “Settlement”) of the above-referenced action (“Litigation”) between defendants MedQuist, Inc. (“MedQuist”), Brian J. Kearns, David A. Cohen, John A. Donohoe, Ethan Cohen, John W. Quaintance, and Ronald F. Scarpone (collectively “Defendants”) and Lead Plaintiff Greater Pennsylvania Carpenters Pension Fund (“Lead Plaintiff”) on behalf of itself and the members of the Settlement Class defined below (collectively, the “Parties”).  This MOU is intended to be used as a basis for drafting a Stipulation of Settlement (the “Stipulation”) and accompanying papers which shall embody the terms set forth herein and such other and consistent terms as are agreed upon by counsel for the Parties.

1.             For purposes of this Settlement, the Settlement Class shall be defined as: all persons who purchased the publicly traded securities of MedQuist between March 29, 2000 to June 14, 2004 (the “Settlement Class Period”).  Excluded from the Settlement Class are Defendants and their related parties.

2.             The Settlement Fund will consist of $7,750,000 in cash.  The Settlement Fund shall be deposited into an interest-bearing account designated by Lead Counsel and will be deposited within 20 business days of the execution of this MOU.  If the agreed upon sums are not deposited, such non-deposited sums will bear interest at 8% per annum from the date due until the date of actual deposit.  The Individual Defendants will not have any responsibility for contributing to or funding the settlement.

3.             This is not a claims-made settlement and, if all conditions under the Stipulation are satisfied, the Settlement receives final approval, the Settlement Fund will not be returned to defendants.

4.             Following execution of this MOU, the Parties and their counsel shall use their best efforts to finalize and execute the Stipulation and such other documentation as may be required or appropriate in order to obtain approval by the Court of the Settlement of the Litigation upon the terms set forth in this MOU.  Promptly upon execution of the Stipulation, the Parties shall apply to the Court for preliminary approval of the Settlement and for the scheduling of a hearing for consideration of final approval of the Settlement and Lead Counsel’s application for an award of attorneys’ fees and expenses.

5.             Simultaneously with the of execution of this MOU, counsel for the Parties will file a stipulation and proposed order giving notice to the Court of the Settlement and relieving the Individual Defendants from any obligation to file answers to the Second Amended Complaint.  If the Settlement is not approved by the Court or is otherwise terminated, the Individual Defendants’ answers will be due, absent an additional written agreement by the Parties setting a new date, 6 weeks after entry of an order denying final approval by the Court or after such other termination of the Settlement.

6.             The Parties intend that this MOU will lead to a final settlement of the Litigation and shall use their best efforts to negotiate a binding Stipulation to be submitted to the Court for preliminary and final approval.

7.             The Stipulation shall provide for the dismissal of the Litigation with prejudice upon final approval of the Settlement and shall contain the usual release of claims in this type of action arising out of, relating to, or in connection with, the purchase of MedQuist publicly traded securities during the Settlement Class Period, which have been or could have been asserted by any member of the Settlement Class in the Litigation against the Defendants, but will specifically exclude the claims presently asserted in South Broward Hospital District v. MedQuist, Inc., No. 1:05-CV-02206-JBS-AMD; Myers v. MedQuist, Civil No. 05-4608(JBS); and Kanter v. MedQuist, Civil No. 04-5542(JBS).  Defendants shall release the Lead Plaintiff, the members of the Settlement Class and their counsel from any claims relating to the institution, prosecution or settlement of the Litigation.

8.             The Stipulation shall also provide (among other terms) that:

(a)           Defendants have denied and continue to deny that they have committed any act or omission giving rise to any liability and/or violation of law;

(b)           neither the Settlement nor any of its terms shall constitute an admission or finding of wrongful conduct, acts or omissions;

(c)           The Lead Plaintiff, Defendants, and their counsel shall not make any applications for sanctions, pursuant to Rule 11 of the Federal Rules of Civil Procedure (“Fed. R. Civ. P.”) or other court rule or statute, with respect to any claims or defenses in this Litigation.  The Defendants agree that the Litigation was filed in good faith and in accordance with Fed. R. Civ. P. 11, and is being settled voluntarily by the Defendants after consultation with competent legal counsel.

