-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KTctu2JiKIFP89Cilw+Se0SKfcTOkWx9Gd1uKu0ePXFEhCfyj2fG1aIYUq63/mQl exLWV8TqkSZalYkl13PvNw== 0000950123-01-503438.txt : 20010615 0000950123-01-503438.hdr.sgml : 20010615 ACCESSION NUMBER: 0000950123-01-503438 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000861179 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 132770433 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20946 FILM NUMBER: 1660377 BUSINESS ADDRESS: STREET 1: 401 PARK AVE SOUTH CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2126854545 MAIL ADDRESS: STREET 1: 401 PARK AVENUE SOUTH CITY: NEW YORK STATE: NY ZIP: 10016 10-Q 1 y50367e10-q.txt HEALTH MANAGEMENT SYSTEMS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _________________________ Commission File Number 0-20946 Health Management Systems, Inc. (Exact name of registrant as specified in its charter) New York 13-2770433 State of Incorporation (I.R.S. Employer Identification Number) 401 Park Avenue South, New York, New York 10016 (Address of principal executive offices, zip code) (212) 685-4545 (Registrant's telephone number, including area code) Not Applicable (Former name, former address, and former fiscal year, if changed since last report.) 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 and 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. X Yes _____ No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at June 1, 2001 Common Stock, $.01 Par Value 17,855,339 Shares
2 HEALTH MANAGEMENT SYSTEMS, INC. INDEX TO FORM 10-Q QUARTER ENDED APRIL 30, 2001
PART I FINANCIAL INFORMATION Page No. Item 1 Interim Financial Statements Condensed Consolidated Balance Sheets as of April 30, 2001 (unaudited) 1 and October 31, 2000 Condensed Consolidated Statements of Operations (unaudited) for the 2 three month and six month periods ended April 30, 2001 and April 30, 2000 Consolidated Statements of Comprehensive Income (Loss) (unaudited) for 3 the three month and six month periods ended April 30, 2001 and April 30, 2000 Consolidated Statement of Shareholders' Equity (unaudited) for the six 4 month period ended April 30, 2001 Condensed Consolidated Statements of Cash Flows 5 (unaudited) for the six 5 month periods ended April 30, 2001 and April 30, 2000 Notes to Consolidated Financial Statements (unaudited) 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of 11 Operations Item 3 Quantitative and Qualitative Disclosures About Market Risks 16 PART II OTHER INFORMATION 16 SIGNATURES 18 EXHIBIT INDEX 19
3 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS)
April 30, October 31, 2001 2000 -------- -------- ASSETS (unaudited) Current assets: Cash and cash equivalents $ 13,762 $ 10,573 Short-term investments 4,669 6,167 Accounts receivable, net 21,743 24,261 Income tax receivable -- 829 Prepaid expenses and other current assets 7,052 6,921 -------- -------- Total current assets 47,226 48,751 Property and equipment, net 5,346 7,216 Capitalized software costs, net 7,357 9,922 Goodwill, net 7,248 12,055 Deferred income taxes, net 10,347 6,643 Other assets 2,162 746 -------- -------- Total assets $ 79,686 $ 85,333 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 15,250 $ 14,502 Deferred revenue 3,551 3,687 -------- -------- Total current liabilities 18,801 18,189 Other liabilities 1,180 1,546 -------- -------- Total liabilities 19,981 19,735 -------- -------- Commitments and contingencies Shareholders' equity: Preferred stock - $.01 par value; 5,000,000 shares authorized; none issued and outstanding -- -- Common stock - $.01 par value; 45,000,000 shares authorized; 19,167,005 shares issued and 17,855,339 shares outstanding at April 30, 2001; 18,563,922 shares issued and 17,252,256 shares outstanding at October 31, 2000 192 186 Capital in excess of par value 72,934 72,170 Retained earnings (accumulated deficit) (4,356) 1,652 Accumulated other comprehensive income (loss) (43) (110) -------- -------- 68,727 73,898 Less: Treasury stock, at cost (1,311,666 shares at April 30, 2001 and October 31, 2000 (8,300) (8,300) Note receivable from shareholder (722) -- -------- -------- Total shareholders' equity 59,705 65,598 -------- -------- Total liabilities and shareholders' equity $ 79,686 $ 85,333 ======== ======== See accompanying notes to unaudited condensed consolidated financial statements.
1 4 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three months ended April 30, Six months ended April 30, ---------------------------- -------------------------- 2001 2000* 2001 2000* -------- -------- -------- -------- Revenue $ 23,746 $ 24,314 $ 46,625 $ 48,837 -------- -------- -------- -------- Cost of services: Compensation 12,984 14,695 26,255 29,447 Data processing 2,738 2,765 5,518 5,659 Occupancy 2,225 2,447 4,789 5,048 Direct project costs 2,648 3,603 4,624 6,454 Other operating costs 2,346 3,129 4,354 5,662 Restructuring costs 5,870 -- 5,870 -- Impairment of assets 4,586 -- 4,586 -- -------- -------- -------- -------- 33,397 26,639 55,996 52,270 -------- -------- -------- -------- Operating income (loss) before amortization of intangibles (9,651) (2,325) (9,371) (3,433) Amortization of intangibles 225 227 450 454 -------- -------- -------- -------- Operating income (loss) (9,876) (2,552) (9,821) (3,887) Net interest and net other income 190 289 389 614 -------- -------- -------- -------- Income (loss) before income taxes and cumulative effect of change in accounting principle (9,686) (2,263) (9,432) (3,273) Income tax expense (benefit) (3,528) (928) (3,424) (1,347) -------- -------- -------- -------- Income (loss) before cumulative effect of change in accounting principle (6,158) (1,335) (6,008) (1,926) Cumulative effect of change in accounting principle, net of tax benefit ("cumulative effect") -- -- -- 21,965 -------- -------- -------- -------- Net income (loss) $ (6,158) $ (1,335) $ (6,008) $(23,891) ======== ======== ======== ======== Basic and diluted earnings per share data: Earnings (loss) per share before cumulative effect $ (0.35) $ (0.08) $ (0.34) $ (0.11) Earnings (loss) per share on cumulative effect -- -- -- (1.26) -------- -------- -------- -------- Earnings (loss) per share after cumulative effect $ (0.35) $ (0.08) $ (0.34) $ (1.37) ======== ======== ======== ======== Weighted average common shares outstanding 17,840 17,480 17,611 17,451 ======== ======== ======== ======== See accompanying notes to unaudited condensed consolidated financial statements. * restated for 2000, see note 4.
2 5 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ($ IN THOUSANDS) (UNAUDITED)
Three months ended Six months ended April 30, April 30, ------------------------ ------------------------ 2001 2000* 2001 2000* -------- -------- -------- -------- Net income (loss) $ (6,158) $ (1,335) $ (6,008) $(23,891) Other comprehensive income, net of tax: Change in net unrealized appreciation on short-term investments 5 44 67 51 -------- -------- -------- -------- Comprehensive income (loss) $ (6,153) $ (1,291) $ (5,941) $(23,840) ======== ======== ======== ======== See accompanying notes to unaudited condensed consolidated financial statements. *restated for 2000, see note 4.
3 6 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ($ IN THOUSANDS) (UNAUDITED)
Common Stock Retained Accumulated Note ------------------ Capital In Earnings Other Receivable Total # of Shares Par Excess Of (Accumulated Comprehensive Treasury From Shareholders' Outstanding Value Par Value Deficit) Income (loss) Stock Shareholders Equity ----------- ----- ---------- -------- ------------- ----- ------------ ------ Balance at October 31, 2000 17,252,256 $ 186 $ 72,170 $ 1,652 ($ 110) ($ 8,300) $ -- $ 65,598 Net income (loss) -- -- -- (6,008) -- -- -- (6,008) Common stock issued 550,000 5 717 -- -- -- -- 722 Note receivable - shareholder -- -- -- -- -- -- (722) (722) Employee stock purchase plan activity 53,083 1 47 -- -- -- -- 48 Change in net unrealized appreciation on short-term investments -- -- -- -- 67 -- -- 67 ---------- ----- -------- --------- ------ -------- ------- -------- Balance at April 30, 2001 17,855,339 $ 192 $ 72,934 ($ 4,356) ($ 43) ($ 8,300) ($ 722) $ 59,705 ========== ===== ======== ========= ====== ======== ======== ======== See accompanying notes to unaudited condensed consolidated financial statements.
4 7 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ In Thousands) (unaudited)
Six months ended April 30, -------------------------- 2001 2000* -------- -------- Net cash provided by (used in) operating activities $ 4,832 $ (7,541) -------- -------- Investing activities: Capital asset expenditures (914) (1,364) Software capitalization, net of cash received (2,792) (2,564) Proceeds from sale of EDI operations' assets 450 -- Increase in note receivable from officer -- (600) Net proceeds from sales of short-term investments 1,565 3,799 -------- -------- Net cash used in investing activities (1,691) (729) -------- -------- Financing activities: Proceeds from issuance of common stock 48 52 Proceeds from exercise of stock options -- 309 -------- -------- Net cash provided by financing activities 48 361 -------- -------- Net increase (decrease) in cash and cash equivalents 3,189 (7,909) Cash and cash equivalents at beginning of period 10,573 16,310 -------- -------- Cash and cash equivalents at end of period $ 13,762 $ 8,401 ======== ======== See accompanying notes to unaudited condensed consolidated financial statements. * restated for 2000, see note 4.
5 8 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Unaudited Interim Financial Information The management of Health Management Systems, Inc. ("HMSY" or the "Company") is responsible for the accompanying unaudited interim consolidated financial statements and the related information included in these notes to the unaudited interim consolidated financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, including normal recurring adjustments necessary for the fair presentation of the Company's financial position and results of operations and cash flows for the periods presented. Results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company as of and for the fiscal year ended October 31, 2000 included in the Company's Annual Report on Form 10-K for such year, and the unaudited interim consolidated financial statements as of and for the quarterly period ended January 31, 2001 included in the Company's Quarterly Report on Form 10-Q, both as filed with the Securities and Exchange Commission (the "SEC"). 2. Reclassifications Certain reclassifications were made to prior amounts to conform to the current presentation. 3. Divestiture Effective January 1, 2001, the Company sold its electronic transaction processing ("EDI") business, consisting of substantially all of the assets of the Company's Quality Medi-Cal Adjudication, Incorporated ("QMA") subsidiary and certain of the assets of its Health Receivables Management, Inc. ("HRM") subsidiary, to Medi, Inc. ("Medi"), a privately held entity. Pursuant to the post closing adjustment provisions of the agreement, the service credit portion of the sales price to be received by the Company was adjusted from $2.1 million to $2.3 million. The total price of $3.0 million was comprised of a cash payment of $450,000, a one-year secured promissory note in the principal amount of $275,000 and $2.3 million of service credits, which the Company will continue to offset against subcontracted services to be rendered by Medi to the Company pursuant to a service agreement entered into between Medi and the Company at the closing of the sale. Through April 30, 2001, the Company has utilized $230,000 in service credits. The Company's EDI business generated a net loss of approximately $200,000 on $4.0 million in revenue for fiscal year 2000. Total assets sold and related transaction costs as of January 1, 2001 were approximately $3.0 million. Accordingly, no gain or loss was recognized as a result of this transaction. 4. Change in Accounting Principle for Revenue Recognition After analyzing the SEC's "Frequently Asked Questions and Answers" bulletin released on October 12, 2000 pertaining to Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"), the Company elected early adoption in the fourth quarter of its fiscal year ended October 31, 2000, implementing a change in accounting in regard to revenue generated from clients seeking reimbursement from third party payors where the Company's fees are contingent upon the client's collections from third parties. The Company now recognizes revenue pertaining to such clients once the third-party payor has remitted payment to its client, thereby eliminating unbilled receivables and substantially reducing deferred tax liabilities. As a result of this change in accounting principle, the prior year first and second quarters ended January 31, 2000 and April 30, 2000, respectively, have been restated to reflect the newly adopted policy. The 6 9 cumulative effect of this change in accounting principle as of the beginning of the Company's fiscal year 2000 was $22.0 million, net of tax benefit. As of October 31, 1999, the Company had unbilled accounts receivable of approximately $41.7 million under its historic accounting policy, pre-dating the SEC release of SAB 101. Of this amount, a total of $33.3 million has subsequently completed its cycle and was included in the Company's revenue and operating results through April 30, 2001 in accordance with the Company's early adoption of SAB 101, of which $3.8 and $8.7 million related to the three months and six months ended April 30, 2001, respectively. 5. Restructuring and Impairment of Assets In the fourth quarter of fiscal year 2000, having completed a full-scale strategic planning process, the Company began implementation of a restructuring plan and recorded a restructuring charge of $3,483,000. In the second quarter of fiscal year 2001, the Company's Payor Systems Group discontinued development of its managed care system offering after considering alternatives to its development partner's notification that it neither wished to purchase this group nor continue to participate in the development of this system. As a result, the Company recorded a restructuring charge of $5,080,000. The charges include the write-off of capitalized software and equipment, net of payments from the development partner ($3,464,000), costs associated with specific reductions of approximately 60 staff and consulting positions ($810,000), related prepaid expenses and other related miscellaneous costs ($128,000), and the planned vacating of related office space, including the unamortized balance of specific leasehold improvements ($678,000). The Company also recorded a restructuring charge of $790,000 associated with specific reductions of all but 1 individual in its Washington, D.C. office ($508,000), the planned vacating of related office space not currently under sublet ($32,000), and the initial fee paid for a third party liability recovery system which will not be utilized by the Company in the future. ($250,000). In addition, as a result of the triggering event noted above, the Company recorded asset impairments of $4,586,000 relating to the unamortized balance of goodwill and other intangible assets associated with the Company's prior acquisition of the Payor Systems Group. Of the total restructuring charges, $910,000 relating to occupancy costs and $1,401,000 relating to compensation remain as liabilities at April 30, 2001, of which $414,000 is a long-term liability. 6. Equity Transaction In March 2001, as a condition of the employment of Robert M. Holster as President and Chief Operating Officer of the Company, Mr. Holster was granted options to purchase 700,000 shares of the Company's common stock, exercisable at $1.19 per share, which price was equal to the fair market value, which was the closing price of such shares on March 30, 2001, Mr. Holster's date of employment. The options vest as to 100,000 shares on March 30, 2002 and as to the remaining 600,000 shares in eight equal quarterly installments, commencing June 30, 2002. The grant of options to Mr. Holster was exempt from the registration provisions of the Securities Act of 1933, as amended, pursuant to Section 4(2) of that Act relating to transactions not involving a public offering. In January 2001, as a condition of the employment of William F. Miller III as Chairman and Chief Executive Officer of the Company, the Company's Accelerated Claims Processing, Inc. subsidiary, a Delaware corporation, provided the financing for Mr. Miller to purchase directly from the Company 550,000 shares of the Company's common stock in exchange for a full recourse loan for $721,875, bearing interest at the rate of 6.5% per annum, with the principal and interest payable annually in two equal installments commencing January 9, 2002. The sale of common stock to Mr. Miller was 7 10 exempt from the registration provisions of the Securities Act of 1933 pursuant to Section 4(2) of that Act relating to transactions not involving a public offering. 7. Credit Facility The Company's credit facility with a major N.Y. money center institution expired on February 13, 2001. Since the Company had not drawn and did not intend to draw on this facility, the Company did not renew the facility. 8. Segment Information The Company measures the performance of its operating segments utilizing operating income (loss), excluding restructuring and asset impairment charges as reflected in the accompanying condensed consolidated statements of operations. Certain reclassifications were made to prior year amounts to conform to the current presentation.
