Document:

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.

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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),

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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

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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

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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.

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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.

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(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

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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.

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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.

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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

  

 

 11Exhibit 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

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