(d)           the allocation of the Settlement Fund among the members of the Settlement Class shall be subject to a plan of allocation to be proposed by Lead Counsel and approved by the Court.  Defendants will take no position with respect to such proposed plan of allocation or such plan as may be approved by the court, such plan of allocation is a matter separate and apart from the proposed Settlement between the Parties and any decision by the court concerning the plan of allocation shall not affect the validity or finality of the Settlement;

(e)           Defendants shall take no position with respect to any questions concerning Lead Counsel’s request or award of attorneys’ fees and reimbursement of expenses, which fees and expenses shall be paid from the Settlement Fund; and

(f)            Plaintiff’s Counsel may apply for and receive an award of attorneys’ fees and reimbursement of expenses from the Settlement Fund in such amounts as may be approved by the Court and that any amount included in such award shall be paid to Lead Counsel immediately upon the Court’s approval of the Settlement and award, subject to each counsel’s obligation to pay back any such amount if, or to the extent that, the fee award is amended or does not become final.

9.             All reasonable costs and expenses of class notice and administration of the Settlement shall be paid from the Settlement Fund when incurred.  The Settlement Fund, less any amounts incurred for notice, administration, and/or taxes shall revert to the entities or persons making the deposits if the Settlement does not become effective.

10.           Lead Counsel may designate the settlement claims administrator, subject to Court approval.  MedQuist shall provide or cause to be provided to the settlement claims administrator its shareholder lists as appropriate for providing notice to the Settlement Class.

11.           If the Settlement outlined in this MOU is not approved by the Court or is terminated:  (a) the Settlement shall be without prejudice, and none of its terms shall be effective or enforceable, except to the extent costs of notice and administration have been incurred or expended; (b) the Parties shall revert to their litigation positions immediately prior to the execution of this MOU (subject to the terms of Paragraph 5 regarding the timing of the Individual Defendants’ answers); and (c) the fact and terms of this Settlement shall not be admissible in any trial of this Litigation.

12.           This MOU may be executed in counterparts, including by signature transmitted by facsimile.  Each counterpart when so executed shall be deemed to be an original, and all such counterparts together shall constitute the same instrument.  The undersigned signatories represent that they have authority from their clients to execute this MOU. The terms of this MOU and Settlement shall inure to and be binding upon the Parties and their successors in interest.

IT IS HEREBY AGREED by the undersigned.

DATED: 3/23/2007	LITE DePALMA GREENBERG
	& RIVAS, LLC
	JOSEPH J. DePALMA
	Two Gateway Center, 12th Floor Newark, NJ 07102-5003 Telephone: 973/623-3000 973/623-0858 (fax)
	Liaison Counsel
	LERACH COUGHLIN STOIA GELLER
	RUDMAN & ROBBINS LLP
	JEFFREY W. LAWRENCE
	SHIRLEY H. HUANG
	/s/ JEFFREY W. LAWRENCE
	JEFFREY W. LAWRENCE
	100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax)
	LERACH COUGHLIN STOIA GELLER
	RUDMAN & ROBBINS LLP
	SAMUEL H. RUDMAN
	DAVID A. ROSENFELD
	58 South Service Road, Suite 200 Melville, NY 11747 Telephone: 631/367-7100 631/367-1173 (fax)
	Lead Counsel for Plaintiffs

	GREENBAUM ROWE SMITH & DAVID LLP
	MARC GROSS
	6 Becker Farm Road Roseland, NJ 07068-1735 Telephone: 973/535-1600 975/535-1698 (fax)
	Attorneys for Defendant Ronald F. Scarpone, MedQuist Inc.
DATED: 3/23/2007	WINSTON & STRAWN LLP NEAL MARDER GAIL J. STANDISH
	/s/ GAIL J. STANDISH
	GAIL J. STANDISH
	333 South Grand Avenue, 38th Floor Los Angeles, CA 90071-1543 Telephone: 213/615-1700 213/615-1750 (fax)
	Attorneys for Defendant Ronald F. Scarpone, MedQuist, Inc.
DATED: 3/21/2007	BUCHANAN INGERSOLL & ROONEY PC BRIAN J. MCCORMICK, JR.
	/s/ BRIAN J. MCCORMICK, JR.
	BRIAN J. MCCORMICK, JR.
	1835 Market Street, 14th Floor Philadelphia, PA 19103 Telephone: 215/665-6920 215/665-8760 (fax)
	Attorneys for Defendant, John W. Quaintance
DATED: 3/23/2007	LATHAM & WATKINS LLP EDWARD J. SHAPIRO
	/s/ EDWARD J. SHAPIRO
	EDWARD J. SHAPIRO