Total Provider Payor Revenue Revenue Revenue Total Decision Payor Total Services Services Services Software Support Systems ($ in Thousands) HMS Division Group Group Division Group Group - --------------------------------------------------------------------------------------------------------------------- Three months ended April 30, 2001 Revenue $23,746 $15,277 $8,289 $6,988 $8,469 $5,778 $2,691 Operating income (loss), excluding restructuring and impairments 580 (474) (708) 234 1,054 900 154 - --------------------------------------------------------------------------------------------------------------------- Three months ended April 30, 2000 Revenue 24,314 15,962 11,301 4,661 8,352 5,247 3,105 Operating income (loss), excluding restructuring and impairments (2,552) (2,957) (1,773) (1,184) 405 473 (68) - --------------------------------------------------------------------------------------------------------------------- Six months ended April 30, 2001 Revenue 46,625 29,971 17,272 12,699 16,654 11,552 5,102 Operating income (loss), excluding restructuring and impairments 635 (1,195) (1,491) 296 1,830 1,634 196 - --------------------------------------------------------------------------------------------------------------------- Six months ended April 30, 2000 Revenue 48,837 31,488 23,667 7,821 17,349 10,492 6,857 Operating income (loss), excluding restructuring and impairments (3,887) (5,603) (2,356) (3,247) 1,716 1,527 189 - ---------------------------------------------------------------------------------------------------------------------
The difference between "Operating income (loss), excluding restructuring and impairment charges" and "Income (loss) before income taxes" is "Restructuring costs", "Impairment of assets" and "Net interest and net other income," which totaled $10,266,000 and $289,000 for the three months ended April 30, 2001 and 2000, respectively, and $10,067,000 and $614,000 for the six months ended April 30, 2001 and 2000, respectively. 9. Legal Proceedings On June 28, 1998, eight holders of promissory notes (the "Notes") of HHL Financial Services, Inc. ("HHL") commenced a lawsuit against the Company and others in the Supreme Court of the State of New York, County of Nassau, alleging various breaches of fiduciary duty on the part of the defendants against HHL (the first cause of action) and that defendants intentionally caused HHL's default under the Notes (the second cause of action). The complaint alleges that, as a result of the alleged breaches of fiduciary duty, HHL was caused to make substantial unjustified payments to the Company which, ultimately, led to defaults on the Notes and to HHL's filing for Chapter 11-bankruptcy protection. On June 30, 1998, the same Note holders commenced a virtually identical action (the "Adversary Proceeding") in the United States Bankruptcy Court for the District of Delaware, where HHL's Chapter 11 proceeding is pending. The Adversary Proceeding alleges the same wrongdoing as the New York State Court proceeding and seeks the same damages, i.e., $2,300,000 (the unpaid amount of the Notes) plus interest. Plaintiffs moved in the Bankruptcy Court to have the Court abstain from hearing the Adversary Proceeding in deference to the New York 8 11 State Court action. The Company opposed plaintiffs' motion for abstention and on September 15, 1998 filed a motion in the Bankruptcy Court to dismiss the Adversary Proceeding. This motion was decided by the Court on June 5, 2001. At that time, the Court dismissed the first cause of action and ruled that it would abstain on dismissal of the second cause of action. The Company intends to continue its vigorous defense of the remaining second cause of action in the lawsuit in the New York State Court. Management believes the risk of loss is not probable and accordingly has not recognized any accrued liability for this matter. Although the outcome of this matter cannot be predicted with certainty, the Company believes that any liability that may result will not, in the aggregate, have a material adverse effect on the Company's financial position or cash flows, although it could be material to the Company's operating results in any one accounting period. In July 2000, the Supreme Court of the State of New York, County of New York ("New York Supreme Court"), granted the Company's motion for summary judgment against The Institutes for Health & Human Services, Inc. ("IHHS") in the amount of $270,000 on an unpaid promissory note (together with interest and attorneys' fees assessed at an inquest in January 2001 in the amount of $27,000), but stayed enforcement of the judgment pending assertion and resolution of claims IHHS represented it had against the Company. Later in July 2000, IHHS asserted such claims against the Company in an action filed in New York Supreme Court. The complaint alleged that the Company fraudulently withheld information from IHHS to induce it to enter into various specified contracts with the Company, and that the Company breached various contractual obligations to IHHS. The complaint sought an aggregate of $9,100,000 in compensatory damages, and punitive damages in an unspecified amount. The action came on for trial in January 2001, at which time the Court directed entry for judgement, dismissing the case, and awarding the Company damages on its counterclaims in an amount to be assessed at an inquest. IHHS has filed a notice of appeal of the Court's decision, although it has not moved for a stay of the decision pending appeal. Therefore, the Company will continue in its enforcement efforts against IHHS. The Company's position is that it will prevail on the merits on any appeal of this matter. Although the ultimate outcome of this matter cannot be predicted with certainty, the Company believes that any liability that may result will not, in the aggregate, have a material adverse effect on the Company's financial position or cash flows, although it could be material to the Company's operating results in any one accounting period. On May 1, 2001, the United States District Court for the Southern District of New York issued an Opinion and Order granting the Company's motion for summary judgement and dismissing the complaint alleged in a lawsuit commenced by Davis & Associates, Inc. ("D&A"). The complaint alleged, among other things, that the Company breached contractual obligations to D&A, wrongfully induced D&A to enter into various contracts with the Company, and wrongfully interfered with D&A's ability to perform under several contracts and pursue unspecified business opportunities. D&A sought compensatory and punitive damages in unspecified amounts and injunctive and other equitable relief. D&A filed a Notice of Appeal on June 4, 2001. The Company intends to continue its vigorous defense of the lawsuit, believes the risk of loss is not probable and accordingly has not recognized any accrued liability for this matter. Although the outcome of this matter cannot be predicted with certainty, the Company believes that any liability that may result will not, in the aggregate, have a material adverse effect on the Company's financial position or cash flows, although it could be material to the Company's operating results in any one accounting period. In March, 2001, the Company commenced a lawsuit in the Superior Court of the District of Columbia, Civil Division, against the District of Columbia ("D.C." or the "District"), Carolyn N. Graham, in her official capacity as Interim Director of the District of Columbia Department of Human Services (the "DHS"), and Ivan C. A. Walks, M.D., in his official capacity as Director of the District of Columbia Department of Health, seeking to recover amounts owed to the Company by the District for services rendered 9 12 in conducting a retroactive Disproportionate Share Hospital ("DSH") revenue recovery project for the D.C. Medicaid program. The attorney handling this matter for the District and the two individual defendants advised the Company's counsel that his clients intended to make a motion to dismiss the Company's complaint on the grounds that the Court lacks jurisdiction and that any legal proceedings related to the Company's claims are to be brought before the D.C. Board of Contract Appeals. The defendants' answer or motion to dismiss the Company's complaint is due on or before June 18, 2001. In the interim, the Chief Contracting Officer of the Department of Health has taken the position that the Company has no claim, issuing his decision dated May 23, 2001, that the contract pursuant to which the Company rendered services in connection with the DSH revenue recovery project, including eight amendments to that contract, had been signed by a Contracting Officer of the DHS without the requisite contracting authority and therefore the contract was determined by the Chief Contracting Officer to be void ab initio, noting that the Company may submit a request for compensation of its actual costs allocable to the work performed under the contract. A decision of a Contracting Officer is subject to appeal to the District Board of Contract Appeals. The Company believes that the decision of the Chief Contracting Officer was erroneous and an attempt on the part of the District to avoid paying fees properly owing for revenues recovered by the District as a result of services rendered by the Company. The Company intends to continue to pursue its claims through all appropriate means and believes that it will ultimately prevail. However, there can be no assurance as to the ultimate outcome of this matter. Other legal proceedings to which the Company is a party, in the opinion of the Company's management, are not expected to have a material adverse effect on the Company's financial position, results of operations, or liquidity. 10. Earnings Per Share Basic earnings per share is calculated as net income divided by the weighted average common shares outstanding. Diluted earnings per share is calculated as net income divided by the weighted average common shares outstanding including the dilutive effects of potential common shares, which include the Company's stock options. The common stock equivalents are excluded from the weighted average shares as it would be antidilutive to the per share calculation. 11. Supplemental Cash Flow Disclosures Cash paid for income taxes during the six months ended April 30, 2001 and 2000 was $92,000 and $86,000, respectively. Cash paid for interest during the six months ended April 30, 2001 and 2000 was $30,000 and $49,000, respectively. The Company recorded $0 and $36,000 for the six months ended April 30, 2001 and 2000, respectively, as disqualified dispositions related to the sale of stock acquired through the exercise of certain compensatory stock options, thereby reducing the Company's tax liability and increasing shareholders' equity in like amounts. Non-cash financing and investing activities in relation to the sale of the EDI business is comprised of a note receivable for $275,000 and service credits for $2.3 million. Non-cash financing and investing activities also includes the sale of 550,000 shares of the Company's common stock to its Chief Executive Officer in return for a note receivable for $721,875. 10 13 Certain statements in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of HMSY, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to (i) the information being of a preliminary nature and therefore subject to further adjustment; (ii) the ability of HMSY to reduce costs in view of its revised revenue outlook, to grow internally or by acquisition, to integrate acquired businesses into the HMSY group of companies, and to divest non-strategic assets; (iii) the uncertainties of litigation; (iv) HMSY's dependence on significant customers; (v) changing conditions in the healthcare industry which could simplify the reimbursement process and adversely affect HMSY's business; (vi) government regulatory and political pressures which could reduce the rate of growth of healthcare expenditures and/or discourage the assertion of claims for reimbursement against and delay the ultimate receipt of payment from third party payors; (vii) competitive actions by other companies, including the development by competitors of new or superior services or products or the entry into the market of new competitors; (viii) all the risks inherent in the development, introduction, and implementation of new products and services; and other factors both referenced and not referenced in this document. When used in this document, the words "estimate," "project," "anticipate," "expect," "intend," "believe," and similar expressions are intended to identify forward-looking statements, and the above described risks inherent therein. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended April 30, 2001 Compared to Three Months Ended April 30, 2000 Excluding the non-recurring restructuring and impairment charges, the Company generated net income and operating income on revenue of $23.7 million in the second quarter ended April 30, 2001 as compared to a net loss and operating loss on $24.3 million of revenue in the second quarter of the prior fiscal year 2000. The decrease in revenue from the comparable prior year second quarter, reflects increases in revenue in two of the Company's four operating groups offset by decreases in revenue in the other two groups, including the effect of the previously reported sale of the Company's EDI business. See Note 3 of Notes to Interim Consolidated Financial Statements. The Revenue Services Division, comprised of the Provider Revenue Services Group and the Payor Revenue Services Group, generated revenue of $15.3 million for the second quarter of fiscal year 2001, a decrease of $700,000 from the comparable prior year second quarter. Of these amounts, the Provider Revenue Services Group, the largest segment of the Company, which includes the Company's claims reprocessing, revenue recovery and outsourcing offerings for providers of healthcare reported revenue of $8.3 million. The decrease of $3.0 million from the second quarter of last fiscal year is principally attributable to the sale of the Company's EDI business in the first quarter of this fiscal year and the significant revenue recorded in the prior fiscal year pertaining to a revenue maximization engagement for the District of Columbia (see Note 9 of Notes to Interim Consolidated Financial Statements), partially offset by multiple new accounts sold and revenue recovery projects commenced in the second quarter of the current fiscal year. The Payor Revenue Services Group, which includes the Company's claims reprocessing and recovery activities for third-party payors of healthcare, produced revenue of $7.0 million, an increase of $2.3 million over the comparable prior year period, as the Group realized revenue from specific, expanded-scope projects in one state and from projects in two other states that did not yet produce significant revenue in the prior year's comparable quarter, as this Group gains momentum. Revenue from the Software Division, comprised of the Decision Support Group and the Payor Systems Group, was $8.5 million for the second quarter of fiscal year 2001, an increase of $100,000 from the comparable prior year period, as the 11 14 decrease in revenue in the Payor Systems Group was more than offset by the increase in revenue in the Decision Support Group. The Payor Systems Group, which provides large-scale claims transaction processing systems and services to commercial insurance and managed care payor organizations, generated revenue of $2.7 million, a decline in revenue of $400,000 from the second quarter of last fiscal year. The decline from the prior year second quarter was due principally to the previously reported wind-down of a multi-year project with a single customer, partially offset by a new software license sale of this Group's ProAlliance offering. While increasing sequentially over the first quarter as to revenue, this Group continues to be severely affected by the perceived industry-wide softness in new sales of existing, payor, claims-processing software, systems, and consulting services. The Decision Support Group, which provides the Company's suite of decision support software and related consulting services to providers of healthcare, generated revenue of $5.8 million, increasing over the comparable prior year period by $500,000 driven by multiple add-on sales, conversions of existing clients to the Group's latest offerings, and sales to customers outside of the Group's existing client base. The increase in such sales for this Group in the second quarter of fiscal year 2001 over the second quarter of the prior fiscal year combined with its demonstrated ability to install new sales rapidly, allowed it to continue to reduce the concentration of revenue in its largest account. Cost of services for the second quarter of fiscal year 2001 was $33.4 million, including non-recurring restructuring charges and asset impairment charges of $5.9 million and $4.6 million, respectively. See Note 5 of Notes to Interim Consolidated Financial Statements. Excluding these non-recurring costs, cost of services was $22.9 million as compared to $26.6 million for the comparable prior year period, reflecting the favorable impact from the sale of the Company's EDI business completed in the first quarter of fiscal year 2001 (see Note 3 of Notes to Interim Consolidated Financial Statements), savings generated from the restructuring reported in the last quarter of fiscal year 2000 (see Note 5 of Notes to Interim Consolidated Financial Statements) and the implementation of other process improvements and operating efficiencies. Compensation, the Company's largest cost element, comprising over half of these operating costs, totaled $13.0 million, a decrease of approximately $1.7 million from the second quarter of the prior fiscal year reflecting reduced staffing levels required to support the revenue base and the previously noted sale of the Company's EDI business, partially offset by costs incurred for commitments to certain key employees to induce them to stay during the Company's strategic refocusing. See "Liquidity and Capital Resources," below. Occupancy costs for the second quarter decreased from the comparable prior year period by approximately $200,000, principally attributable to a combination of the previously noted sale of the Company's EDI business, reduced telephone costs on decreased staffing levels, and the concluding of a successful arrangement with the landlord for the Company's N.Y.C. headquarters, in which the Company provided a substitute tenant for one of the floors for seven of the remaining twelve years, guaranteed by the Company and for which the Company shares in the incremental rent received. Direct project costs for the second quarter decreased by approximately $1.0 million from the comparable prior year period, principally attributable to the discontinued subcontractor relationship pertaining to the previously reported District of Columbia revenue maximization projects, partially offset by increases in other project marketing partner costs. Other indirect operating costs for the second quarter decreased by approximately $800,000 from the comparable prior year period due principally to a combination of (1) reduced staff-related costs, such as recruiting fees and travel expenses, (2) lower advertising and marketing costs, and (3) the inclusion of charges for the Company's formal strategic planning process in the prior year period, partially offset by the current period increase in professional fees relating to specific potential divestitures. As compared to the second quarter of the prior fiscal year which produced an operating loss of $2.6 million and a net loss of $1.3 million or $.08 per share, the Company, for the current year's second quarter, as a result of the above factors, generated operating income of approximately $600,000 and net income of approximately $400,000 or $.02 per share, excluding non-recurring restructuring and impairment charges, and an operating loss of $9.9 million and a net loss of 12 15 $6.2 million or $.35 per share including restructuring and impairment charges. The Company's effective tax rate was approximately 36% and 41% for the second quarter of fiscal years 2001 and 2000, respectively, with the change in effective rate attributable to the tax effect of the deductible portion of impairment charges recorded in the current year second quarter. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of valuation allowance. In addition, the net deferred income tax asset may be offset in part by future taxable gains from divestitures, although there can be no assurances that such divestitures will be concluded or produce taxable gains. Six Months Ended April 30, 2001 Compared to Six Months Ended April 30, 2000 Excluding the non-recurring restructuring and impairment charges, the Company generated net income and operating income on revenue of $46.6 million for the six months ended April 30, 2001 as compared to a net loss and operating loss on $48.8 million of revenue for the first six months of the prior fiscal year 2000. The decrease in revenue from the comparable prior year six month period, reflects increases in revenue in two of the Company's four operating groups offset by decreases in revenue in the other two groups, including the effect of the previously reported sale of the Company's EDI business. See Note 3 of Notes to Interim Consolidated Financial Statements. The Revenue Services Division generated revenue of $30.0 million for the six months ended April 30, 2001, a decrease of $1.5 million from the comparable prior year period. Of these amounts, the Provider Revenue Services Group generated revenue of $17.3 million, a decrease of $6.4 million from the comparable prior year period, reflecting (1) the sale of the Company's EDI business in January 2001, (2) the change in billing protocol for a single client, (3) the previously reported revenue recorded in the prior fiscal year pertaining to an existing revenue maximization engagement for the District of Columbia, and (4) lower than expected sales of additional services. The Payor Revenue Services Group produced revenue of $12.7 million, an increase of $4.9 million over the comparable prior year period, as the Group realized revenue from specific, expanded-scope projects in one state, more favorable yields in a second state, and realization of revenue from projects in two other states that did not yet produce significant revenue in the prior year's comparable period, as this Group gains momentum. Revenue from the Software Division, comprised of the Decision Support Group and the Payor Systems Group, was $16.7 million for the six months ended April 30, 2001, a decrease of $700,000 from the comparable prior year period, attributable entirely to the Payor Systems Group, as the Decision Support Group's revenue increased approximately 10% over the comparable prior year period. The Payor Systems Group generated revenue of $5.1 million, a decline in revenue of $1.8 million from the comparable prior year period, due principally to a combination of the wind-down of a multi-year project with a single customer, the completion of the initial implementation for a single customer during last fiscal year, and the slow rate of new sales closed in the current fiscal year. This Group continues to be severely affected by the perceived industry-wide softness in new sales of existing, payor, claims-processing software, systems, and consulting services. The Decision Support Group generated revenue of $11.6 million, increasing over the comparable prior year period by $1.1 million, driven by multiple add-on sales, conversions of existing clients to the Group's latest offerings, and sales to customers outside of the Group's existing client base, more than offsetting the decrease in revenue realized from this Group's largest client. Cost of services for the six months ended April 30, 2001 was $56.0 million, including non-recurring restructuring charges and asset impairment charges of $5.9 million and $4.6 million, respectively. See Note 5 of Notes to Interim Consolidated Financial Statements. Excluding these non-recurring costs, cost of 13 16 services was $45.5 million as compared to $52.3 million for the comparable prior year period, reflecting the favorable impact from the sale of the Company's EDI business completed in the first quarter of fiscal year 2001 (see Note 3 of Notes to Interim Consolidated Financial Statements), savings generated from the restructuring reported in the last quarter of fiscal year 2000 (see Note 5 of Notes to Interim Consolidated Financial Statements) and the implementation of other process improvements and operating efficiencies. Compensation, the Company's largest cost element, totaled $26.3 million, a decrease of approximately $3.2 million from the comparable prior year period, reflecting reduced staffing levels required to support the revenue base and the previously noted sale of the Company's EDI business, partially offset by costs incurred for commitments to certain key employees to induce them to stay during the Company's strategic refocusing. See "Liquidity and Capital Resources," below. Occupancy costs decreased from the comparable prior year period by approximately $300,000, principally attributable to a combination of the previously noted sale of the Company's EDI business, reduced telephone costs on decreased staffing levels, and the concluding of a successful arrangement with the landlord for the Company's N.Y.C. headquarters, in which the Company provided a substitute tenant for one of the floors for seven of the remaining twelve years, guaranteed by the Company and for which the Company shares in the incremental rent received. Direct project costs decreased by approximately $1.8 million from the comparable prior year period, principally attributable to the discontinued subcontractor relationship pertaining to the previously reported District of Columbia revenue maximization projects, partially offset by increases in other project marketing partner costs. Other indirect operating costs decreased by approximately $1.3 million from the comparable prior year period due principally to a combination of (1) reduced staff-related costs, such as recruiting fees and travel expenses, (2) lower advertising and marketing costs, and (3) the inclusion of charges for the Company's formal strategic planning process in the prior year period, partially offset by the current period increase in professional fees relating to specific potential divestitures. As a result of the above factors, excluding the non-recurring charges in both years, the Company generated operating income of $600,000 and net income of $600,000 or $.03 per share on $46.6 million in revenue for the current year-to-date period as compared to an operating loss and net loss on $48.8 million of revenue for the comparable prior year period. The Company generated a net loss of $6.0 million, or $.34 per share including the restructuring and impairment charges as compared to a net loss of $23.9 million or $1.37 per share including the cumulative effect of the change in accounting principle for the Company's early adoption of SAB 101 in the comparable prior year period. The Company's effective tax rate was approximately 36% and 41% for the six months of fiscal years 2001 and 2000, respectively, with the change in effective rate attributable to the tax effect of the deductible portion of impairment charges recorded in the current year second quarter. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of valuation allowance. In addition, the net deferred income tax asset may be offset in part or in full by future taxable gains from divestitures, although there can be no assurances that such divestitures will be concluded or produce taxable gains. Liquidity and Capital Resources At April 30, 2001, the Company's cash and net working capital were approximately $18.4 million and $28.4 million, respectively, as compared to $16.7 million and $30.6 million, respectively at October 31, 2000. The Company has historically devoted increasingly more resources to product and system development and enhancements and believes that significant continuing development efforts will be necessary to adapt to changing marketplace requirements, to sustain its operations, and to integrate the products and technologies of acquired businesses. In the first six months of fiscal years 2001 and 2000, the Company invested $3.7 million and $3.9 million, respectively, for capitalized software development and fixed asset purchases. Each of these amounts is net of cash received from a development partner pertaining to the Payor System Group's development of its new managed care offering (a new payor claims adjudication system), which was terminated during the Company's second fiscal quarter ended April 30, 2001. See Note 5 of Notes to Interim Consolidated Financial Statements. The Company is assessing alternatives for operating the balance of this group's business, as the Company is currently committed to servicing its clients where generating profitable results. 14 17 The Company's principal sources of liquidity at April 30, 2001 consisted of cash, cash equivalents, and short-term investments aggregating $18.4 million and net accounts receivable of $21.7 million. While the Company is still pursuing multiple options to collect in excess of $2.7 million in payments from the District of Columbia and from which the Company expects to retire various subcontractor advances made during the year, the Company continued to be successful in the collection of accounts receivable. Further, as reported in the first quarter, the Company received the $250,000 balance of insurance reimbursement pertaining to a previously settled long outstanding litigation, $900,000 from an income tax refund, and the $450,000 initial cash payment pertaining to the sale of its EDI business, all while continuing to invest in major product and system development and enhancements. Accounts receivable at April 30, 2001 reflected a decrease of $2.5 million from the accounts receivable at the end of fiscal year 2000, principally attributable to both the sale of the Company's EDI business as well as the increased collections achieved during the period, as the Company collected more receivables during the second quarter than during any quarter since the fourth quarter of fiscal year 1999. As previously noted, the Company is considering divesting some of its non-strategic assets. Effective January 1, 2001, the Company sold its EDI business, consisting of substantially all of the assets of the Company's QMA subsidiary and certain of the assets of its HRM subsidiary. The Company also hired Cain Brothers and Company to assist in other potential divestitures. As previously reported, the Company has made commitments to certain key employees to induce them to stay during the Company's restructuring which it currently estimates may result in a charge in fiscal year 2001 of up to $2.4 million depending on the completion of divestitures, and of which approximately $100,000 and $500,000 was charged to compensation expense during the first and second quarters of fiscal year 2001, respectively. Further, as previously reported, the Company is also in the midst of developing additional restructuring plans focused on reducing and re-engineering information systems and administrative infrastructures which may result in additional operating and restructuring charges, although currently no additional restructuring charges are expected for the balance of fiscal year 2001. The Company's credit facility with a major N.Y. money center institution expired on February 13, 2001. Since the Company has not drawn and did not intend to draw on this facility, the Company did not pursue a renewal of the facility while it is in the process of refocusing its business. As the Company divests non-strategic assets and adds on new service offerings, it may seek to acquire companies that supply targeted healthcare providers and/or payors with information management software, systems, or services if the offerings of the Company or such companies would benefit from access to the other's technology, software applications, or client base. The Company believes that such acquisition opportunities exist due, in part, to competitive pressures on local service businesses that lack adequate capital, technical, and management resources. There can be no assurances that the Company will have or be able to obtain the necessary resources to acquire subsequently identified candidates. On May 28, 1997, the Board of Directors authorized the Company to repurchase such number of shares of its common stock that have an aggregate purchase price not in excess of $10,000,000. The Company may repurchase these shares from time to time on the open market or in negotiated transactions at prices deemed appropriate by the Company. Repurchased shares are deposited in the Company's treasury and may be used for general corporate purposes. Since the inception of the repurchase program in June 1997, the Company has repurchased 1,311,666 shares having an aggregate purchase price of $8,300,000, including 262,666 shares repurchased in fiscal year 2000 from the co-founder and former Chief Executive Officer of the Company under the terms of a separation agreement. 15 18 Item 3. Quantitative and Qualitative Disclosures About Market Risks The Company's holdings of financial instruments are comprised of federal, state and local government debt. All such instruments are classified as securities available for sale. The Company does not invest in portfolio equity securities or commodities or use financial derivatives for trading purposes. The Company's debt security portfolio represents funds held temporarily, pending use in the Company's business and operations. The Company manages these funds accordingly. The Company seeks reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while, at the same time, seeking to achieve a favorable rate of return. The Company's market risk exposure consists principally of exposure to changes in interest rates. The Company's holdings are also exposed to the risks of changes in the credit quality of issuers. The Company typically invests in the shorter-end of the maturity spectrum or highly liquid investments. The table below presents the historic cost basis and fair value for the Company's investment portfolio as of April 30, 2001, and the related weighted average interest rates by year of maturity:
Fiscal year Fiscal year Fiscal year Total Total 2001 2002 2003 Historical Cost Fair Value - ------------------------------------------------------------------------------------------------------------------ Fixed income assets: Governmental Securities $1,017,000 $2,647,000 $1,000,000 $4,664,000 $4,669,000 Average interest rate 5.00% 5.78% 4.15% 5.72% - ------------------------------------------------------------------------------------------------------------------
PART II -- OTHER INFORMATION Item 1. Legal Proceedings -- See Note 9 of Notes to Interim Consolidated Financial Statements for discussion of certain pending legal proceedings. Item 2. Changes in Securities -- See Note 6 of Notes to Interim Consolidated Financial Statements for information regarding the issuance of non-registered stock options to the Company's Chief Operating Officer. Item 3. Defaults Upon Senior Securities -- Not applicable Item 4. Submission of Matters to a Vote of Security Holders -- The Annual Meeting ("Meeting") of Shareholders of the Company was held on March 29, 2001. The 15,724,365 shares of common stock ("Common Stock") present at the Meeting out of a then total of 17,832,431 shares outstanding and entitled to vote, acted as follows with respect to the following proposals: Approved, by a vote of: 15,367,608 shares of Common Stock for and 356,757 shares against the election of William F. Miller III as a director of the Company; 15,365,110 shares of Common Stock for and 359,255 shares against the election of William W. Neal as a director of the Company; 15,366,933 shares of Common Stock for and 357,432 shares against the election of Ellen A. Rudnick as a director of the Company; 15,368,316 shares of Common Stock for and 356,049 shares against the election of Richard H. Stowe as a director of the Company. In addition, 350,629 shares of Common Stock were voted against the election of all of the nominees. 16 19 Ratified, by a vote of 15,406,698 shares of Common Stock for and 264,111 shares against the selection of KPMG LLP as the Company's independent certified public accountants for the fiscal year ending October 31, 2001. Item 5. Other Information -- None Item 6. Exhibits and Reports on Form 8-K Exhibits - See exhibit index Reports on Form 8-K - None 17 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: June 13, 2001 HEALTH MANAGEMENT SYSTEMS, INC. -------------------------------- (Registrant) By: /s/ William F. Miller III ------------------------------------- William F. Miller III Chairman and Chief Executive Officer By: /s/ Alan L. Bendes ------------------------------------- Alan L. Bendes Senior Vice President and Chief Financial Officer 18 21 HEALTH MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Description of Exhibits 10.1(i) Surrender Agreement dated as of March 23, 2001 for the twelfth floor to the lease by and between 401 Park Avenue South Associates LLC and Health Management Systems, Inc. 10.1(ii) Guaranty and Compensation Agreement dated as of March 23, 2001 for the twelfth floor to the lease by and between Health Management Systems, Inc. and 401 Park Avenue South Associates LLC 10.1(iii) Agreement of Lease dated as of March 23, 2001 for the twelfth floor by and between 401 Park Avenue South Associates LLC and Health Management Systems, Inc. 10.1(iv) Seventh Amendment of Lease dated as of March 1, 2001 to the lease of the fourth floor and penthouse by and between 401 Park Avenue South Associates LLC and Health Management Systems, Inc. 10.1(v) Seventh Amendment of Lease dated as of April 1, 2001 to the lease for the eighth, ninth, tenth, a portion of the eleventh and a portion of the twelfth floors by and between 401 Park Avenue South Associates LLC and Health Management Systems, Inc. 10.1(vi) Fifth Amendment of Lease dated as of May 1, 2003 to the lease for a portion of the eleventh floor by and between 401 Park Avenue South Associates LLC and Health Management Systems, Inc. 10.2(i) Employment Agreement dated as of March 30, 2001 by and between Health Management Systems, Inc. and Robert M. Holster 10.2(ii) Stock Option Agreement dated as of March 30, 2001 by and between Health Management Systems, Inc. and Robert M. Holster 10.3 Employment Agreement dated as of March 1, 2001, by and between Health Management Systems, Inc. and Alan Hayes 19 EX-10.1.I 2 y50367ex10-1_i.txt SURRENDER AGREEMENT 1 EXHIBIT 10.1(i) SURRENDER AGREEMENT AGREEMENT made as of this 23rd day of March, 2001 by and between 401 Park Avenue South Associates LLC, having an office at 30 West 26th Street, 8th Floor, New York, New York 10010 (hereinafter referred to as "Landlord") and Health Management Systems, Inc., having an office at 401 Park Avenue South, 4th Floor, New York, New York (hereinafter referred to as "Tenant"). WITNESSETH: WHEREAS: A. Tenant and Landlord, as Tenant and Landlord respectively, entered into a certain lease dated February 1, 1980, as amended by an Amendment of Lease dated February 1, 1980, a Second Amendment of Lease dated October 9, 1981, a Third Amendment of Lease dated September 24, 1982, a Fourth Amendment of Lease dated January 6, 1986, a Fifth Amendment of Lease dated February 28, 1990, a Sixth Amendment of Lease dated May 30, 2000 and a Seventh Amendment of Lease dated May 30, 2003 with respect to a portion of the 12th Floor in the building known as 401 Park Avenue South, (hereinafter called the "Building") which Lease by its term expires on May 13, 2013 (hereinafter called the "Lease"); and B. Tenant agrees to surrender the Lease to Landlord and Landlord is willing to accept such surrender in the manner and upon the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the promises and the agreements hereinafter contained, it is mutually covenanted and agreed as follows: 1. Tenant hereby irrevocably surrenders to Landlord, as of midnight March 31, 2001 (the "Surrender Date"), the Lease and the term and estate thereby granted together with the premises demised by the Lease (hereinafter referred to as the "Premises"), to the intent and purpose that the estate of Tenant in and to the Premises shall be wholly extinguished and that the term of the Lease shall expire on the Surrender Date in the same manner and with the same effect as if the Surrender Date were the date set forth in the Lease for the expiration of the term thereof. 2. Tenant hereby agrees to surrender the Premises on the Surrender Date in the condition and state of repair existing on the date of the execution of this Agreement. 3. Tenant hereby represents and covenants that nothing has been or will be done or suffered whereby the Lease or the term or estate thereby granted, or the Premises or any part thereof, or any alteration, decoration, installation, addition and improvement in and to the Premises or any part thereof, have been or will be encumbered in any way whatsoever, and that Tenant owns and will own the Lease, and has and will have good right to surrender the same, and that no one other than Tenant has acquired or will acquire through or under Tenant any right, title or interest in or to the Lease or the term 2 of estate thereby granted, or in or to the Premises or any part thereof, or in or to said alteration, decorations, installations, additions and/or improvements or any part thereof. 4. Landlord hereby accepts such surrender and termination as of the Surrender Date and in consideration of such surrender and termination by Tenant and of the acceptance of such surrender and termination by Landlord, Tenant and Landlord do hereby mutually release each other, their respective successors and assigns of and from any and all claims, damages, obligations, liabilities, actions and causes of action, of every kind and nature whatsoever arising under or in connection with the Lease, except that nothing herein contained shall be deemed to constitute a release or discharge of Tenant with respect to any obligation or liability accrued or incurred under the Lease, up to and including anything outstanding on the Surrender Date. 5. This Agreement may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 6. The covenants, agreements, terms, provisions and conditions in this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 7. This Surrender Agreement shall not be binding upon Landlord unless and until (a) it has been duly executed by Landlord and delivered by Landlord to Tenant and (b) Tenant has paid to Landlord any outstanding monies as provided for in this Lease by certified check, bank check or other collected funds. IN WITNESS WHEREOF, the parties hereto have respectively executed this Agreement as of the day and year first above written. HEALTH MANAGEMENT SYSTEMS, INC. By: /s/ Vincent C. Hartley --------------------------------------- 401 PARK AVENUE SOUTH ASSOCIATES LLC By: /s/ Stephen J. Meringoff, Member By: /s/ Farrel Virga --------------------------------------- ATTORNEY IN FACT EX-10.1.II 3 y50367ex10-1_ii.txt GUARANTY AND COMPENSATION AGREEMENT 1 EXHIBIT 10.1(ii) GUARANTY AND COMPENSATION AGREEMENT THIS GUARANTY AND COMPENSATION AGREEMENT ("Guaranty"), made as of this 23rd day of March 2001, by Health Management Systems, Inc. (hereinafter referred to as the "Guarantor") having an address at 401 Park Avenue South, New York, New York 10016, (hereinafter referred to as the "Building") and 401 Park Avenue South Associates LLC having an address at 30 West 26th Street, New York, New York 10010 (hereinafter referred to as the "Lessor"). W I T N E S S E T H: WHEREAS, Guarantor is the tenant under (i) a lease dated September 24, 1981 by and between Guarantor and Lessor, as Landlord, for the entire 4th floor in the Building, (ii) a lease dated September 24, 1982 by and between Guarantor and Lessor, as Landlord, for the entire 8th, 9th, 10th and a portion of the 11th floor in the Building, such leases having been amended from time to time (hereinafter referred to as the "HMS Leases"); and WHEREAS, Digital Convergence Corporation (hereinafter referred to as "Lessee"), is a tenant under a certain proposed lease dated March 23, 2001 (hereinafter the "Lease"), between Lessor and Lessee, as Landlord and Tenant respectively for the entire 12th floor in the Building (the "Demised Premises") for a term of seven (7) years; and WHEREAS, Guarantor and Lessor have entered into a lease (the "HMS 12th Floor Lease") for the Demised Premises the term of which commences on the expiration of the Lease; and WHEREAS, Lessor is unwilling to enter into the Lease unless Guarantor executes and delivers this Guaranty; and WHEREAS, as an inducement for Guarantor to enter into this Guaranty, Lessor will make certain "Guaranty Payments" to Guarantor, as such term is defined below. NOW, THEREFORE, for $1.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees with Lessor as follows: 1. A) Guarantor unconditionally guarantees Lessee's obligation to occupy the premises demised by the Lease (the "Demised Premises") for the entire Lease term, it being expressly understood and agreed between Guarantor and Lessor that (i) except as specifically provided below, Lessor shall look solely to Lessee for recovery of any monetary claim or default as a result of Lessee's failure to comply with the terms of the Lease, to include but not limited to the obligation to pay rent and additional rent and the costs associated with the prosecution of any claim Lessor may have against Lessee, (ii) Guarantor unconditionally guarantees to Lessor that in the event that (a) Lessor shall terminate the Lease prior to the Page 1 2 scheduled expiration date for any reason, (b) Lessor shall come into possession of the Demised Premises before the scheduled expiration of the Lease as a result of Lessee's acts, voluntary or otherwise, or (c) the Lease by its term shall expire, then in any of these events, Guarantor shall take possession of the Demised Premises on the tenth (10th) business day following the date of Lessor's notice to Guarantor that the Demised Premises are vacant. Guarantor's possession and occupancy of the Demised Premises shall be in accordance with the terms and conditions of the HMS 12th Floor Lease, and (iii) Lessee's obligations under this Guaranty and Compensation Agreement shall terminate upon the expiration or the early termination of the Lease. B) In consideration of Guarantor (i) making this Guaranty and (ii) entering into the HMS 12th Floor Lease, Lessor shall pay to Guarantor the following amounts on the dates indicated (hereinabove and hereinafter referred to as the "Guaranty Payments"):
- --------------------------------------------- Guaranty Payment Guaranty Payment Date - --------------------------------------------- $120,512.22 April 1, 2002 - --------------------------------------------- 42,341.65 July 1, 2002 - --------------------------------------------- 31,756.24 October 1, 2002 - --------------------------------------------- 31,011.65 January 1, 2003 - --------------------------------------------- 30,723.17 April 1, 2003 - --------------------------------------------- 33,124.59 July 1, 2003 - --------------------------------------------- 33,124.59 October 1, 2003 - --------------------------------------------- 32,353.94 January 1, 2004 - --------------------------------------------- 32,055.36 April 1, 2004 - --------------------------------------------- 34,540.82 July 1, 2004 - --------------------------------------------- 34,540.82 October 1, 2004 - --------------------------------------------- 33,743.20 January 1, 2005 - --------------------------------------------- 33,434.18 April 1, 2005 - --------------------------------------------- 36,006.64 July 1, 2005 - --------------------------------------------- 36,006.64 October 1, 2005 - --------------------------------------------- 35,181.09 January 1, 2006 - --------------------------------------------- 34,861.26 April 1, 2006 - --------------------------------------------- 37,523.76 July 1, 2006 - --------------------------------------------- 37,523.76 October 1, 2006 - --------------------------------------------- 36,669.32 January 1, 2007 - --------------------------------------------- 36,338.29 April 1, 2007 - --------------------------------------------- 39,093.95 July 1, 2007 - --------------------------------------------- 39,093.95 October 1, 2007 - --------------------------------------------- 38,209.61 January 1, 2008 - --------------------------------------------- 24,293.95 April 1, 2008 - ---------------------------------------------
Page 2 3 C) Notwithstanding anything to the contrary herein contained, Lessor's obligation to make the Guaranty Payments shall (i) terminate in all respects upon the occurrence of any of the following events; a) the Lease is terminated, whereupon the Guaranty Payment next due will be prorated to the date of termination of the Lease; b) the HMS leases are terminated; (c) in the event that for any reason (whether voluntary or involuntary) Guarantor shall itself occupy less than 50% of the space in the Building that Guarantor occupies as of the date of this Guaranty and Compensation Agreement (which Guarantor and Lessor agree for purposes hereof, as of the date hereof Guarantor occupies approximately 91,800 rentable square feet in the Building) then in such event the Guaranty Payments shall terminate and shall be prorated to the date of such event, or d) in the event Guarantor shall default in its obligations hereunder, and (ii) (x) the occurrence of a monetary default on the part of Lessee pursuant to the terms of the Lease or a non-monetary material breach of the Lease occurs, whereupon Guaranty Payments shall abate until such default is cured to Lessor's reasonable satisfaction; or (y) upon the event of a default of Guarantor pursuant to the terms of the HMS Leases, whereupon the Guaranty Payments shall abate until such default is cured. Any Guaranty Payment abated pursuant to the terms of this Guaranty and Compensation Agreement shall be deemed waived. 2. Landlord shall have no obligation to perform any work or do anything to prepare the Demised Premises for Guarantor's occupancy upon the expiration or sooner termination of the Leases except (i) as may be required by the HMS 12th Floor Lease, and (ii) Lessor shall deliver the Demised Premises in broom clean condition. 3. Any act of Lessor, or the successors or assigns of Lessor, consisting of a waiver of any of the terms or conditions of the Lease, or the giving of any consent to any matter or thing relating to the Lease, or the granting of any indulgences or extensions of time to Lessee, may be done without the consent of Guarantor, and without releasing any obligations of Guarantor hereunder. 4. Lessor shall give written notice to Guarantor in the event of a default by Lessee under the Lease when such default shall continue beyond any notice, grace and cure periods that are provided in the Lease or which may be required by law. Lessor's notice may be delivered to Guarantor at Lessor's option (i) via facsimile and confirmed by certified mail or (ii) via a reputable national overnight courier at the address following or at such other address Guarantor may designate in writing to Lessor from time to time: Health Management Systems, Inc. 401 Park Avenue South, 4th Floor New York, New York 10016 Attn. Mr. Vincent C. Hartley Lessor and Guarantor agree that Lessor's notices to Guarantor as herein above provided shall be given as an accommodation to Guarantor and any failure to deliver such notice shall not constitute a default of Lessor's obligations under this Guaranty and Compensation Agreement. Page 3 4 5. Guarantor agrees that if judgment shall be entered against Guarantor in any action, suit or proceeding to enforce this Guaranty, Guarantor will reimburse Lessor for all reasonable costs and expenses incurred by Lessor in connection therewith, including, without limitation, reasonable counsel fees. 6. Guarantor and Lessor each waive trial by jury of any and all issues arising in any action, suit or proceeding to which Lessor and Guarantor may be parties upon, under or connected with this Guaranty or any of its provisions, directly or indirectly. 