Document:

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

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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.”

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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

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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.

 5Exhibit 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.

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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)

  

 

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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)

  	
   

  
			

 

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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.

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