	555 11th Street, N.W., Suite 1000 Washington, D.C. 20004 Telephone: 202/637-2200 202/637-2201 (fax)
	Attorneys for Defendant Brian J. Kearns
DATED: 3/23/2007	MONTGOMERY, MCCRACKEN, WALKER & RHOADS, LLP JOHN J. LEVY
	/s/ JOHN J. LEVY
	JOHN J. LEVY
	Liberty View 457 Haddonfield Road, Suite 600 Cherry Hill, NJ 08002 Telephone: 856/488-7700 856/488-7720 (fax)
	Attorneys for Defendant Ethan Cohen
DATED: 3/23/2007	DECHERT LLP DAVID A. KOTLER
	/s/ DAVID A. KOTLER
	DAVID A. KOTLER
	Princeton Pike Corporate Center 997 Lenox Drive, Suite 210 Lawrenceville, NJ 08648 Telephone: 609/620-3200 609/620-3259 (fax)
	Attorneys for Defendant David A. Cohen
DATED:  3/23/2007	KATTEN MUCHIN ROSENMAN LLP SCOTT A. RESNIK JOEL W. STERNMAN ANTHONY L. PACCINE
	/s/ JOEL W. STERNMAN
	JOEL W. STERNMAN
	575 Madison Avenue New York, NY 10022 Telephone: 212/940-8800 212/940-8776 (fax)
	Attorneys for Defendant John A. Donohoe

EX-10.38

Exhibit 10.38

MEDQUIST INC.

DIRECTORS’ DEFERRED COMPENSATION PLAN
(as amended, effective October 14, 2004)

On January 1 of each year, the Company shall grant to each non-employee director (“Participant”) deferred compensation in the form of MedQuist Inc. common stock (“Common Stock”) having a fair market value of $50,000 on the date of grant.

The Common Stock under this Plan shall not be issued until a Participant leaves the Board.

A Participant may elect prior to the date of grant not to defer actual receipt of Common Stock under the Plan, in which case the Common Stock shall be issued on the date of grant but shall not be transferable until after the Participant leaves the Board. If a Participant so elects, the Participant shall receive up to $6,000 in cash and the balance in MedQuist Inc. Common Stock.

EX-10.39

Exhibit 10.39

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”), dated July 3, 2007, is entered into by and between MedQuist Inc. (the “Company”), and John H. Underwood (“Indemnitee”).

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its subsidiaries as directors, officers and in other capacities;

WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the directors, officers, employees and other agents of the Company, the significant increases in the cost of such insurance and the general reductions and limitations in the coverage of such insurance;

WHEREAS, the Company and the Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and other agents serving corporations to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, the Company has adopted bylaws (the “Bylaws”) providing for the indemnification of directors, officers, employees and other agents of the Company, including persons serving at the request of the Company in such capacities with other corporations or enterprises, as authorized by New Jersey law;

WHEREAS, the Bylaws and New Jersey law, by their non-exclusive nature, permit agreements between the Company and its directors, officers, employees and other agents with respect to indemnification of such persons; and

WHEREAS, in order to induce Indemnitee to continue to provide services to the Company as a director, officer or in another capacity or capacities, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent now or hereafter permitted by law;

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows.

1.             Indemnification.

(a)           Third Party Proceedings.  The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or any arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against

expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b)           Proceedings By or in the Right of the Company.  The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the New Jersey court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the New Jersey court or such other court shall deem proper.

(c)           Mandatory Payment of Expenses.  To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1(a) or (b) hereof, or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

2.             Advancement of Expenses; Notice; Indemnification Procedure.

(a)           Advancement of Expenses.  The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action, suit or proceeding).  Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

2

(b)           Notice of Indemnification Claim; Cooperation by Indemnitee.  Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the General Counsel of the Company at the address indicated on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received as provided in Section 13 hereof.  Indemnitee also shall provide the Company such information and cooperation as the Company may reasonably require and as shall be within Indemnitee’s power.