7. The obligations of Guarantor under this Guaranty shall be absolute and unconditional, shall not be subject to any counterclaim, set-off, deduction or defense based upon claim Guarantor may have against Lessor and shall remain in full force and effect without regard to, and shall not be released, discharged or terminated or in any other way affected by, any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof), including, without limitation: (a) any amendment, modification, extension or renewal of the Lease (except that the liability of Guarantor hereunder shall be deemed to apply to the Lease as so amended, modified, extended or renewed); (b))any exercise or non-exercise by Lessor of any right, power or remedy under or in respect of the Lease, or any waiver, consent, indulgence or other action, inaction or omission under or in respect of the Lease; (c) any assignment, sale, sublease, surrender, forfeiture, re-entry, reletting or other transfer in respect of the Lease or any or all of or any interest in the building of which the Demised Premises are a part by Lessor or Lessee; (d) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding involving or affecting Lessee or Lessor or their properties or creditors, or any action taken with respect to the Lease (including the rejection or disaffirmance of the Lease in any such proceeding), by any trustee or receiver of Lessor or Lessee, or by any court, in any such proceeding; or (e) any limitation on the liability or obligations of Lessee under the Lease, or any invalidity or unenforceability, in whole or in part, of any obligation of Lessee under the Lease or of any term of the Lease. 8. Guarantor at its expense will execute, acknowledge and deliver all such instruments and take all such action as Lessor from time to time may reasonably request for the assuring to Lessor the full benefits intended to be created by this Guaranty. 9. This Guaranty shall continue in full force and effect throughout the term of the Lease. 10. Any notice or other communication hereunder shall be in writing and shall be deemed duly served if mailed by registered or certified mail in any United States post office station or letter box, addressed if to Guarantor to it at the address of Guarantor set forth herein or such other address as Guarantor shall have last designated by notice to Lessor, and addressed if to Lessor to it at 30 West 26th Street, 8th Floor, New York, New York 10010 or such other address as Lessor shall have last designated by notice to Guarantor. Page 4 5 11. This Guaranty shall inure to the benefit of and may be enforced by Lessor, its successors or assigns, and shall be binding upon and be enforceable against Guarantor and its successor and assigns. 12. This Guaranty may not be changed, modified, discharged or terminated orally or in any manner other than by an agreement in writing signed by Guarantor and Lessor, or their respective successors and assigns. 13. This Guaranty and any issues arising hereunder shall be governed by the law of New York. Guarantor agrees to submit to personal jurisdiction in the State of New York in any action or proceeding arising out of this Guaranty and, in furtherance of such agreement. Guarantor hereby agrees and consents that without limiting other methods of obtaining jurisdiction, personal jurisdiction over Guarantor in any such action or proceeding may be obtained within or without the jurisdiction of any court located in New York and that any process or notice of motion or other application to any such court in connection with any such action or proceeding may be served upon Guarantor by registered mail to or by personal service at the last known address of the undersigned, whether such address be within or without the jurisdiction of any such court. 14. The person executing this Guaranty on behalf of Guarantor represents that he is duly authorized to enter into this Guaranty and to enter into the HMS 12th Floor Lease and thereby bind Health Management Systems, Inc. to all of the terms and conditions contained herein and in the HMS 12th Floor Lease. IN WITNESS WHEREOF, the parties have duly executed this GUARANTY AND COMPENSATION AGREEMENT on the day and year first above written. FOR GUARANTOR: HEALTH MANAGEMENT SYSTEMS, INC. By: /s/ Vincent C. Hartley -------------------------------------------- Vincent C. Hartley ITS: Vice-President FOR LESSOR: 401 PARK AVENUE ASSOCIATES LLC By: STEPHEN J. MERINGOFF, MEMBER By: /s/ Farrel Virga -------------------------------------------- FARREL VIRGA ITS: ATTORNEY-IN-FACT Page 5 6 STATE OF NEW YORK ) :ss.: COUNTY OF NEW YORK ) On the 23 of March, 2001 before me personally came Vincent C. Hartley, to me known to be the individual described in and who executed the foregoing instrument, and acknowledged that he executed the same. /s/ Edith Hamilton Notary Public [Edith Miszti Hamilton NOTARY PUBLIC, State of New York No 4905281 Qualified in Nassau County Commission Expires Sept. 14, 2001] STATE OF NEW YORK ) :ss.: COUNTY OF NEW YORK ) On the 23 of March, 2001 before me personally came Farrel Virga, to me known to be the individual described in and who executed the foregoing instrument, and acknowledged that he executed the same. /s/ Edith Hamilton Notary Public [Edith Miszti Hamilton NOTARY PUBLIC, State of New York No 4905281 Qualified in Nassau County Commission Expires Sept. 14, 2001] Page 6 EX-10.1.III 4 y50367ex10-1_iii.txt AGREEMENT OF LEASE 1 EXHIBIT 10.1(iii) STANDARD FORM OF LOFT LEASE THE REAL ESTATE BOARD OF NEW YORK, INC. Agreement of Lease, made as of this 23rd day of March 2001, between 401 Park Avenue South Associates LLC, a New York limited liability company having an office at 30 West 26th Street, New York, New York 11010 party of the first part, hereinafter referred to as LANDLORD, and Health Management Systems, Inc, a New York corporation having an office at 401 Park Avenue South, 4th Floor, New York, New York 10016, party of the second part, hereinafter referred to as TENANT, Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord entire twelfth floor of the Building as shown on Exhibit A attached hereto in the building known as 401 Park Avenue South (the "Building") in the Borough of Manhattan, City of New York, for the term of to be determined to commence on the Commencement Date (as hereinafter defined) (See next page 1A), and to end on the 31st day of May, 2013, both dates inclusive, at an annual rental of $157,805 per annum which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Landlord or such other place as Landlord may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first monthly installment, coming due pursuant to the terms of this lease after any rent abatement period on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Landlord pursuant to the terms of another lease with Landlord or with Landlord's predecessor in interest, Landlord may at Landlord's option and without notice to Tenant add the amount of such arrearages to any monthly installment of rent payable hereunder and the same shall be payable to Landlord as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: RENT: 1. Tenant shall pay the rent as above and as hereinafter provided. OCCUPANCY: 2. Tenant shall use and occupy, demised premises for executive and general offices for financial consultants and data processing and for no other purpose. ALTERATIONS: 3. Tenant shall make no changes in or to the demised premises of any nature without Landlord's prior written consent. Subject to the prior written consent of Landlord, and to the provisions of this article, Tenant, at Tenant's expense, may make alterations, installations, additions or improvements which are nonstructural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises using contractors or mechanics first approved in each instance by Landlord. All fixtures and all paneling, partitions, railings and like installations, installed in the premises any time, either by Tenant or by Landlord on Tenant's behalf, shall, upon installation, become the property of Landlord and shall remain upon and be surrendered with the demised premises. Nothing in this Article shall be construed to give Landlord title to or prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal or any such from the premises or upon removal of other installations as may be required by Landlord, Tenant shall immediately and at its expense repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Landlord, either be 2 Page 1A The Commencement Date shall be the earlier to occur of (i) March 31, 2008, the scheduled expiration of a lease by and between Landlord and Digital Convergence Corporation, as Tenant, for the Demised Premises (hereinafter the "Digital Lease"), or (ii) in the event of the early termination of the Digital Lease, ten (10) business days following Landlord's written notice that the Digital Lease has terminated. Notwithstanding the foregoing sentence, the commencement of this Lease shall be subject to all the terms and conditions of that certain Guaranty and Compensation Agreement of even date herewith by and between Landlord, as Lessor and Tenant, as Guarantor. 3 retained as Landlord's property or removed from the premises by Landlord, at Tenant's expense. Tenant shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approval and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Landlord an Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Landlord may require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a part for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within ten days thereafter, at Tenant's expense, by payment or filing the bond required by law. REPAIRS: 4. Landlord shall maintain and repair the public portions of the building, diligently including, without limitation, the roof, both exterior and interior. Tenant shall, throughout the term of this lease, take good care of the demised premises and the fixtures and appurtenances therein and at Tenant's sole cost and expense make all non-structural repairs thereto as and when needed to preserve them in good working order and condition, reasonable wear and tear, obsolescence and damage from the elements, fire or other casualty excepted. Notwithstanding the foregoing, all damage or injury to the demised premises or to any other part of the building, or to its fixtures, equipment or appurtenances, whether requiring structural or non-structural repairs, caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's servants, employees, invitees, or licensees, shall be repaired promptly by Tenant at its sole cost and expense, to the satisfaction of Landlord reasonably exercised. Tenant shall also repair all damage to the building and the demised premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails, after ten days notice, to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Landlord at the expense of Tenant and the expenses thereof incurred by Landlord shall be collectible, as additional rent, after rendition of a bill or statement therefor. If the demised premises be or become infested with vermin, Tenant shall, at its expense, cause the same to be exterminated from time to time to the satisfaction of Landlord. Tenant shall give Landlord prompt notice of any defective condition in any plumbing, heating system or electrical lines located in, servicing or passing through the demised premises and following such notice, Landlord shall remedy the condition with due diligence, but at the expense of Tenant if repairs are necessitated by damage or injury attributable to Tenant, Tenant's servants, agents, employees, invitees or licensees as aforesaid. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making or failing to make any repairs, alterations, additions or improvements in or to any portion or the building or the demised premises or in and to the fixtures, appurtenances or equipment thereof. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty which are dealt with in Article 9 hereof shall apply. WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. REQUIREMENTS OF LAW, FIRE INSURANCE: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter Tenant shall, at Tenant's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, or any similar body which shall impose any violation, order or duty upon Landlord or Tenant with respect to the demised premises, whether or not arising out or Tenant's use or manner of use thereof, or, with respect to the building, if arising out of Tenant's use or manner of use of the premises of the building (including the use 4 permitted under the lease). Except as provided in Article 29 hereof, nothing herein shall require Tenant to make structural repairs or alterations, unless Tenant has, by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant may, after securing Landlord to Landlord's satisfaction against all damages, interest, penalties and expenses, including but not limited to reasonable attorneys' fees, by cash deposit or by surety bond in an amount and in a company satisfactory to Landlord, contest and appeal any such laws, ordinances, orders, rules, regulations or requirements provided same is done with all reasonable promptness and provided such appeal shall not subject Landlord to prosecution for a criminal offence or constitute a default under any lease or mortgage under which Landlord may be obligated, or cause the demised premises or any part thereof to be condemned or vacated. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Landlord with respect to the demised premises or the building of which the demised premises form a part, or which shall or might subject the Landlord to any liability or responsibility to any person for property damage, nor shall Tenant keep anything in the demised premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization or other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the building, nor use the premises in a manner which will increase the insurance rate for the building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses, penalties or damages, which may be imposed upon Landlord by reason of Tenant's failure to comply with this article and if by reason of such failure the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Landlord, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant, and shall make such reimbursement upon the first day of the month following such outlay by Landlord.. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" of rate for the building or demised premises issued by the New York Fire Insurance Exchange, or other body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to said premises. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes, extra-heavy business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's judgement, to absorb and prevent unreasonable vibration, noise and annoyance. SUBORDINATION: 7. This lease is subject and subordinate to all ground or underlying, leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall from time to time execute promptly any certificate that Landlord may request. PROPERTY-LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: 8. Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Landlord, its agents, servants or employees; nor shall Landlord or its agents be liable for any damage caused by other tenants or persons in, upon or about said building or caused by operations in construction of any private, public or quasi public work. If at any time any windows of the demised premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to, Landlord's own acts, Landlord shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement or diminution of 5 rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky matter or fixtures into or out of the building without Landlord's prior written consent. If such safe, heavy machinery, heavy equipment, bulky matter or fixtures requires special handling, all work in connection therewith shall comply with the Administrative Code of the City of New York and all other laws and regulations applicable thereto and shall be done during such hours as Landlord shall designate. Tenant shall indemnify and save harmless Landlord against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Landlord shall not be reimbursed by insurance, including reasonable attorney's fees, paid; suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant, and any agent, contractor, employee, invitee or licensee of any subtenant In case any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon written notice from Landlord, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Landlord in writing, such approval not to be unreasonably withheld. DESTRUCTION, FIRE AND OTHER CASUALTY: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Landlord and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Landlord and the rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable or inaccessible by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by, subject to Landlord's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises pro damaged in whole or in part) if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then, in any of such events, Landlord may elect to terminate this lease by written notice to Tenant, given within 90 days after such fire or casualty specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Landlord's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Landlord shall serve a termination notice as provided for herein, Landlord shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Landlord's control. After any such casualty, Tenant shall cooperate with Landlord's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Landlord that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance and also, provided that such a policy can be obtained without additional premiums. Tenant acknowledges that Landlord will not carry insurance on Tenant's furniture and or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Landlord will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. 6 EMINENT DOMAIN: 10. If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. ASSIGNMENT, MORTGAGE, ETC.: 11. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns; expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Landlord in each instance. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under- tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant' herein contained. The consent by Landlord to an assignment or underletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. ELECTRIC CURRENT: 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Landlord's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no way make Landlord liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. ACCESS TO PREMISES: 13. Landlord or Landlord's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Landlord may deem necessary and reasonably desirable to the demised premises or any other portion of the building or which Landlord may elect to perform in the premises after Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Landlord to use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes and conduits therein. Landlord may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof Landlord shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants and may, during said six months period; place upon the premises the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the premises, Landlord or Landlord's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, and such entry shall not render Landlord or its agents liable therefor, nor in any event shall the obligations or Tenant hereunder be affected. If during the last month of the term Tenant shall have removed all or substantially all of Tenant's property therefrom. Landlord may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligation hereunder. Landlord shall have the right at any time, without the same constituting an 7 eviction and without incurring liability to Tenant therefor to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the building and to change the name, number or designation by which the building may be known. VAULT, VAULT SPACE, AREA: 14. No Vaults, vault space or area, whether or not enclosed or covered, not within the property line or the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Landlord makes no representation as to the location of the property line of the building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any Federal, state or municipal authority or public utility, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant. OCCUPANCY: 15. Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to Landlord's work, if any. In any event, Landlord makes no representation as to the condition or the premises and Tenant agrees to accept the same subject to violations, whether or not of record. BANKRUPTCY: 16. (a) If at the date fixed as the commencement of the term of this lease or if at any time during the term hereby demised there shall be filed by or against Tenant in any court pursuant to any statute either of the United States or of any state, a petition in bankruptcy or insolvency or for the reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant" property, and within 60 days thereof, Tenant fails to secure a dismissal thereof, or if Tenant make an assignment for the benefit of creditors or petition for or enter into an arrangement, this lease, at the option of Landlord, exercised within a reasonable time after notice of the happening of any one or more of such events, may be cancelled and terminated by prior written notice to the Tenant (but if any of such events occur prior to the commencement date, this lease shall be ipso facto cancelled and terminated) and whether such cancellation and termination occur prior to or during the term, neither Tenant nor any person claiming through or under Tenant by reason of any statute or order of any court, shall be entitled to possession or to remain in possession of the. premises demised but shall forthwith quit and surrender the premises, and Landlord, in addition to the other rights and remedies Landlord has by virtue of any other provision herein or elsewhere in this lease contained or by virtue of any statue or rule of law, may retain as liquidated damages, any rent, security deposit or moneys received by him from Tenant or others on behalf of Tenant. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rental reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof, be relet by the Landlord for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting, Nothing herein contained shall 8 limit or prejudice the right of the Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. DEFAULT: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises becomes vacant or deserted; or if the demised premises are damaged by reason of negligence or carelessness of Tenant, its agents, employees or invitees; or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if Tenant shall make default with respect to any other lease between Landlord and Tenant; or if Tenant shall fail to move into or take possession of the premises within fifteen (15) days after commencement of the term of this lease, of which fact Landlord shall be the sole judge; then in any one or more of such events, upon Landlord serving a written five (5) days notice upon Tenant specifying the nature of said default and upon the expiration of said five (5) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained or shall be of a nature that the same cannot be completely cured or remedied within said five (5) day period, and if Tenant shall not have diligently commenced curing such default within such five (5) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Landlord may serve a written three (3) days' notice of cancellation of this lease upon Tenant, and upon the expiration o said three (3) days, this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Landlord but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given and the term shall expire as aforesaid; or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required; then and in any of such events Landlord may without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the legal representative of Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Landlord may cancel and terminate such renewal or extension agreement by written notice. REMEDIES OF OWNER AND WAIVER OF REDEMPTION: 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such expenses as Landlord may incur for legal expenses, attorneys' fees, brokerage, and/or for putting the demised premises in good order, or for preparing the same for re-rental; (b) Landlord may re-let the premises or any part or parts thereof, either in the name of Landlord or otherwise., for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay Landlord as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure or Landlord to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Landlord may incur in connection with re-letting. such as legal expenses, attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord, in putting the 9 demised premises in good order or preparing the same for re- rental may, at Landlord's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re- letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Landlord hereunder. In the event of a breach or threatened breach by Tenant of any or the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Landlord from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this lease, or otherwise. FEES AND EXPENSES: 19. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, then, unless otherwise provided elsewhere in this lease, Landlord may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder, and if Landlord, in connection therewith or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to attorney's fees, in instituting, prosecuting or defending any action or proceedings, such sums so paid or obligations incurred with interest and costs shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord within five (5) days of rendition of any bill or statement to Tenant therefor, and if Tenant's lease term shall have expired at the time of making of such expenditures or incurring or such obligations, such sums shall be recoverable by Landlord as damages. NO REPRESENTATIONS BY OWNER: 20. Neither Landlord nor Landlord's agents have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the demised premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the premises except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition and agrees to take the same "as is and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Landlord and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. END OF TERM: 21. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Landlord the demised premises, broom clean, in good order and condition, ordinary excepted, and Tenant shall remove all its property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. 10 QUIET ENJOYMENT: 22. Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 33 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. FAILURE TO GIVE POSSESSION: 23. If Landlord is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, under Tenant or occupants or if the demised premises are located in a building being constructed, because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured for any other reason, Landlord shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any way to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for the inability to obtain possession) until after Landlord shall have given Tenant written notice that the premises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. NO WAIVER: 24. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations set forth or hereafter adopted by Landlord, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this lease provided. No act or thing done by Landlord or Landlord's agents during the term hereby demised shall be deemed an acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. WAIVER OF TRIAL BY JURY: 25. It is mutually agreed by and between Landlord and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal Injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Landlord commences any proceeding or action for possession including a summary proceeding for possession or the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding. 11 ]INABILITY TO PERFORM: 26. This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from doing so by reason of strike or labor troubles or any cause whatsoever including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. BILLS AND NOTICES: 27. Except as otherwise in this lease provided, a bill statement, notice or communication which Landlord may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered if, in writing, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant at the building of which the demised premises form a part or at the last known residence address or business address of Tenant or left at any or the aforesaid premises addressed to Tenant, and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant to Landlord must be served by registered or certified mail addressed to Landlord at the address first hereinabove given or at such other address as Landlord shall designate by written notice. WATER CHARGES: 28. If Tenant requires, uses or consumes water for any purpose in addition to ordinary lavatory purposes (of which fact Tenant constitutes Landlord to be the sole judge) Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay for water consumed, as shown on said meter as and when bills are rendered, and on default in making such payment Landlord may pay such charges and collect the same from Tenant. Tenant agrees to pay for water consumed, as shown on said meter as and when bills are rendered, and on default in making such payment Landlord may pay such charges and collect the same from Tenant. Tenant covenants and agrees to pay the sewer rent, charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or a lien upon the demised premises or the realty of which they are part pursuant to law, order or regulation made or issued in connection with the use, consumption, maintenance or supply of water, water system or sewage or sewage connection or system. The bill rendered by Landlord shall be payable by Tenant as additional rent. Independently of and in addition to any of the remedies reserved to Landlord hereinabove or elsewhere in this lease, Landlord may sue for and collect any monies to be paid by Tenant or paid by Landlord for any of the reasons or purposes hereinabove set forth. SPRINKLERS: 29. Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or the New York Fire Insurance Exchange or any bureau, department or official of the federal, state or city government recommend or require the installation of a sprinkler system or that any changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason or Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, or for any other reason, or if any such sprinkler system installations, modifications, alterations, additional sprinkler heads or other such equipment, become necessary to prevent the imposition of a penalty or charge against the full 12 allowance for a sprinkler system in the fire insurance rate set by any said Exchange or by any fire insurance company, Tenant shall, at Tenant's expense, promptly make such sprinkler system installations, changes, modifications, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or non-structural in nature. ELEVATORS, HEAT, CLEANING: 30. As long as Tenant is not in default under any of the covenants of this lease Landlord shall: (a) provide necessary elevator facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m. and have one elevator subject to call at all other times; (b) furnish heat to the demised premises, when and as required by law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (c) at Landlord's expense cause to be kept clean the public halls and public portions of the building which are used in common by all tenants. Tenant shall, at Tenant's expense, keep the demised premises clean and in order, to the satisfaction of Landlord, and for that purpose shall employ the person or persons, or corporation approved by Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's rubbish and refuse from the building Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish form the building. Bills for the same shall be by Landlord to Tenant at such time as Landlord shall elect and shall be due and payable when rendered, and the amount of such bills shall be deemed to be, and be paid as, additional. Tenant shall, however, have the option of independently contracting for the removal of such refuse and rubbish in the event that Tenant does not wish to have same done by employees of Landlord. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgment of Landlord, are necessary for the proper operation of the building. Landlord reserves the right to stop service of the heating, elevator, plumbing and electric systems, when necessary, by reason of accident, or emergency, or for repairs, alterations, replacements or improvements, in the judgment of Landlord desirable or necessary to be made, until said repair, alterations, replacements or improvements shall have been completed. And Landlord shall have no responsibility or liability for failure to supply heat, elevator, plumbing and electric service during said period or when prevented from doing so by strikes, accidents or by any cause beyond Landlord's control, or by laws, orders or regulations of any Federal, state or Municipal Authority, or failure of coal, oil or other suitable fuel. If the building of which the demised premises are a part supplies manually operated elevator service, Landlord may proceed with alterations necessary to substitute automatic control elevator service upon ten (10) day written notice to Tenant without in any way affecting the obligations of Tenant hereunder, provided that the same shall be done with the minimum amount of inconvenience to Tenant, and Landlord pursues with due diligence the completions of the alterations. CAPTIONS: 32. The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof. DEFINITIONS: 33. The term "Landlord" as used in this lease means only the owner, or the mortgagee in possession, for the time being of the land and building (or the owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease, shall exclude Saturdays (except such portion thereof as is covered by specific hours in Article 30), Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. 13 ADJACENT EXCAVATION-SHORING: 34. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent. RULES AND REGULATIONS: 35. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations and such other and further reasonable Rules and Regulations as Landlord or Landlord's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Landlord may elect. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Landlord or Landlord's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Landlord within ten (10) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. GLASS: 36. Landlord shall replace, at the expense of the Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Landlord may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for and in the name of Landlord. Bills for the premiums therefor shall be rendered by Landlord to Tenant at such times as Landlord may elect, and shall be due from, and payable by, Tenant when rendered, and the amount thereof shall be deemed to be, and be paid, as additional rent. SUCCESSORS AND ASSIGNS: 37. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. Articles 38 through 72 of the Rider and Exhibits attached hereto are made a part hereof. IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this lease as of the day and year first above written. Witness for Landlord: /s/ 401 PARK AVENUE SOUTH ASSOCIATES LLC [SEAL] ----------------------------------------------- Witness for Tenant /s/ HEALTH MANAGEMENT SYSTEMS, INC. [SEAL] ----------------------------------------------- 14 ACKNOWLEDGEMENTS CORPORATE LANDLORD STATE OF NEW YORK, SS.: COUNTY OF On this day of , 2001, before me personally came to me known, who being by me duly sworn, did depose and say that he resides in that he is the of the corporation described in and which executed the foregoing instrument, as LANDLORD; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. CORPORATE TENANT STATE OF NEW YORK, SS.: COUNTY OF On this day of ,2001, before me personally came to me known, who being by me duly sworn, did depose and say that he resides in that he is the of the corporation described in and which executed the foregoing instrument, as TENANT; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. IMPORTANT - PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 35. 1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress or egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Landlord. There shall not be used in any space, or in the public hall 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 sideguards. If said premises are situated on the ground floor of the building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in front of said premises clean and free from ice, snow, dirt and rubbish. 2. The water and wash closets and plumbing fixtures shall not be used for any purposes other than those for which they were designed or constructed and no sweepings, rubbish, rags, acids or other substances shall be deposited 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 clerks, agents, employees or visitors, shall have caused it. 3. No carpet, rug or other article shall be hung or shaken out of any window of the building; and no Tenant shall sweep or throw or permit to be swept or thrown from the demised premises any dirt or other substances into any of the corridors of halls, elevators, or out of the doors or windows or stairways of the building and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the buildings by reason of noise, odors, and or vibrations, or interfere in any way, with other Tenants or those having business therein, nor shall any bicycles, vehicles, animals, fish, or birds be kept in or about the building. Smoking or carrying lighted cigars or cigarettes in the elevators of the building is prohibited. 4. No awnings, equipment or other projections shall be attached to the outside walls or windows of the building without the prior written consent of Landlord. 5. No equipment, 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 the building or on the inside of the 15 demised premises if the same is visible from the outside of the premises without the prior written consent of Landlord, except that the name of Tenant may appear on the entrance door of the premises. In the event of the violation of the foregoing by any Tenant, Landlord may remove same without any liability and may charge the expense incurred by such removal to Tenant or Tenants violating this rule. Interior signs on doors and directory tablet shall be inscribed, painted or affixed for each Tenant by Landlord at the expense of such Tenant, and shall be of a size, color and style acceptable to Landlord. 6. No Tenant shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. No Tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used an Interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 7. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant, nor shall any changes be made in existing 1ocks or mechanism thereof. Each Tenant must, upon the termination of his Tenancy, restore to Landlord all keys of stores, 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 Landlord the cost thereof. 8. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only on the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Landlord. Landlord reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violates any of these Rules and Regulations of the lease of which these Rules and Regulations are a part. 9. No Tenant shall obtain for use upon the demised premises ice, drinking water, towel and other similar services, or accept barbering or bootblacking services in the demised premises, except from persons authorized by Landlord, and at hours and under regulations fixed by Landlord. Canvassing, soliciting and peddling in the building is prohibited and each Tenant shall cooperate to prevent the same. 10. Landlord reserves the right to exclude from the building between the hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all persons who do not present a pass to the building signed by Landlord. Landlord will furnish passes to persons for whom any Tenant requests same in writing. Each Tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Landlord for all acts of such persons. 11. Landlord shall have the right to prohibit any advertising by any Tenant which in Landlord's opinion, tends to impair the reputation of the building or its desirability as a loft building, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. 12. Tenant shall not bring or permit to be brought or kept in or on the demised premises, any inflammable, combustible, or explosive, or hazardous fluid, material, chemical or substance, or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permeate in or emanate from the demised premises. 16
Increased Base Next Year Annual Operating Operating Operating Dates Dates Rental Multiplying Expense Expense Expense From To Escalation Percentage Contribution Contribution Contribution - ------------------------ --------------------------------------------------------------------------------------- 01/01/00 12/31/00 90,723 1.035% 93,898 10,505 104,404 01/01/01 12/31/01 104,404 1.035% 108,058 10,505 118,563 01/01/02 12/31/02 118,563 1.035% 122,713 10,505 133,219 01/01/03 12/31/03 133,219 1.035% 137,881 10,505 148,387 01/01/04 12/31/04 148,387 1.035% 153,580 10,505 164,086 01/01/05 12/31/05 164,086 1.035% 169,829 10,505 180,334 01/01/06 12/31/06 180,334 1.035% 186,646 10,505 197,151 01/01/07 12/31/07 197,151 1.035% 204,051 10,505 214,557 01/01/08 12/31/08 214,557 1.035% 222,066 10,505 232,572 01/01/09 12/31/09 232,572 1.035% 240,712 10,505 251,217 01/01/10 12/31/10 251,217 1.035% 260,010 10,505 270,515 01/01/11 12/31/11 270,515 1.035% 279,983 10,505 290,489 01/01/12 12/31/12 290,489 1.035% 300,656 10,505 311,161 01/01/13 05/31/13 311,161
SEVENTH & EIGHTH AMENDMENTS of Entire 12th (7,100 sf + 10,400 sf) - ------------------------------------------------------------------------------------------------------------------ Annual Operating Fixed Supplemental Dates Dates Rental Expense Operating Labor Wage From To Rate Contribution Payment Payment Total - ------------------------ ------------------------------------------------------------------------------------ 01/01/01 12/31/01 157,805 104,404 114,279 28,275 404,763 01/01/02 12/31/02 157,805 118,563 114,279 28,275 418,923 01/01/03 12/31/03 157,805 133,219 114,279 28,275 433,578 01/01/04 12/31/04 157,805 148,387 114,279 28,275 448,746 01/01/05 12/31/05 157,805 164,086 114,279 28,275 464,445 01/01/06 12/31/06 157,805 180,334 114,279 28,275 480,693 01/01/07 12/31/07 157,805 197,151 114,279 28,275 497,510 01/01/08 12/31/08 157,805 214,557 114,279 28,275 514,916 01/01/09 12/31/09 157,805 232,572 114,279 28,275 532,931 01/01/10 12/31/10 157,805 251,217 114,279 28,275 551,577 01/01/11 12/31/11 157,805 270,515 114,279 28,275 570,875 01/01/12 12/31/12 157,805 290,489 114,279 28,275 590,848 01/01/13 05/31/13 157,805 311,161 114,279 28,276 611,521
17 RIDER TO LEASE DATED APRIL 23, 2001 BETWEEN 401 PARK AVENUE SOUTH ASSOCIATES LLC, LANDLORD, AND HEALTH MANAGEMENT SYSTEMS, INC., TENANT 38. If any conflict shall arise between any of the provisions of this Rider and any of the terms, printed or typewritten, of the printed portion of this Lease to which this Rider is attached, all such conflicts shall be resolved in favor of the provisions of this Rider. 39. (a) Notwithstanding anything to the contrary contained in this Lease, all sums of money, other than the fixed rent, as shall become due from and payable by Tenant to Landlord under this Lease shall be deemed to be additional rent. (b) Any obligation of Landlord or Tenant which by its nature or under the circumstances can only be, or by the provisions of this Lease, may be performed after the expiration or earlier termination of this Lease, and any liability for a payment which shall have accrued to or with respect to any period ending at the time of expiration or termination, unless expressly otherwise provided in this Lease, shall survive the expiration or termination of this Lease. 40. (a) This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to a certain ground lease of the property of which the demised premises are a part, between Milton Schwartz, et al. as lessor and Landlord as lessee, dated September 14, 1979, and all renewals, extensions, modifications and replacements thereof, and to all mortgages which may now or hereafter affect such property and/or any of such leases, whether or not such mortgages shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and all consolidations of such mortgages. The foregoing shall not apply to any fee mortgage which is subordinate to such ground lease. This Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, the lessor under any such lease or the holder of any such mortgage or any of their respective successors in interest may reasonably request to evidence such subordination. Any lease to which this Lease is, at the time referred to, subject and subordinate is herein called "Superior Lease" and the lessor of a Superior Lease or its successor in interest, at the time referred to, is herein called "Superior Lessor"; and any mortgage to which this Lease is, at the time referred to, subject and subordinate, is herein called "Superior Mortgage" and the holder of a Superior Mortgage is herein called "Superior Mortgagee." (b) If any Superior Lessor or Superior Mortgagee or the nominee or designee of any Superior Lessor or Superior Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, 1 18 then at the request of such party so succeeding to Landlord's rights (herein called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease, except that the Successor Landlord (unless formerly the Landlord under this Lease or its nominee or designee) shall not be (i) liable in any way to Tenant for any act or omission, neglect or default on the part of Landlord under this Lease, (ii) responsible for any monies owing by or on deposit with Landlord to the credit of Tenant, except to the extent turned over to the Successor Landlord, (iii) subject to any counterclaim or setoff which theretofore accrued to Tenant against Landlord, (iv) bound by any previous modification of this Lease or by any previous prepayment of fixed rent for more than one (1) month, which was not approved in writing by the Superior Lessor or the Superior Mortgagee thereto or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease, (v) liable to Tenant beyond the Successor Landlord's interest in the property of which the demised premises are a part and the rents, income, receipts, revenues, issues and profits issuing from such property, (vi) responsible for the performance of any work to be done by the Landlord under this Lease to render the demised premises ready for occupancy by the Tenant, or (vii) required to remove any person occupying the demised premises or any part thereof, except if such person claims by, through or under the Successor Landlord. 41. For the purposes of this Article 41: (a) The term "Taxes" shall mean the real estate taxes, assessments and special assessments imposed upon the Building and/or the land upon which the Building is located (the "Land") by any governmental bodies or authorities. If at any time during the term of this Lease the method of taxation prevailing on the date hereof shall be altered so that in lieu of, or as an addition to, or as a substitute for, the whole or any part of such real estate taxes, assessments and special assessments now imposed on real estate, there shall be levied, assessed and imposed (i) a tax, assessment, levy, imposition, license fee or charge wholly or partially as a capital levy or measured or based on the rents received therefrom, or (ii) any other additional or substitute tax, assessment, levy, imposition or charge, then all such taxes, assessments, levies, impositions, fees or charges shall be deemed to be included within the term "Taxes" for the purposes hereof, provided, however, that except as otherwise provided herein, the term "Taxes" shall not include any income, franchise, transfer, inheritance or capital stock tax which is levied, assessed or imposed upon Landlord; and if any such taxes are included within the term "Taxes" then the amount of such taxes included within the term "Taxes" shall be determined as if the Building and Land are the sole assets of Landlord and as if the income therefrom is the sole income of Landlord. 2 19 (b) The term "Base Tax" shall mean $201,181. (c) The term "Tax Year" shall mean the period of twelve (12) calendar months beginning July 1st. (d) The term "Tenant's Proportionate Share" shall mean 8.333 percent. If the real estate fiscal tax year of the City of New York shall be changed during the term of this Lease, any Taxes for a new real estate fiscal tax year, a part of which is included within a particular Tax Year and a part of which is not so included, shall be apportioned on the basis of the number of days in the new real estate fiscal tax year included in the particular Tax Year for the purpose of making the computations under this Article. If the Taxes for any Tax Year during the term of this Lease after the commencement of this Lease shall exceed the Base Tax, Tenant shall pay for such Tax Year an amount (herein called the "Tax Payment") equal to Tenant's Proportionate Share of the excess. The Tax Payment for each Tax Year shall be due and payable in four equal quarterly installments, within thirty (30) days after demand, which demand shall not be made more than sixty (60) days prior to the date each such quarterly installment of Taxes is first due and payable by Landlord, based upon a statement which shall be furnished by Landlord to Tenant together with each such demand. If, however, at any time Landlord is required (by the taxing authority or the holder of any mortgage covering the Building) to pay Taxes more frequently than quarterly, Landlord shall have the right to collect installments of the Tax Payment not more than thirty (30) days prior to the date each installment of Taxes is first due and payable by Landlord. If the Base Tax is reduced as a result of a certiorari proceeding or otherwise, Landlord shall adjust the amount of each Tax Payment previously made, and Tenant shall pay the amount of said adjustment within thirty (30) days after demand setting forth the amount of said adjustment. If Landlord shall receive a refund of the Taxes for any Tax Year, Landlord shall promptly pay to Tenant Tenant's Proportionate Share of the refund (after deducting from such refund the reasonable costs and expenses of obtaining same); provided, however, such payment to Tenant shall in no event exceed Tenant's Tax Payment paid for such Tax Year. If a Tax Year ends after the expiration or termination of the term of this Lease, the Tax Payment therefor shall be prorated to correspond to that portion of such Tax Year occurring within the term of this Lease. Any delay or failure of Landlord in billing any amount due under this Section shall not constitute a waiver or in any way impair the continuing obligation of Tenant to make all payments hereunder. 3 20 42. For the purposes of this Article 42: (c) The words "Wage Rate" shall mean the minimum regular hourly wage rate prescribed for Porters in Class A Office Buildings pursuant to an agreement between the Realty Advisory Board on Labor Relations, Incorporated (or any successor thereto) and Local 32B of the Building Service Employees International Union, AFL-CIO (or any successor thereto) covering the wage rates for Porters in Class A Office Buildings; provided, however, if there is no such agreement in effect prescribing such minimum regular hourly wage rate for Porters, computations and payments shall thereupon be made upon the basis of the minimum regular hourly wage rate actually payable to Porters by Landlord or by the contractor performing cleaning services for Landlord. (d) The words "Base Wage Rate" shall mean the Wage Rate in effect on January 1, 1990. (e) The words "Wage Rate Multiple" shall mean the figure 17,500. (f) The word "Porters" shall mean that classification of non-supervisory employee engaged in the general maintenance and operation of Class A Office Buildings most nearly comparable to that classification now applicable to non-supervisory employees who devote a major portion of their time to general cleaning, maintenance and miscellaneous services essentially of a non-technical and non-mechanical nature and are the type of employees who are now included in the classification of "Class A-Others" in the current agreement between the Realty Advisory Board on Labor Relations, Incorporated and Local 32B of the Building Service Employees International Union, AFL-CIO. (g) For each Operating Year commencing during the term of this Lease, Tenant shall pay an amount (herein called "Operating Payment") equal to the sum obtained by multiplying the amount by which the Wage Rate in effect as of the first day, of such Operating Year exceeds the Base Wage Rate by the Wage Rate Multiple. Tenant shall pay to Landlord on the first day of each month during such Operating Year an amount equal to one-twelfth of the Fixed Operating Payment as hereinafter defined for such Operating Year. 4 21 If an Operating Year ends after the expiration or termination of this Lease, the additional rent in respect thereof payable under this Article shall be prorated to correspond to that portion of the Operating Year occurring within the term of this Lease. "42.