(c)           Indemnification Procedure.  Any indemnification and/or advances provided for in Sections 1 and 2 hereof shall be made no later than thirty (30) days after receipt of the written request of Indemnitee.  If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may at any time thereafter bring an action against the Company to recover the unpaid amount of the claim.  It shall be a defense to any such action brought by Indemnitee (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed.  Notwithstanding the foregoing, Indemnitee shall be entitled to receive advancements of expenses pursuant to Section 2(a) hereof unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists.  It is the intention of the parties that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or other subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including it Board of Directors, any committee or other subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d)           Notice to Insurers.  If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurer in accordance with the procedures set forth in the applicable policy.  The Company shall thereafter take all action it deems reasonably necessary or advisable to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e)           Selection of Counsel.  In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be

3

entitled to assume the defense of such proceeding, with counsel approved by Indemnitee (such approval not to be unreasonably withheld), upon the delivery to Indemnitee of written notice of its election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ his or her own counsel in any such proceeding at Indemnitee’s own expense, and provided further that Indemnitee shall have the right to employ his or her own counsel in any such proceeding at the Company’s expense if (i) employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding.

3.             Additional Indemnification Rights; Nonexclusivity.

(a)           Scope of Indemnification Rights.  Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, Bylaws or by statute.  In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a New Jersey corporation to indemnify a member of its board of directors or an officer or other agent, such changes shall be incorporated automatically into Indemnitee’s rights and the Company’s obligations under this Agreement without further action of the parties.  In the event of any change in any applicable law, statute or rule which narrows the right of a New Jersey corporation to indemnify a member of its board of directors or an officer or other agent, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the rights and obligations of the parties hereunder.

(b)           Nonexclusivity.  The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, Bylaws, any other agreement, any vote or approval of Company stockholders or disinterested Directors, New Jersey law, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office.

(c)           Continuing Right.  All agreements and obligations of the Company included herein shall continue during the period Indemnitee is a director, officer, employee or other agent of the Company and shall continue thereafter as long as Indemnitee is subject to any possible claim, action, suit, proceeding or any arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein.  For the avoidance of doubt, such agreements and obligations shall apply to any period prior to the date of this Agreement on the same basis as to periods from and after such date.

4.             Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or

4

penalties actually or reasonably incurred by him or her in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

5.             Mutual Acknowledgement.  Each of the Company and Indemnitee acknowledges that in certain instances, Federal law or applicable public policy may prohibit the Company from providing indemnification under this Agreement or otherwise.  In particular, the Company and Indemnitee acknowledge that the Securities and Exchange Commission believes that indemnification for liabilities arising under the Federal securities laws is against public policy and, therefore, is unenforceable.  Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination regarding the Company’s right, in view of such public policy considerations, to indemnify Indemnitee.

6.             Officer And Director Liability Insurance.  The Company may, from time to time, make a determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with insurance companies providing the directors and officers of the Company with coverage for losses in connection with acts or omissions by such directors and officers, or to ensure the Company’s performance of its indemnification obligations under this Agreement.  Among other considerations, the Company may weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage.  In all policies of director and officer liability insurance, Indemnitee will be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer.  Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance.

7.             Severability.  Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.  If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

8.             Exceptions.  Notwithstanding any other provision herein to the contrary, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)           Claims Initiated by Indemnitee.  To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under 14A:3-5 of the New Jersey Business Corporation Act, but such indemnification or advancement

5

of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or

(b)           Lack of Good Faith.  To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or

(c)           Duplication of Payments.  To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which actually have been paid to Indemnitee under a valid and collectible insurance policy, a provision of the Company’s Certificate of Incorporation or Bylaws, or another valid and enforceable indemnity agreement; or

(d)           Claims Under Section 16(b) of 1934 Act.  To indemnify Indemnitee for expenses and an accounting of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any successor statute.

9.             Exceptions Under New Jersey Law.  Notwithstanding any other provision of this Agreement, pursuant to the New Jersey Business Corporation Act, no indemnification shall be made under this Agreement to or on behalf of the Indemnitee if a judgment or other final adjudication adverse to the Indemnitee establishes that the Indemnitee’s acts or omissions (a) were in breach of Indemnitee’s duty of loyalty to the Company or its shareholders (as defined in 14A:2-7(3) of the New Jersey Business Corporation Act), (b) were not in good faith or involved a knowing violation of law, or (c) resulted in receipt by the Indemnitee of an improper personal benefit.

10.           Construction Of Certain Phrases.  For purposes of this Agreement, the following terms and references shall have the following meanings:

(a)           References to the “Company” shall include, in addition to the resulting corporation in any consolidation, merger or similar business combination, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger or similar business combination which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b)           References to “other enterprises” shall include employee benefit plans;

6

(c)           References to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan;

(d)           References to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and

(e)           If Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

11.           Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12.           Successors And Assigns.  This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns.  The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to agree in writing to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

13.           Attorneys’ Fees.  In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous.  In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action were made in bad faith or were frivolous.