(h) Notwithstanding anything to the contrary contained in this Lease, the Wage Rate for each year occurring during the term of this Lease shall be the Wage Rate in effect for the calendar year 1990." Landlord and Tenant agree and confirm that the amount payable pursuant to this paragraph 42(h) is $114,279.35 (hereinafter "Fixed Operating Payment"). "42.(j) As an inducement to Landlord to maintain the Wage Rate as set forth in Article 42(h) of this Lease Tenant agrees to pay to Landlord, in each year, as a supplement to the amount to be paid by Tenant pursuant to Article 42(g) of this Lease an amount (hereinafter "Supplementary Labor Wage Payment") equal to $28,275.65. Tenant shall pay this Supplementary Labor Wage Payment as additional rent in twelve equal monthly installments beginning on January 1st of each year. All payments to be made pursuant to this Article are due and payable on or before the first day of each month. Any delay or failure of Landlord in billing any amount payable under this Article shall not constitute a waiver or in any way impair the continuing obligation of Tenant to make all payments hereunder." "42.(k) Effective as of the first day of January in each year during the term of this Lease there shall be an adjustment to the amounts payable by Tenant pursuant to the terms of this Lease. This adjustment (hereinafter "Operating Expense Contribution") shall represent a contribution by Tenant to Landlord toward increases in operating costs of the Building. The annual Operating Expense Contribution shall be the amount as specified for the time periods below: a. January 1, 2001 to December 31, 2001 $104,404 b. January 1, 2002 to December 31, 2002 $118,563 c. January 1, 2003 to December 31, 2003 $133,219 d. January 1, 2004 to December 31, 2004 $148,387 e. January 1, 2005 to December 31, 2005 $164,086 f. January 1, 2006 to December 31, 2006 $180,334 g. January 1, 2007 to December 31, 2007 $197,151 h. January 1, 2008 to December 31, 2008 $214,557 i. January 1, 2009 to December 31, 2009 $232,572 j. January 1, 2010 to December 31, 2010 $251,217 k. January 1, 2011 to December 31, 2011 $270,515 l. January 1, 2012 to December 31, 2012 $290,489 m. January 1, 2013 to December 31, 2013 $311,161 Notwithstanding anything to the contrary herein contained, Tenant's obligation to pay this Operating Expense Contribution shall commence on the Commencement Date of this Lease and the annual amount payable on the Commencement Date shall be the amount illustrated above that corresponds to the year in which the Commencement Date occurs. The Operating Expense Contribution applicable to the year in which this Lease commences and the year in which this Lease expires shall be prorated to the Commencement Date or the Expiration Date, as the case may be. 5 22 Tenant shall pay the Operating Expense Contribution as additional rent, in twelve equal monthly installments commencing on January 1st of each year. All payments to be made pursuant to this Article are due and payable on or before the first day of each month. Any delay or failure in billing any amount payable under this Article shall not constitute a waiver or in any way impair the continuing obligation of Tenant to make all payments hereunder." 43. (a) Tenant shall take possession of the demised premises on the date the term of this Lease shall commence "AS IS" and Landlord shall have no obligation to furnish, render or supply any work, labor, services, materials, fixtures, furniture, equipment or decoration to make the demised premises ready or suitable for Tenant's occupancy. (b) Deleted Prior to Execution. (c) Tenant, at its sole cost and expense, shall cause to be prepared complete finished and detailed architectural and engineering drawings and mechanical Plans ("Tenant's Plans") including all dimensions and specifications for Tenant's Work (as hereinafter defined). Tenant's Plans shall be prepared by a registered architect or licensed professional engineer, shall comply with all applicable laws, statutes, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, and the appropriate agencies, officers, departments, boards and commissions thereof, applicable to the demised premises or the Building and shall be compatible with the plans for the Building which are on file in the Department of Buildings. Tenant's Plans, together with the name of the contractor or construction manager who shall perform or supervise Tenant's Work and a true copy of the contract or contracts covering Tenant's Work shall be delivered to Landlord for approval. If Landlord shall have grounds for withholding its approval of Tenant's Plans and/or Tenant's contractor or construction manager, Landlord shall notify Tenant as to such grounds and within fifteen (15) days after Landlord's notice is given, Tenant shall amend Tenant's Plans accordingly and/or substitute a new contractor or construction manager and deliver the amended plans and/or the name of the new contractor or construction manager to Landlord for approval. Landlord shall notify Tenant of its approval or disapproval of Tenant's Plans and any amendments thereof and of Tenant's contractor or construction manager or any substitute therefor within ten (10) 6 23 days after Tenant has submitted such Plans of the name of such contractor or construction manager to Landlord. The same procedure as for the original Tenant's Plans and Tenant's contractor or construction manager shall be applicable to any amendments of Tenant's Plans and/or the substitution of a new contractor or construction manager under the preceding sentence. If Tenant's Plans and Tenant's contractor or construction manager have been approved by Landlord, they shall not be changed without Landlord's consent, which consent shall not be unreasonably withheld. Tenant shall, to the extent of $500 in the aggregate, pay to Landlord upon demand the reasonable costs and expenses of Landlord in (i) reviewing Tenant's Plans and each amendment thereof which, in Landlord's reasonable judgment is material and (ii) inspecting Tenant's Work, including, without limitation, the fees of any architect or engineer employed by Landlord for such purpose. Any review or approval by Landlord of Tenant's Plans is solely for Landlord's benefit and without any representation or warranty whatsoever to Tenant with respect to the adequacy, correctness or efficiency thereof or otherwise (d) Tenant, at its sole cost and expense, shall (i) cause Tenant's Plans to be filed with the appropriate governmental authorities or agencies having jurisdiction thereover and (ii) promptly obtain any necessary certificates for the final approval by such authorities or agencies of Tenant's Work, including, without limitation, any required certificates of occupancy, both temporary and permanent. (e) No Tenant's Work shall be commenced unless all required municipal and other governmental permits, authorizations and approvals shall have been obtained by Tenant, at its sole cost and expense, and unless the originals thereof (or true copies thereof if such originals are required by law to be kept on the demised premises) shall have been delivered to Landlord. Landlord shall, upon the written request of Tenant, execute any documents necessary to be signed by Landlord to obtain any such permits, authorizations and approvals, provided and upon condition that same shall be without cost, liability or expense to Landlord. (f) All Tenant's Work shall be done under the supervision of a registered architect or licensed professional engineer approved by Landlord. (g) Tenant, at its sole cost and expense, shall perform or cause to be performed all repairs, restorations, building, rebuilding, alterations and other work shown in Tenant's Plans ("Tenant's Work). (h) Tenant's Work shall be performed in a first-class workmanlike manner and in accordance with (i) all laws, statutes, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, and the appropriate agencies, officers, departments, boards and commissions thereof, whether now or hereafter in force, applicable to the demised premises, (ii) all insurance requirements, whether now or hereafter in force, (iii) Tenant's Plans, (iv) the plans for the Building referred to above and (v) all of the other provisions of this paragraph and this Lease. (i) All Tenant's Work shall be commenced prompt- 7 24 ly after Tenant receives the required approvals and shall be performed with due diligence. In no event shall Tenant's Work delay or interfere with the performance of work to be done by Landlord elsewhere in the Building. If in Landlord's judgment such delay or interference shall exist, Tenant shall promptly discontinue Tenant's Work until the work being done by Landlord which was delayed or interfered with shall have been completed. If Tenant's Work is being performed in accordance with good construction practice and if Tenant is not then in default hereunder, the period for which fixed rent and additional rent are to be waived pursuant to the provisions of Article 62 of this Lease shall be extended by one (1) day for each full business day that Tenant has discontinued Tenant's Work in compliance with the provisions of the preceding sentence. Tenant shall pay for all of Tenant's Work promptly, in cash, so that the demised premises, the Building, and the interests therein of Landlord and Tenant shall at all times be free from any possible (a) liens for labor performed or claimed to have been performed or materials supplied or claimed to have been supplied and (b) chattel mortgages, conditional sales contracts, title retention agreements, security interests and agreements, financing agreements, financing statements and any similar agreements (collectively, "Liens"). (j) If any Liens shall at any time be recorded or filed against the demised premises, the Building, or the interests therein of Landlord or Tenant as a result of or arising out of Tenant's Work, Tenant shall cause the same to be discharged of record within 10 days after the notice of the recording or filing of the same, by either payment, deposit or bond. If Tenant shall fail to cause any Lien to be discharged of record within such period, Landlord shall have the right (in addition to all other remedies), but not the obligation, to cause the discharge of such Lien of record either by paying the amount claimed to be due, by deposit in court or by bond. Tenant shall reimburse Landlord upon demand as additional rent for any amount paid or deposited by Landlord therefor (including, without limitation, all incidental costs and expenses, attorneys' fees, bond premiums and any other sum required to be paid to a surety) in connection therewith, together with interest on all such amounts at the rate of one and one-half percent per calendar month or part thereof, or the then maximum lawful interest rate, whichever shall be less, from the date of payment or deposit by Landlord. (k) Nothing contained in this paragraph shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord to any person for the performance of any labor or the furnishing of any materials at or to the demised premises or the Building, or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the performance of any labor or the furnishing of any material which might give rise to the right to record or file any Lien against the demised premises, the Building or any part thereof or against the interests therein of Landlord or Tenant, it being intended that all persons who may perform any labor or furnish any materials to Tenant at the demised premises shall look only to the credit of Tenant and such security as Tenant may furnish to such persons for the payment of all such labor and materials, and that Landlord does not consent to the recording or filing of any Lien against the interest or estate of Landlord in the demised premises or the Building. (1) At all times when any Tenant's Work is in 8 25 progress, Tenant shall, in addition to the insurance required to be maintained by Tenant as elsewhere provided in this Lease, maintain or cause to be maintained (a) workmen's compensation insurance covering all persons employed in connection with Tenant's Work, in an amount at least equal to the minimum amount of such insurance required by law and (b) such builder's risk (completed value form) or similar insurance in respect of the demised premises as Landlord may reasonably require, naming Landlord on such policy or policies as its interest may appear. Tenant shall deliver to Landlord such fully paid-for policies (or certificates thereof), together with proof of payment, at least 10 days prior to the commencement of any Tenant's Work. Such policies shall (x) be issued by companies satisfactory to Landlord, (y) contain a provision whereby the same cannot be cancelled unless Landlord is given at least 20 days' prior written notice of such cancellation and (z) include a clause or endorsement whereby the insurer waives any rights of subrogation against Landlord or permits the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party without invalidating the coverage under the insurance. The waiver of subrogation or permission for waiver of claim referred to in clause (z) of the preceding sentence shall extend to Landlord and its agents and their respective employees. Tenant hereby releases Landlord, Landlord's partners or principals, disclosed or undisclosed, and its agents and their respective employees in respect of any claim (including a claim for negligence) which Tenant might otherwise have against Landlord, Landlord's partners or principals, disclosed or undisclosed, or its agents or their respective employees arising in connection with any matter with respect to which Tenant is required to furnish insurance pursuant to the provisions of this paragraph. (m) Tenant shall pay, and shall indemnify and hold harmless Landlord from and against, any and all claims, liabilities, losses, damages, expenses and costs (including, without limitation, attorneys' fees), obligations and charges of every kind and nature whatsoever, which shall arise out of, result from or be incurred in connection with Tenant's Work. Landlord shall have no obligation whatsoever during the term of this Lease to make any repairs, changes, alterations or replacements, structural or otherwise, in or to the demised premises or to the utility, heating, air conditioning, electrical and plumbing systems servicing the demised premises which shall arise out of or result from the performance of Tenant's Work or any defects therein. Tenant shall, at its sole cost and expense, make or cause to be made any such repairs, changes, alterations or replacements whether such repairs, changes, alterations or replacements are required to be made to the demised premises or elsewhere in the Building. 9 26 44. (a) Tenant shall purchase electric energy from Landlord and shall from time to time, within ten (10) days after demand (accompanied by Landlord's computation of the amount then due), pay to Landlord all charges for Tenant's consumption of electric energy as measured by Landlord's submeters. The charge paid by Tenant to Landlord shall be determined by reference to the public utility rate schedule for (i) the entire Building, but as if Tenant were the only occupant or (ii) the demised premises, as if Tenant were to purchase electric energy solely for the demised premises, directly from the public utility company, then supplying electricity to the Building, whichever is the higher. (b) If permitted by law and provided Landlord will not be adversely affected thereby Tenant shall have the option to require that Landlord discontinue furnishing electric energy to Tenant, in which event the provisions of paragraph (a) of this Article shall not apply. For the purposes of the preceding sentence Landlord shall be deemed to be adversely affected only if Tenant's exercise of the option contained in such sentence shall (i) cause Landlord to be required to directly meter any other space in the Building. In the event of such discontinuance Tenant shall, at Tenant's sole cost and expense, make all arrangements for and cause all such electric energy to be furnished to the demised premises, including, without limitation, the furnishing, installing and maintaining of meters, and, from the meters, other components of the electrical system to and within the demised premises. Landlord shall afford Tenant and its contractors any necessary access to those portions of the Building outside the demised premises which may be necessary 10 27 for such work, under such reasonable conditions as Landlord shall establish. Such work shall be performed in accordance with the provisions of subparagraphs 43(d), (e), (f), (h), (j), (k), (l) and (m) and the first sentences of subparagraphs 43(c), (i) and (n). Tenant shall not permit any electric energy facility to be overloaded. Landlord shall not be liable to Tenant in damages or otherwise for any failure of Tenant to make arrangements for or to obtain any such electric energy. Landlord shall provide and maintain feeders, risers and wiring necessary to provide electric energy to a location designated by Landlord for the installation of Tenant's meters. (c) Landlord shall have the right at any time to discontinue furnishing electric energy to Tenant. If Landlord shall exercise such right or if Landlord shall be required by law to discontinue furnishing electric energy to Tenant, then the provisions of paragraph (a) of this Article shall not apply. In either of such events Landlord shall, at Landlord's sole expense, make all arrangements for and cause all such electric energy to be furnished directly to the demised premises, including, without limitation, the furnishing and installing of meters which thereafter shall be maintained by Tenant, and, from the meters, other components of the electrical system to and within the demised premises. Tenant shall afford Landlord and Landlord's contractors access to the demised premises at all reasonable times for the purpose of fulfilling its obligations under the preceding sentence. (d) Tenant shall not be released or excused from the performance of any of its obligations under this Lease for any failure or for interruption or curtailment of any such electric energy, for any reason whatsoever, and no such failure, interruption or curtailment shall constitute a constructive or partial eviction. Notwithstanding the foregoing provision, if electrical service to the demised premises is unavailable as the result of Landlord's gross negligence or willful misconduct, and if such unavailability of electrical service shall continue for more than one business day, then fixed rent and additional rent shall be abated for each full business day of such unavailability. (e) Notwithstanding anything to the contrary contained in this Lease, (i) Landlord shall, at Landlord's sole cost and expense, maintain and promptly make all repairs, ordinary and extraordinary, to all components of the electrical system from the Tenant's meters to the demised premises, except for the repair of conditions resulting from (x) defects in workmanship or materials in work done by Tenant or Tenant's contractors or (y) the acts or omissions of Tenant or its officers, agents, servants, employees or contractors, and (ii) Tenant shall at Tenant's sole cost and expense, make all other repairs, ordinary and extraordinary, to such electrical system. (f) Landlord represents that present electric service to the demised premises is not less than 700 amperes as measured at the meter. 11 28 45. (a) Tenant, at its expense, shall maintain at all times during the term of this Lease and at all times when Tenant is in possession of the demised premises public liability insurance in respect of the demised premises and the conduct or operation of business therein, with Landlord and Landlord's managing agent, if any, as additional named insureds, with limits of not less than One Million ($1,000,000) Dollars for bodily injury or death to any one person and Three Million ($3,000,000) Dollars for bodily injury or death to any number of persons in any one occurrence, and One Hundred Thousand ($100,000) Dollars for property damage. (b) Tenant shall deliver to Landlord such policies or certificates of such policies prior to the earlier to occur of (i) the date upon which Tenant is given access to the demised premises, and (ii) the commencement of the term of this Lease. Tenant shall procure and pay for renewals of such insurance from time to time before the expiration thereof, and Tenant shall deliver to Landlord and any additional named insureds such renewal policy or certificate at least thirty (30) days before the expiration of any existing policy. All such policies shall be issued by companies reasonably satisfactory to Landlord and all such policies shall contain a provision whereby the same cannot be cancelled or modified unless Landlord and any additional named insureds are given at least thirty (30) days' prior written notice of such cancellation or modification, including, without limitation, any cancellation resulting from the non-payment of premiums. Landlord shall have the right at any time and from time to time, but not more frequently than once every two years, to require Tenant to increase the amount of the insurance maintained by Tenant under this Article, so that the amount thereof, as reasonably determined by Landlord, adequately protects the interest of Landlord. (c) Tenant shall secure an appropriate clause in, or an endorsement upon, each insurance policy obtained by it and covering or applicable to the demised premises or the personal property, fixtures and equipment located therein or thereon, pursuant to which the insurance company waives subrogation or permits the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party without invalidating the coverage under the insurance policy. The waiver of subrogation or permission for waiver of any claim shall extend to Landlord and its agents and their respective employees. Landlord and Tenant do hereby release each other and their respective partners or principals, disclosed or undisclosed, their respective agents and their respective employees in respect of any claim (including a claim for negligence) which they might otherwise have against each other or their respective partners or principals, disclosed or undisclosed, or their respective agents or their respective employees for loss, damage or destruction with respect to the real or personal property of either by fire or other casualty (including rental value or business interest, as the case may be) occurring during the term of this Lease and normally covered under a fire insurance policy with extended coverage endorsement in the form then normally used in respect of similar property in New York County. 12 29 46. The provisions of Article 11 of the printed portion of this Lease shall apply, if Tenant is a corporation, to a transfer (by one or more transfers) of a majority of the stock of Tenant as if such transfer of a majority of the stock of Tenant were an assignment of this Lease; but said provisions shall not apply to transactions with a corporation into or with which Tenant is merged or consolidated or to which substantially all of Tenant's assets are transferred or to any corporation which controls or is controlled by Tenant or is under common control with Tenant, provided that in any of such events (a) the successor to Tenant has a net worth, computed in accordance with generally accepted accounting principles, at least equal to the greater of (i) the net worth of Tenant immediately prior to such merger, consolidation or transfer, or (ii) the net worth of Tenant herein named on the date of this Lease, and (b) proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such transaction. The unqualified certified statement of an independent certified public accountant with respect to the assets and liabilities of such successor shall be deemed satisfactory proof with respect to such net worth. 47. (a) Supplementing Article 11 of this Lease, Tenant, if it requests Landlord's consent to an assignment of this Lease or a subletting of all or any part of the demised premises, shall submit to Landlord in writing a counterpart of the proposed assignment or subleasing agreement and the name of the proposed assignee or subtenant, the name and character of its business, the terms of the proposed assignment or sublease, such information as to its financial responsibility and standing and any other information as Landlord may reasonably require. Upon the receipt of such request and information from Tenant, Landlord shall have an option, to be exercised in writing within thirty (30) days after such receipt, to cancel and terminate this Lease, if the request is to assign this Lease or to sublet all or substantially all of the demised premises, or if the request is to sublet a portion of the demised premises only, to cancel and terminate this Lease with respect to such portion, in each case as of the date set forth in Landlord's notice of exercise of such option, which shall be not less than sixty (60) days nor more than one hundred twenty (120 days) following the service of such notice. (b) If Landlord shall exercise such option, Tenant shall surrender possession of the entire demised premises, or the portion which is the subject of the option, as the case may be, on the date set forth in such notice in accordance with the provisions of this Lease relating to surrender of the demised premises at the expiration of the term. If the Lease shall be cancelled as to a portion of the demised premises only, the rent and additional rent payable by Tenant under this Lease shall be abated proportionately according to the ratio that the rentable area in the portion of the space surrendered bears to the rentable area of the entire demised premises. (c) If Landlord shall not exercise the option to cancel the Lease in whole or in part as above provided, and Tenant is not in default hereunder, then Landlord's consent to such request shall not be unreasonably withheld or delayed, provided that: (i) The proposed assignee or subtenant shall use the demised premises, or the relevant part thereof, solely for executive and general offices and, in Landlord's reasonable judgment the proposed assignee or subtenant is engaged in a business and the demised premises, or the relevant part thereof, will be used in a manner which (a) is in keeping with the then standards of the Building and (b) will not violate any negative covenant as to use contained in any other lease of space in the Building. (ii) The proposed assignee or subtenant is a reputable person of good character and with sufficient financial worth considering the responsibility involved, and Landlord has been furnished with reasonable proof thereof. 