14.           Notice.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15.           Consent To Jurisdiction.  The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New Jersey for all purposes in connection with any

7

action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New Jersey.

16.           Choice Of Law.  This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of New Jersey, as applied to contracts between New Jersey residents entered into and to be performed entirely within New Jersey without regard to the conflict of law principles thereof.

17.           Period Of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

18.           Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19.           Amendment; Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver.

20.           No Construction as Employment Agreement.  Nothing contained in this Agreement shall be construed as giving Indemnitee any right to continue in the employment of the Company.

21.           Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

[signatures on following page]

8

[signature page — Indemnification Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:

MEDQUIST INC.
By:	/s/ Howard S. Hoffmann
	Howard S. Hoffmann
	Chief Executive Officer & President
Address for service:
MedQuist Inc.
Attn: General Counsel
1000 Bishops Gate Blvd., Suite 300
Mt. Laurel, NJ 08054
AGREED TO AND ACCEPTED:
INDEMNITEE:
JOHN H. UNDERWOOD
/s/ John H. Underwood
Signature
Address for service:

9

EX-10.40

Exhibit 10.40

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”), dated July 3, 2007, is entered into by and between MedQuist Inc. (the “Company”), and Richard H. Stowe (“Indemnitee”).

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its subsidiaries as directors, officers and in other capacities;

WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the directors, officers, employees and other agents of the Company, the significant increases in the cost of such insurance and the general reductions and limitations in the coverage of such insurance;

WHEREAS, the Company and the Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and other agents serving corporations to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, the Company has adopted bylaws (the “Bylaws”) providing for the indemnification of directors, officers, employees and other agents of the Company, including persons serving at the request of the Company in such capacities with other corporations or enterprises, as authorized by New Jersey law;

WHEREAS, the Bylaws and New Jersey law, by their non-exclusive nature, permit agreements between the Company and its directors, officers, employees and other agents with respect to indemnification of such persons; and

WHEREAS, in order to induce Indemnitee to continue to provide services to the Company as a director, officer or in another capacity or capacities, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent now or hereafter permitted by law;

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows.

1.             Indemnification.

(a)           Third Party Proceedings.  The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or any arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against

expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b)           Proceedings By or in the Right of the Company.  The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the New Jersey court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the New Jersey court or such other court shall deem proper.

(c)           Mandatory Payment of Expenses.  To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1(a) or (b) hereof, or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

2.             Advancement of Expenses; Notice; Indemnification Procedure.

(a)           Advancement of Expenses.  The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action, suit or proceeding).  Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

2

(b)           Notice of Indemnification Claim; Cooperation by Indemnitee.  Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the General Counsel of the Company at the address indicated on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received as provided in Section 13 hereof.  Indemnitee also shall provide the Company such information and cooperation as the Company may reasonably require and as shall be within Indemnitee’s power.

(c)           Indemnification Procedure.  Any indemnification and/or advances provided for in Sections 1 and 2 hereof shall be made no later than thirty (30) days after receipt of the written request of Indemnitee.  If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may at any time thereafter bring an action against the Company to recover the unpaid amount of the claim.  It shall be a defense to any such action brought by Indemnitee (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed.  Notwithstanding the foregoing, Indemnitee shall be entitled to receive advancements of expenses pursuant to Section 2(a) hereof unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists.  It is the intention of the parties that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or other subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including it Board of Directors, any committee or other subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d)           Notice to Insurers.  If, at the time of the receipt of a notice of a claim pursuant to Section 2(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurer in accordance with the procedures set forth in the applicable policy.  The Company shall thereafter take all action it deems reasonably necessary or advisable to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e)           Selection of Counsel.  In the event the Company shall be obligated under Section 2(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be

3

entitled to assume the defense of such proceeding, with counsel approved by Indemnitee (such approval not to be unreasonably withheld), upon the delivery to Indemnitee of written notice of its election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ his or her own counsel in any such proceeding at Indemnitee’s own expense, and provided further that Indemnitee shall have the right to employ his or her own counsel in any such proceeding at the Company’s expense if (i) employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding.