13 30 (iii) Neither (a) the proposed assignee or subtenant nor (b) any person which, directly or indirectly, controls, is controlled by, or is under common control with, the proposed assignee or subtenant or any person who controls the proposed assignee or subtenant, is then an occupant of any part of the Building. (iv) The proposed assignee or subtenant is not a person with whom Landlord is then negotiating the lease of space in the Building. (v) The form of the proposed sublease or assignment shall be in form reasonably satisfactory to Landlord and shall comply with the applicable provisions of this Article. (vi) There shall not be more than two (2) subtenants in the demised premises. (vii) Tenant shall not have (a) advertised or publicized in any way the availability of the demised premises without prior notice to and approval by Landlord, nor shall any advertisement state the name (as distinguished from the address) of the Building or the proposed rental, (b) listed the demised premises for subletting, whether through a broker, agent, representative, or otherwise at a rental rate less than the lesser of (1) the fixed rent and additional rent then payable hereunder for such space, or (2) the fixed rent and additional rent at which Landlord is then offering to lease comparable space in the Building. (d) In no event shall any assignment or subletting to which Landlord may have or may not have consented, release Tenant from is obligations under this Lease, nor constitute consent to further assignment or subletting. (e) If Landlord shall decline to give its consent to any proposed assignment or sublease, or if Landlord shall exercise any of its options under paragraph (a) of this Article, Tenant shall indemnify, defend and hold harmless Landlord against and from any and all loss, liability, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) resulting from any claims that may be made against Landlord by the proposed assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease. (f) If this Lease is assigned and Landlord consents to such assignment, any change, alteration or modification of this Lease after such assignment which shall have the effect of increasing or enlarging Tenant's obligation or responsibility under this Lease shall not, to the extent only of such increases or enlargement, be binding upon Tenant and, notwithstanding such change, alteration or modification, Tenant shall remain liable for the performance of Tenant's obligations under this Lease except for any such change, alteration or modification. (g) With respect to each and every sublease or subletting authorized by Landlord under the provisions of this Lease, it is further agreed: (i) No subletting shall be for a term ending later than one (1) day prior to the expiration date of this Lease. 14 31 (ii) no sublease shall be valid, and no subtenant shall take possession of the demised premises or any part thereof, until an executed counterpart of such sublease has been delivered to Landlord. (iii) Each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and that in the event of termination, re-entry or dispossess by Landlord under this Lease Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor, under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not (a) be liable for any previous act or omission of Tenant under such sublease, (b) be subject to any offset, not expressly provided in such sublease, which theretofore accrued to such subtenant against Tenant, or (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one month's rent. (h) In the event that (i) Landlord fails to exercise its option under paragraph (a) of this Article and consents to a proposed assignment or sublease, and (ii) Tenant fails to execute and deliver the assignment or sublease to which Landlord consented within sixty (60) days after the giving of such consent, then Tenant shall again comply with all of the provisions and conditions of paragraph (a) of this Article before assigning this Lease or subletting all or part of the demised premises. (i) If Landlord exercises its option to terminate this Lease in part in any case where Tenant desires to sublet part of the demised premises, then Tenant shall pay to Landlord, upon demand, the costs incurred by Landlord in physically separating such part of the demised premises from the balance of the demised premises and in complying with any laws and requirements of any public authorities and insurance bodies relating to such separation. (j) If Landlord shall give its consent to any assignment of this Lease or to any sublease, Tenant shall in consideration therefor pay to Landlord, as additional rent: (i) in the case of an assignment, an amount equal to one-half (1/2) of all sums and other considerations paid to Tenant by the assignee for or by reason of such assignment (including, but not limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or other personal property), less (A) the then fair and reasonable value of any such equipment, furniture, furnishings and other personal property which may be moved without damage to the demised premises which are separately sold or rented by Tenant and (B) the then net unamortized or undepreciated cost of any such fixtures, improvements, equipment, furniture, furnishings and other personal property which are not separately sold or rented but remain in the demised premises after such assignment, determined on the basis of Tenant's federal income tax returns; and "(ii) in the case of a sublease, one-half (1/2) of (A) any rents, additional charges or other considerations payable under the sublease to Tenant by the subtenant which is in excess of the fixed rent and additional rent accruing during the term of the sublease in respect of the subleased space (at the rate per square foot payable by Tenant hereunder) pursuant to the terms hereof (including, but not limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture or other personal property, less (x) the then fair and reasonable value of any such equipment, furniture, furnishings and other personal property which may be moved without damage to the demised premises and which are separately sold or rented by Tenant, and (y) the then net unamortized or undepreciated cost of any such fixtures, improvements, equipment, furniture, furnishings and other personal property which are not separately sold or rented but remain in the subleased space during the term of such sublease, apportioned to the term thereof and determined on the basis of Tenant's federal income tax returns), less (B) in the case of a sublease, the term of which commences prior to January 1, 1984 and which sublease is for a term, including extensions & renewals thereof, of 5 years or less, any reasonable brokerage commission paid by Tenant in connection with such sublease." 15 32 tures, leasehold improvements, equipment, furniture or other personal property) less (A) the then fair and reasonable value of any such equipment, furniture, furnishings and other personal property which may be moved without damage to the demised premises which are separately sold or rented by Tenant and (B) the then net unamortized or undepreciated cost of any such fixtures, improvements, equipment, furniture, furnishings and other personal property which are not separately sold or rented but remain in the subleased space during the term of such sublease, apportioned to the term thereof and determined on the basis of Tenant's federal income tax returns). The sum payable under this paragraph shall be paid to Landlord as and when payable by the subtenant to Tenant. "48. (a) In every case in which Tenant is required by the terms of this Lease to pay to Landlord a sum of money (including, without limitation, payment of fixed and additional rent) and payment is not made within five (5) days after the same shall become due, Tenant shall pay as additional rent hereunder, interest on such sum or so much thereof as shall be unpaid from the date it becomes due until it is paid. Such interest shall be computed at a rate which shall be two percent (2%) per month; provided, however, in no event shall such interest be in excess of the highest rate of interest which shall from time to time be permitted under the laws of the State of New York to be charged on late payments of sums of money due pursuant to the terms of a lease. The minimum interest charge in any and all instances shall be $100.00. (b) The interest payable pursuant to paragraph (a) above shall be (i) payable on demand and (ii) without prejudice or any of Landlord's rights and remedies hereunder, at law or in equity for nonpayment or late payment of rent or other sum and in addition to any such rights and remedies. No failure by Landlord to insist upon the strict performance by Tenant of Tenant's obligations to pay interest as provided in this Article shall constitute a waiver by Landlord of its right to enforce the provisions of this Article in any instance thereafter occurring. The provisions of this Article shall not be construed in any way to extend the grace periods or notice periods provided for in Article 17 of this Lease." 49. If Tenant is in arrears in payment of rent or additional rent, Tenant waives Tenant's right, if any, to designate the items against which any payments made by Tenant are to be credited, and Tenant agrees that Landlord may apply any payments made by Tenant to any items Landlord sees fit, irrespective of and notwithstanding any designation or request by Tenant as to the items against which any such payments shall be credited. 50. Tenant covenants, warrants and represents that no broker was instrumental in consummating this Lease and that Tenant had no conversations or negotiations with any broker concerning the leasing of the demised premises. Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses arising out of any conversations or negotiations had by Tenant with any broker. 51. Tenant shall, at any time and from time to time (but not more often that four (4) times in any calendar year), as requested by Landlord, upon not less than ten (10) days' prior notice, execute and deliver to Landlord a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the dates to which the rent and additional rent have been paid, stating the amount of security on deposit with Landlord pursuant to this Lease, stating whether or not, to the best knowledge of Tenant, Landlord is in default in performance of any of its obligations under this Lease, and, if so, specifying each such default of which Tenant shall have knowledge, and stating whether or not, to the best knowledge of Tenant, any event has occurred which with the giving of notice or passage of time, or both, would constitute such a default, and, if so, 16 33 specifying each such event, it being intended that any such statement delivered pursuant hereto shall be deemed a representation and warranty to be relied upon by Landlord and by others with whom Landlord may be dealing, regardless of independent investigation. 52. Tenant shall look only to Landlord's estate and property in the Building and the land on which the Building is located for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord hereunder, and no other property or assets of Landlord or its partners or principals, disclosed or undisclosed, shall be subject to lien, levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use or occupancy of the demised premises; and if Tenant shall acquire a lien on such other property or assets by judgment or otherwise, Tenant shall promptly release such lien by executing and delivering to Landlord an instrument to that effect prepared by Landlord. 53. Irrespective of the place of execution or performance, the Lease shall be governed by and construed in accordance with the laws of the State of New York. If any provision of this Lease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Lease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease or any part thereof to be drafted. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed, shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. 54. If Tenant shall request Landlord's approval or consent and Landlord shall fail or refuse to give such consent or approval, Tenant shall not be entitled to any damages for any withholding or delay of such approval or consent by Landlord, it being intended that Tenant's sole remedy shall be an action for injunction or specific performance and that such remedy shall be available only in those cases where Landlord shall have expressly agreed in writing not to unreasonably withhold its consent or approval or where as a matter of law Landlord may not unreasonably withhold its consent or approval. The foregoing waiver by Tenant of its entitlement to damages on account of Landlord's failure or refusal to give its consent or approval shall not apply if the court, in an action for injunction or specific performance, shall determine beyond right of appeal that 17 34 Landlord's failure or refusal to give its consent or approval was in bad faith. 55. Any default by Tenant under any other lease of space in the Building shall be deemed a default of the same nature under this Lease. 56. Supplementing Article 2 of this Lease, in no event shall the permitted use of the demised premises be deemed to include examining patients, giving medical advice, prescribing drugs or any other medical use. 57. Deleted Prior to Execution. 58. Amending Article 3 - Alterations. Notwithstanding anything to the contrary contained in Article 3: (a) Tenant may paint, repaint, decorate and re-decorate the demised premises and install and remove movable partitions therein without Landlord's consent provided that any damage to the demised premises due to such installation or removal is repaired by Tenant; (b) After the completion of Tenant's Work Tenant may, with the consent of Landlord, which consent shall not be unreasonably withheld, install and remove non-loadbearing partitions within the demised premises provided that any damage to the demised premises due to such installation or removal is repaired by Tenant; (c) Upon the expiration of this Lease, Tenant shall not be required to remove any equipment or other installations made in the demised premises by Landlord. 59. Amending Article 17 - Default. In subsection (1) of Article 17, the words "ten (10) days" are substituted for the words "five (5) days" wherever the latter may ap- 18 35 pear, and the words "five (5) days" are substituted for the words "three (3) days" wherever the latter may appear. In subsection (2) of Article 17, the phrase ", after 10 days' written notice thereof shall be given to Tenant:" shall be added between the word "required" and the colon on the fifth line of said subsection. 60. Amending Article 21 - End of Term. In the fourth line of Article 21, the phrase "and tear and damage by fire or other casualty" is inserted between the words "ordinary wear" and the word "excepted." 61. Amending Article 27 - Bills and Notices. In the seventh line of Article 27, the words "served upon an officer of Tenant" are substituted in place of the word "left", and in the fourth line from the end of Article 27 the word "served" is substituted in place of the word "left." 62. Deleted Prior to Execution. 63. Subject to the provisions of Article 30 of this Lease and provided Tenant shall give not less than twelve hours' advance notice to Landlord of Tenant's need therefor, Landlord shall furnish after-hours heat to the demised premises at such hourly rates as may be established for the Building by Landlord from time to time. 64. Notwithstanding anything to the contrary contained in Article 7 or 40 of this Lease, with respect to the ground lease described in Article 40 and with respect to any existing mortgage(s) covering the Building, Landlord agrees to use its best efforts, but without cost, liability or expense, to obtain non-disturbance and attornment agreements from the ground lessor under such ground lease (and from the holder(s) of any existing mortgage(s), which agreements shall be in form and substance reasonably satisfactory to Tenant.) The failure of Landlord to obtain such non-disturbance and attornment agreements shall be without liability on the part of Landlord and without any reduction, diminution or abatement of Tenant's obligations hereunder. 19 36 65. Landlord represents to Tenant that neither the making, execution or delivery of, nor any of the terms, covenants or conditions contained in this Lease is in violation of the ground lease described in Article 40 hereof. 66. Tenant, at its sole cost and expense, may arrange to change its current electric service so that it is directly metered by Con Edison provided that at the expiration of the Lease Tenant arranges, at its sole cost and expense, to remodify the electric metering service to the Demised Premises to the condition which exists as of the date of this Agreement. 67. Tenant shall use and occupy the demised premises only for the purposes stated in Article 2 of the Lease and for no other purpose. Without limiting the generality of the foregoing, it is an express condition of this Lease and Tenant expressly warrants and agrees that at no time and in no event may the demised premises, or any portion thereof, be used for residential purposes. 68. Tenant, at its own cost and expense, shall arrange for the removal of all rubbish from the demised premises and from the Building in accordance with any and all applicable municipal codes and regulations and in accordance with any rules and regulations of the Building which, in the judgment of Landlord, are necessary for the proper operation of the Building. 69. Tenant expressly acknowledges and agrees that Landlord has not made and is not making, and Tenant, in executing and delivering this Lease, is not relying upon any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease. 70. Irrespective of the place of execution or performance, this Lease shall be governed by and construed in accordance with the laws of the State of New York. If any provision of this Lease or the application thereto to any person or circumstances for any reason and to any extent, be invalid or unenforceable, the remainder of this Lease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease or any part thereof to be drafted. Each covenant, agreement, obligation, or other provision of this Lease on Tenant's part to be performed shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the content may require. 71. The Demised Premises comes equipped with an air conditioning system. Throughout the term of this Lease, Tenant at Tenant's sole cost and expense shall maintain the air conditioning system in working order and shall provide a maintenance and service contract for the air conditioning system throughout the Demised Premises. Landlord reserves the right to purchase such a service contract at Tenant's sole cost and expense in the event that Tenant fails to provide a service contract as herein required. 72. Landlord shall have the option (hereinafter the "Elevator Option") to reclaim an area on each floor within the Demised Premises immediately adjacent to the two passenger elevators located in the southwestern portion of the Demised Premises. Such area shall be equal in size to the area occupied by the existing passenger elevators. Landlord may only exercise the Elevator Option for the purpose of installing a third passenger elevator (the "Proposed Elevator"). Landlord shall exercise the Elevator Option in writing 120 days in advance of the date Landlord shall reclaim the area required for the Proposed Elevator. Landlord shall proportionately reduce the rent and additional rent equal to the percentage that the area reclaimed for the Proposed Elevator bears to the total area of the floor. Landlord shall bear all costs and expenses associated with severing the area for the Proposed Elevator from the Demised Premises and Landlord at its sole cost and expense shall (i) reconstruct the area of the Demised Premises immediately adjacent to the Proposed Elevator to match the condition and repair of such immediately adjacent space, and (ii) shall relocate any of Tenant's equipment or fixtures which may be installed in the area of the Proposed Elevator. 20 37 EXHIBIT A 401 PARK AVENUE SOUTH, 12TH FLOOR [FLOOR PLAN] [401 PARK AVENUE SOUTH 12TH FLOOR] EX-10.1.IV 5 y50367ex10-1_iv.txt SEVENTH AMENDMENT OF LEASE DATED AS OF 3/1/2001 1 EXHIBIT 10.1(iv) SEVENTH AMENDMENT OF LEASE THIS AGREEMENT, made as of the 1st day of March, 2001 between 401 PARK AVENUE SOUTH ASSOCIATES LLC, A New York Limited Liability Company having an office at 30 West 26th Street, Eighth Floor, New York, New York ("Landlord") and HEALTH MANAGEMENT SYSTEMS, INC., a New York Corporation having an office at 401 Park Avenue South, New York, New York ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant entered into an Agreement of Lease made as of September 24, 1981 as amended by an Amendment of Lease dated October 9th, 1981, an Amendment of Lease dated September 24, 1982, a Second Amendment of Lease dated January 6, 1986, a Third Amendment of Lease dated February 28, 1990, a Fourth Amendment of Lease dated March 15, 1996, a Fifth Amendment of Lease dated May 30, 2000, a Sixth Amendment of Lease dated May 1, 2003 covering certain premises on the entire 4th floor and the Penthouse in the building known as 401 Park Avenue South in the City, County and State of New York (said Agreement of Lease, being hereinafter called the "Lease"); and WHEREAS, the parties hereto desire to amend the Lease in the respects and upon the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) paid by each of the Parties hereto to the other (the receipt and sufficiency of which is hereby acknowledged) and of other good and valuable consideration, including the covenants and understandings herein contained, it is hereby agreed as follows: 1. Landlord shall have the option (hereinafter the "Elevator Option") to reclaim an area within the Demised Premises immediately adjacent to the two passenger elevators located in the southwestern portion of the Demised Premises. Such area shall be equal in size to the area occupied by the existing passenger elevators. Landlord may only exercise the Elevator Option for the purpose of installing a third passenger elevator (the "Proposed Elevator"). Landlord shall exercise the Elevator Option in writing 120 days in advance of the date Landlord shall reclaim the area required for the Proposed Elevator. Landlord shall proportionately reduce the rent and additional rent equal to the percentage that the area reclaimed for the Proposed Elevator bears to the total area of the floor. Landlord shall bear all costs and expenses associated with severing the area for the Proposed Elevator from the Demised Premises and Landlord at its sole cost and expense shall (i) reconstruct the area of the Demised Premises immediately adjacent to the Proposed Elevator to match the condition and repair of such immediately adjacent space, and (ii) shall relocate any of Tenant's equipment or fixtures which may be installed in the area of the Proposed Elevator. 2. Effective January 1, 2001, the amount $16,516 as defined in Paragraph 7 of the Third Amendment of Lease shall be changed to $12,846. 3. All other terms and conditions of this Lease are hereby confirmed and shall remain in full force and effect. 4. This Amendment of Lease shall not be binding upon Landlord unless and until it has been duly executed by Landlord and delivered by Landlord to Tenant. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. 401 PARK AVENUE SOUTH ASSOCIATES LLC BY: STEPHEN J. MERINGOFF, MEMBER BY: /s/ FARRELL VIRGA -------------------------------- FARRELL VIRGA, ATTORNEY-IN-FACT HEALTH MANAGEMENT SYSTEMS, INC. BY: /s/ VINCENT C. HARTLEY -------------------------------- EX-10.1.V 6 y50367ex10-1_v.txt SEVENTH AMENDMENT OF LEASE DATED AS OF 4/1/2001 1 EXHIBIT 10.1(v) SEVENTH AMENDMENT OF LEASE THIS AGREEMENT, made as of the 1st day of April, 2001 between 401 Park Avenue South Associates LLC, A New York Limited Liability Company having an office at 30 West 26th Street, Eighth Floor, New York, New York ("Landlord") and Health Management Systems, Inc. having an office at 401 Park Avenue South, New York, New York ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant entered into an Agreement of Lease made as of September 24, 1982 and as amended by an Amendment of Lease dated January 6, 1986, a Second Amendment of Lease dated February 28, 1990, a Third Amendment of Lease dated August 7, 1991, a Fourth Amendment of Lease dated January 11, 1994, a Fifth Amendment of Lease dated May 30, 2000 and a Sixth Amendment of Lease dated May 1, 2003 covering certain premises on the entire 8th, 9th, 10th, a portion of the 11th floor and a portion of the 12th floor in the building known as and located at 401 Park Avenue South, in the City, County and State of New York (said Agreement of Lease and Amendments, being hereinafter called the "Lease"); and WHEREAS, the parties hereto desire to amend the Lease in the respects and upon the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) paid by each of the Parties hereto to the other (the receipt and sufficiency of which is hereby acknowledged) and of other good and valuable consideration, including the covenants and understandings herein contained, it is hereby agreed as follows: 1. Effective as of midnight March 31, 2001 (the "Surrender Date") Tenant hereby irrevocably surrenders to Landlord the 12th floor portion of the Demised Premises, the Lease and the term and estate thereby granted related to the 12th floor portion of the premises demised by the Lease (hereinafter referred to as the "12th Floor Premises"), to the intent and purpose that the estate of Tenant in and to the 12th Floor Premises only shall be wholly extinguished and that the term of the Lease with respect to the 12th Floor Premises shall expire on the Surrender Date in the same manner and with the same effect as if the Surrender Date were the date set forth in the Lease for the expiration of the term thereof. Tenant hereby agrees to surrender the 12th Floor Premises on the Surrender Date in the condition and state of repair existing on the date of the execution of this Agreement. 