3.             Additional Indemnification Rights; Nonexclusivity.

(a)           Scope of Indemnification Rights.  Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, Bylaws or by statute.  In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a New Jersey corporation to indemnify a member of its board of directors or an officer or other agent, such changes shall be incorporated automatically into Indemnitee’s rights and the Company’s obligations under this Agreement without further action of the parties.  In the event of any change in any applicable law, statute or rule which narrows the right of a New Jersey corporation to indemnify a member of its board of directors or an officer or other agent, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the rights and obligations of the parties hereunder.

(b)           Nonexclusivity.  The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, Bylaws, any other agreement, any vote or approval of Company stockholders or disinterested Directors, New Jersey law, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office.

(c)           Continuing Right.  All agreements and obligations of the Company included herein shall continue during the period Indemnitee is a director, officer, employee or other agent of the Company and shall continue thereafter as long as Indemnitee is subject to any possible claim, action, suit, proceeding or any arbitration or other alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein.  For the avoidance of doubt, such agreements and obligations shall apply to any period prior to the date of this Agreement on the same basis as to periods from and after such date.

4.             Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or

4

penalties actually or reasonably incurred by him or her in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

5.             Mutual Acknowledgement.  Each of the Company and Indemnitee acknowledges that in certain instances, Federal law or applicable public policy may prohibit the Company from providing indemnification under this Agreement or otherwise.  In particular, the Company and Indemnitee acknowledge that the Securities and Exchange Commission believes that indemnification for liabilities arising under the Federal securities laws is against public policy and, therefore, is unenforceable.  Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination regarding the Company’s right, in view of such public policy considerations, to indemnify Indemnitee.

6.             Officer And Director Liability Insurance.  The Company may, from time to time, make a determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with insurance companies providing the directors and officers of the Company with coverage for losses in connection with acts or omissions by such directors and officers, or to ensure the Company’s performance of its indemnification obligations under this Agreement.  Among other considerations, the Company may weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage.  In all policies of director and officer liability insurance, Indemnitee will be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer.  Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance.

7.             Severability.  Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.  If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

8.             Exceptions.  Notwithstanding any other provision herein to the contrary, the Company shall not be obligated pursuant to the terms of this Agreement:

(a)           Claims Initiated by Indemnitee.  To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under 14A:3-5 of the New Jersey Business Corporation Act, but such indemnification or advancement

5

of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or

(b)           Lack of Good Faith.  To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or

(c)           Duplication of Payments.  To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which actually have been paid to Indemnitee under a valid and collectible insurance policy, a provision of the Company’s Certificate of Incorporation or Bylaws, or another valid and enforceable indemnity agreement; or

(d)           Claims Under Section 16(b) of 1934 Act.  To indemnify Indemnitee for expenses and an accounting of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any successor statute.

9.             Exceptions Under New Jersey Law.  Notwithstanding any other provision of this Agreement, pursuant to the New Jersey Business Corporation Act, no indemnification shall be made under this Agreement to or on behalf of the Indemnitee if a judgment or other final adjudication adverse to the Indemnitee establishes that the Indemnitee’s acts or omissions (a) were in breach of Indemnitee’s duty of loyalty to the Company or its shareholders (as defined in 14A:2-7(3) of the New Jersey Business Corporation Act), (b) were not in good faith or involved a knowing violation of law, or (c) resulted in receipt by the Indemnitee of an improper personal benefit.

10.           Construction Of Certain Phrases.  For purposes of this Agreement, the following terms and references shall have the following meanings:

(a)           References to the “Company” shall include, in addition to the resulting corporation in any consolidation, merger or similar business combination, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger or similar business combination which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b)           References to “other enterprises” shall include employee benefit plans;

6

(c)           References to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan;

(d)           References to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and

(e)           If Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

11.           Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12.           Successors And Assigns.  This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns.  The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to agree in writing to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

13.           Attorneys’ Fees.  In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous.  In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action were made in bad faith or were frivolous.

14.           Notice.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15.           Consent To Jurisdiction.  The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New Jersey for all purposes in connection with any

7

action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New Jersey.

16.           Choice Of Law.  This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of New Jersey, as applied to contracts between New Jersey residents entered into and to be performed entirely within New Jersey without regard to the conflict of law principles thereof.

17.           Period Of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

18.           Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19.           Amendment; Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall any such waiver constitute a continuing waiver.

20.           No Construction as Employment Agreement.  Nothing contained in this Agreement shall be construed as giving Indemnitee any right to continue in the employment of the Company.

21.           Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

[signatures on following page]

8

[signature page — Indemnification Agreement]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:

MEDQUIST INC.

By:	/s/ Howard S. Hoffmann
	Howard S. Hoffmann
	Chief Executive Officer & President

Address for service:

MedQuist Inc.
Attn: General Counsel
1000 Bishops Gate Blvd., Suite 300
Mt. Laurel, NJ 08054

AGREED TO AND ACCEPTED:

INDEMNITEE:

RICHARD H. STOWE

/s/ Richard H. Stowe

Signature

Address for service:

9

EX-18.1

Exhibit 18.1

July 5, 2007

MedQuist Inc.

1000 Bishops Gate Blvd, Suite 300
Mount Laurel, NJ 08054

Ladies and Gentlemen:

We have audited the consolidated balance sheets of MedQuist Inc. and subsidiaries (the “Company”) as of December 31, 2005, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and other comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2005, and have reported thereon under date of July 5, 2007. The aforementioned consolidated financial statements and our audit report thereon are included in the Company's annual report on Form 10-K for the year ended December 31, 2005. 

As stated in Note 10 to those consolidated financial statements, the Company changed its method of applying an accounting principle for the annual goodwill impairment test by changing the impairment test date from the second quarter to the fourth quarter. The Company has deemed this newly adopted method of applying an accounting principle to be preferable in the circumstances because the impairment test date aligns with the Company’s normal business process for updating the Company’s strategic plan and forecasts, which is finalized each year in the fourth quarter. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based.

With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of the Company's compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter.

Based on our review and discussion, with reliance on management’s business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company’s circumstances.

Very truly yours,

/s/ KPMG LLP

EX-21

Exhibit 21

SUBSIDIARIES OF MEDQUIST INC.

1.MedQuist CM Corporation – a Delaware corporation

2.MedQuist IP Corporation – a Delaware corporation

3.MedQuist Canada Company - a company organized under the laws of Nova Scotia

4.MedQuist of Delaware, Inc. – a Delaware corporation

5.MedQuist Transcriptions, Ltd. – a New Jersey corporation

6.LHC Australia, Inc. – a Delaware corporation

7.LHC Canada, Inc. – a Delaware corporation

8.Speech Machines Limited - - a company organized under the laws of the United Kingdom

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors
MedQuist Inc.:

We consent to the incorporation by reference in the registration statements (No. 333-86443, No. 333-69687, No. 333-58113 and No. 333-03974) on Form S-3, (No. 333-51508, No. 333-09541, No. 333-09543, No. 333-66447, No. 333-85743, No. 333-49776, No. 333-65966 and No. 333-108700) on Form S-8 and (No. 333-57265 and No. 333-66447) on Form S-4 of MedQuist Inc. and subsidiaries of our reports dated July 5, 2007, with respect to the consolidated balance sheets of MedQuist Inc. and subsidiaries as of December 31, 2005, 2004 and 2003 and the related consolidated statements of operations, shareholders’ equity and other comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of MedQuist Inc.

Our report dated July 5, 2007, on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2005, expresses our opinion that MedQuist Inc. did not maintain effective internal control over financial reporting as of December 31, 2005 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states that material weaknesses were identified in the following areas: entity-level controls, revenue recognition, property and equipment, and information technology.

/s/ KPMG LLP

Philadelphia, PA

July 5, 2007

EX-31.1

Exhibit 31.1

I, Howard S. Hoffmann, certify that:

1.     I have reviewed this annual report on Form 10-K of MedQuist Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 5, 2007	By:	/s/ HOWARD S. HOFFMANN
	Name:	Howard S. Hoffmann
	Title:	Chief Executive Officer and President

EX-31.2

Exhibit 31.2

I, Kathleen E. Donovan, certify that:

1.     I have reviewed this annual report on Form 10-K of MedQuist Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 5, 2007	By:	/s/ KATHLEEN E. DONOVAN
	Name:	Kathleen E. Donovan
	Title:	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Medquist Inc. (the “Company”) on Form 10-K for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard S. Hoffmann, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ HOWARD S. HOFFMANN

Howard S. Hoffmann

Chief Executive Officer and President

Date: July 5, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Medquist Inc. (the “Company”) on Form 10-K for the year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathleen E. Donovan, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ KATHLEEN E. DONOVAN

Kathleen E. Donovan

Senior Vice President and Chief Financial Officer

Date: July 5, 2007