2. Tenant hereby confirms, ratifies and acknowledges that the Lease is in full force and effect with respect to the 8th, 9th, 10th and 11th floor portions of the premises demised by the Lease and that no other modifications to the Lease have been made except as set forth in this Seventh Amendment of Lease. 3. Effective April 1, 2001 and throughout the remaining Term of the Lease, the annual rent as set forth in paragraph 2 of the Fourth Amendment to Lease is changed to $709,477. Health Management Systems, Inc. Page 1 Seventh Amendment of Lease 2 4. Effective April 1, 2001, the figure 64,600 as defined in paragraph 4 of the Fourth Amendment of Lease shall be changed to 57,500. 5. Effective April 1, 2001, the amount $130,524 as defined in paragraph 5 of the Fourth Amendment of Lease shall be changed to $116,178. 6. Effective April 1, 2001, Tenants Percentage, as such term is defined in paragraph 3 in the Third Amendment of Lease shall be changed to 18.995%. 7. Effective January 1, 2001 the amount $62,350 as defined in Paragraph 6 of the Fourth Amendment of Lease shall be changed to $48,494. 8. Effective April 1, 2001 the amount $48,494 as defined in the preceding paragraph shall be changed to $43,160. 9. Landlord shall have the option (hereinafter the "Elevator Option") to reclaim an area on each floor within the Demised Premises immediately adjacent to the two passenger elevators located in the southwestern portion of the Demised Premises. Such area shall be equal in size to the area occupied by the existing passenger elevators. Landlord may only exercise the Elevator Option for the purpose of installing a third passenger elevator (the "Proposed Elevator"). Landlord shall exercise the Elevator Option in writing 120 days in advance of the date Landlord shall reclaim the area required for the Proposed Elevator. Landlord shall proportionately reduce the rent and additional rent equal to the percentage that the area reclaimed for the Proposed Elevator bears to the total area of the floor. Landlord shall bear all costs and expenses associated with severing the area for the Proposed Elevator from the Demised Premises and Landlord at its sole cost and expense shall (i) reconstruct the area of the Demised Premises immediately adjacent to the Proposed Elevator to match the condition and repair of such immediately adjacent space, and (ii) shall relocate any of Tenant's equipment or fixtures which may be installed in the area of the Proposed Elevator. 10. All other terms and conditions of the Lease are hereby confirmed and shall remain in full force and effect. This Amendment of Lease shall not be binding upon Landlord unless and until it has been duly executed by Landlord and delivered by Landlord to Tenant. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. 401 PARK AVENUE SOUTH HEALTH MANAGEMENT SYSTEMS, INC. ASSOCIATES LLC Tenant Landlord By: STEPHEN J. MERINGOFF, MEMBER BY: /s/ FARRELL VIRGA By /s/ VINCENT C. HARTLEY ----------------------------- ---------------------------- FARRELL VIRGA Vincent C. Hartley Title ATTORNEY-IN-FACT Title Vice-President Health Management Systems, Inc. Page 2 Seventh Amendment of Lease EX-10.1.VI 7 y50367ex10-1_vi.txt FIFTH AMENDMENT OF LEASE DATED AS OF 5/1/2001 1 EXHIBIT 10.1(vi) FIFTH AMENDMENT OF LEASE THIS AGREEMENT, made as of the 1st day of May, 2003 between 401 PARK AVENUE SOUTH ASSOCIATES LLC, A New York Limited Liability Company having an office at 30 West 26th Street, Eighth Floor, New York, New York ("Landlord") and HEALTH MANAGEMENT SYSTEMS, INC., a New York Corporation having an office at 401 Park Avenue South, New York New York ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant entered into an Agreement of Lease made as of January 6, 1986, as amended by a First Amendment of Lease dated November 25, 1987, a Second Amendment of Lease dated February 28, 1990, a Third Amendment of Lease dated May 30, 2000 and a Fourth Amendment of Lease dated May 1, 2003, covering certain premises on a portion of the 11th floor in the building known as 401 Park Avenue South in the City, County and State of New York (said Agreement of Lease, being hereinafter called the "Lease"); and WHEREAS, the parties hereto desire to amend the Lease in the respects and upon the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) paid by each of the Parties hereto to the other (the receipt and sufficiency of which is hereby acknowledged) and of other good and valuable consideration, including the covenants: and understandings herein contained, it is hereby agreed as follows: 1. Landlord shall have the option (hereinafter the "Elevator Option") to reclaim an area within the Demised Premises immediately adjacent to the two passenger elevators located in the southwestern portion of the Demised Premises. Such area shall be equal in size to the area occupied by the existing passenger elevators. Landlord may only exercise the Elevator Option for the purpose of installing a third passenger elevator (the "Proposed Elevator"). Landlord shall exercise the Elevator Option in writing 120 days in advance of the date Landlord shall reclaim the: area required for the Proposed Elevator. Landlord shall proportionately reduce the rent and additional rent equal to the percentage that the area reclaimed for the Proposed Elevator bears to the total area of the floor. Landlord shall bear all costs and expenses associated with severing the area for the Proposed Elevator from the Demised Premises and Landlord at its sole cost and expense shall (i) reconstruct the area of the Demised Premises immediately adjacent to the Proposed Elevator to match the condition and repair of such immediately adjacent space, and (ii) shall relocate any of Tenant's equipment or fixtures which may be installed in the area of the Proposed Elevator. 2. Effective January 1, 2001, the amount $14,896 as defined in Paragraph 5 of the Second Amendment of Lease shall be changed to $11,586. 3. All other terms and conditions of this Lease are hereby confirmed and shall remain in full force and effect. 4. This Amendment of Lease shall not be binding upon Landlord unless and until it has been duly executed by Landlord and delivered by Landlord to Tenant. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. 401 PARK AVENUE SOUTH ASSOCIATES LLC BY: STEPHEN J. MERINGOFF, MEMBER BY: /s/ FARRELL VIRGA --------------------------------- FARRELL VIRGA, ATTORNEY-IN-FACT HEALTH MANAGEMENT SYSTEMS, INC. BY: /s/ VINCENT C. HARTLEY EX-10.2.I 8 y50367ex10-2_i.txt ROBERT M. HOLSTER EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2(i) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of April 2, 2001, by and between HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (the "Company"), and ROBERT M. HOLSTER (the "Employee"). W I T N E S S E T H: WHEREAS the Company desires to induce the Employee to enter into employment with the Company for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. Employment. (a) The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept such employment with the Company, beginning on the date hereof and continuing for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that as of the commencement of his employment by the Company on the date hereof he is under no obligation to any former employer or other party that is in any way inconsistent with, or that imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. Term of Employment. (a) Unless earlier terminated as provided in this Agreement, the term of the Employee's employment under this Agreement shall be for a period beginning on the date hereof and ending on the third anniversary of the date hereof (the "Initial Term"). (b) The term of the Employee's employment under this Agreement may be renewed for additional one-year terms (each a "Renewal Term") upon the expiration of the Initial Term or any Renewal Term if the Company and the Employee delivers to the other, at least 30 days prior to the expiration of the Initial Term or the then current Renewal Term, as the case may be, a written notice specifying that the term of the Employee's employment will be renewed at the end of the Initial Term or such Renewal Term, as the case may be. The period from the date hereof until the third anniversary of said date or, in the event that the Employee's employment hereunder is earlier terminated as provided herein or renewed as provided in this Section 2(b), such shorter or longer period, as the case may be, is hereinafter called the "Employment Term". 2 (c) As of the date hereof, the Consulting Agreement, dated as of October 23, 2000, between the Company and the Employee as subsequently modified by correspondence regarding the sale of additional business units of the Company, shall terminate, with no further liabilities or obligations of either the Company or the Employee to the other party thereunder, except that, in the event either the Company's Third Party Liability Recovery business or its HCm business is sold by the Company on or prior to April 23, 2002, the Employee shall receive from the Company the commission fees that the Employee would otherwise be entitled to receive pursuant to Section 2(b) of said Consulting Agreement. 3. Duties. The Employee shall be employed as the President and Chief Operating Officer of the Company, shall faithfully and competently perform such duties as inhere in such positions and as are specified in the By-laws of the Company and shall also perform and discharge such other executive employment duties and responsibilities as the Chief Executive Officer or the Board of Directors of the Company shall from time to time determine. The Employee shall perform his duties principally at such offices of the Company and its subsidiaries as their respective businesses shall require, from time to time, with such travel to such other locations from time to time as the Chief Executive Officer or the Board of Directors of the Company may reasonably prescribe. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, the Employee shall devote his full business time throughout the Employment Term to the services required of him hereunder. The Employee shall render his business services exclusively to the Company and its subsidiaries during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company and its subsidiaries in a manner consistent with the duties of his positions. Nothing contained in this Section 3 shall preclude the Employee from serving as a trustee of the HHL Liquidating Trust or from performing services for charitable or not-for-profit community organizations, provided that such activities do not interfere with the Employee's performance of his duties and responsibilities under this Agreement. 4. Salary and Bonus. (a) Salary. As compensation for the performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of Three Hundred Twenty-Five Thousand Dollars ($325,000) (said amount, together with any increases thereto as may be determined from time to time by the Board of Directors of the Company in its sole discretion, being hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid in regular intervals in accordance with the Company's payroll practices from time to time in effect. (b) Bonus. The Employee shall be eligible to receive bonus compensation from the Company in respect of each fiscal year (or portion thereof) during the Employment Term, in each case as may be determined by the Board of Directors of the Company in its sole discretion 3 on the basis of performance-based or such other criteria as may be established from time to time by the Board of Directors of the Company in its sole discretion. 5. Other Benefits. During the Employment Term, the Employee shall: (i) be eligible to participate in employee fringe benefits and pension and/or profit sharing plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (ii) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (iii) be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, provided that such number of paid vacation days in each calendar year shall not be less than twenty work days (four calendar weeks); the Employee shall also be entitled to all paid holidays given by the Company to its senior executive officers; (iv) be eligible for consideration by the Board of Directors of the Company for awards of stock options under any stock option plan that may be established by the Company for its and its subsidiaries' key employees, the amount, if any, of shares for which options may be granted to Employee to be in the sole discretion of the Board of Directors of the Company; (v) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable to senior executive employees from time to time; (vi) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of his duties hereunder in accordance with the Company's normal policies from time to time in effect; and (vii) in addition, the Board of Directors will grant to you as of the date hereof an option to purchase 700,000 shares of the Company's common stock, at an exercise price of $1.19 per share, which is equal to the fair market value closing price today, March 30, 2001, on the NASDAQ National Market System. Your right to exercise such options will vest as to 100,000 shares on the first anniversary of the date hereof and as to the balance 3 4 of such shares in eight equal quarterly installments, commencing June 30, 2002, and will vest immediately upon a change of control transaction involving the Company. 6. Confidential Information. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Employee has and will have access to and will participate in the development of or be acquainted with confidential or proprietary information and trade secrets related to the business of the Company and any present or future subsidiaries or affiliates of the Company (collectively with the Company, the "Companies"), including but not limited to (i) customer lists; claims histories, adjustments and settlements and related records and compilations of information; the identity, lists or descriptions of any new customers, referral sources or organizations; financial statements; cost reports or other financial information; contract proposals or bidding information; business plans; training and operations methods and manuals; personnel records; software programs; reports and correspondence; and management systems, policies or procedures, including related forms and manuals; (ii) information pertaining to future developments such as future marketing or acquisition plans or ideas, and potential new business locations; (iii) confidential or non-public information relating to business operations and strategic plans of third parties with which the Companies have or may be assessing commercial arrangements ("Third Party Information") and (iv) all other tangible and intangible property, that are used in the business and operations of the Companies but not made public. The information and trade secrets relating to the business of the Companies described hereinabove (including Third Party Information) in this paragraph (a) are hereinafter referred to collectively as the "Confidential Information", provided that the term Confidential Information shall not include any information (x) that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Employee), (y) that the Employee receives on a nonconfidential basis from a source (other than the Companies or their representatives) or, in the case of Third Party Information, from a source (other than the Companies, the third parties to which such information relates or their respective representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to any of the Companies (or such third parties, in the case of Third Party Information) or (z) that was in the possession of the Employee prior to disclosure by the Companies (or such third parties, in the case of Third Party Information). (b) The Employee shall not disclose, use or make known for his or another's benefit any Confidential Information or use such Confidential Information in any way except as is in the best interests of the Companies in the performance of the Employee's duties under this Agreement. The Employee may disclose Confidential Information when required by a third party and applicable law or judicial process, but only after 4 5 providing immediate notice to the Company at any third party's request for such information, which notice shall include the Employee's intent with respect to such request. (c) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Companies shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach by the Employee (and the Employee hereby waives any requirement that any of the Companies provide a bond or other security in connection with the issuance of any such injunction); provided, however, that nothing contained herein shall be construed as prohibiting the Companies from pursuing any other rights and remedies available for any such breach or threatened breach. (d) The Employee agrees that, upon termination of his employment with the Company for any reason, the Employee shall forthwith return to the Company all Confidential Information in whatever form maintained (including, without limitation, computer discs and other electronic media). (e) The obligations of the Employee under this Section 6 shall, except as otherwise provided herein, survive the termination of the Employment Term and the expiration or termination of this Agreement. (f) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. Termination. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) the death of the Employee; (ii) the Employee's inability to perform his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, within any period of twelve (12) consecutive months; (iii) the Company giving written notice, at any time, to the Employee that the Employee's employment is being terminated "for cause" (as defined below); (iv) the Company giving written notice, at any time, to the Employee that the Employee's employment is being terminated other than pursuant to clause (i), (ii) or (iii) above; or 5 6 (v) the Employee terminates his employment hereunder for any reason whatsoever (whether by reason of retirement, resignation or otherwise). The following actions, failures and events by or affecting the Employee shall constitute "cause" for termination within the meaning of clause (iii) above: (A) a conviction of the Employee of, or the entering of a plea of nolo contendere by the Employee with respect to, a felony, (B) dependence on, or habitual abuse of, controlled substances or alcohol (in the case of alcohol abuse, that has a material adverse affect on Employee's performance of his obligations under this Agreement) or acts of dishonesty by the Employee that are materially detrimental to one or more of the Companies, (C) wilful misconduct by the Employee that materially damages the business of one or more of the Companies, (D) gross negligence by the Employee in the performance of, or wilful disregard by the Employee of, his material obligations under this Agreement or otherwise relating to his employment, which gross negligence or wilful disregard continues unremedied for a period of fifteen (15) days after written notice thereof to the Employee or (E) failure by the Employee to obey the reasonable and lawful orders and policies of the Chief Executive Officer or the Board of Directors of the Company that are material to and consistent with the provisions of this Agreement (provided that, in the case of an indictment described in clause (A) above, and in the case of clauses (B), (C) and (E) above, the Employee shall have received written notice of such proposed termination (which notice shall state the Sections of this Agreement pursuant to which such termination is being effected and a description of the facts supporting such termination) and a reasonable opportunity (together with the Employee's counsel) to discuss the matter with the Board of Directors of the Company, followed by a notice that the Board of Directors adheres to its position). (b) In the event that (1) the Employee's employment terminates pursuant to clause (i) or (ii) of Section 7(a) above or (2) is terminated by the Company pursuant to clause (iv) of Section 7(a) above, or the Employee terminates his employment, in the case of either event described in this clause (2), within 45 days of a Change of Control Transaction (as hereinafter defined), whether during the Initial Term or during any Renewal Term pursuant to Section 2(b) above, then (i) during the period beginning on the date of such termination and ending on the last day of the Applicable Period (as defined in Section 9(a)), the Company shall pay to the Employee, as severance pay or liquidated damages or both, monthly payments equal to one-twelfth of the rate per annum of his Salary at the time of such termination, provided, however, that no such payments shall be required to be made if the Employee fails to comply with his obligations under Section 9 below; and (ii) the Company shall continue to provide the Employee with the health insurance benefits provided to other employees of the Company (including employer contributions) from the date of such termination until the earlier to occur of (x) the last day of the Applicable Period and (y) the date upon which the Employee becomes eligible for coverage under the health insurance plan of another employer. For purposes of this Agreement, a "Change of Control Transaction" means the sale or transfer of all or substantially all of the assets of the Company or any merger, consoli- 6 7 dation or other transaction that would result in the transfer, directly or indirectly, of more than 50% of the then outstanding capital stock of the Company to holders who were not holders of its capital stock immediately prior to such merger. It is understood by the Company and the Employee that "a sale of substantially all" the Company's assets may occur, for purposes of the New York Business Corporation Law, but that such an event will not constitute a "Change of Control Transaction" for purposes of this Agreement unless the Company has sold all its significant lines of business and intends to limit its future activities to the distribution of the proceeds of such transaction. (c) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in Section 7(b) above, the Company (and its affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and remained unpaid as of the date of said cessation and (ii) such other amounts, if any, that may be then otherwise payable to the Employee pursuant to the terms of the Company's benefits plans. (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. 8. Non-Assignability. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to exclusion, attachment, levy or similar process or to assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. Restrictive Covenants. 7 8 (a) Competition. During the Employment Term and during the Applicable Period (as defined below), the Employee shall not directly or indirectly (as a director, officer, executive employee, manager, consultant, independent contractor, advisor or otherwise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with any business or organization that engages in competition with the Company or any of its subsidiaries within the meaning of Section 9(d), provided, however, that the provisions of this Section 9(a) shall not be deemed to prohibit the Employee's ownership of not more than two percent (2%) of the total outstanding shares of common stock of any publicly held company, or ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of the equity of any other business. For purposes of this Agreement, the "Applicable Period" shall mean the twenty-four (24) month period following the termination of the Employee's employment hereunder for any reason whatsoever. (b) Non-Solicitation. During the Employment Term and during the Applicable Period, the Employee shall not directly or indirectly induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of the Company or such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof. (c) Non-Interference. During the Employment Term and during the Applicable Period, the Employee will not directly or indirectly hire, engage, send any work to, place orders with, or in any manner be associated with any supplier, contractor, subcontractor or other business relation of the Company or any of its subsidiaries if such action would be known by him to have a material adverse effect on the business, assets or financial condition of the Company or any of its subsidiaries or materially interfere with the relationship between any such person or entity and the Company or any of its subsidiaries. (d) Certain Definitions. For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its subsidiaries, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its subsidiaries, if such person or entity engages in any business engaged in by the Company or such subsidiary at the time of termination of the Employee's employment with the Company, in either case in the geographic region encompassing the service areas in which the Company or any of its subsidiaries conduct, or had an established plan to begin conducting, their businesses at the time of termination of the Employee's employment with the Company. (e) Certain Representations of the Employee. In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, time and territorial limitations) are reasonable and properly required for the adequate 8 9 protection of the current and future businesses of the Company and its subsidiaries. It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement. (f) Injunctive Relief. The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of Section 9 hereof would be inadequate and, therefore, agrees that the Company and any of its subsidiaries shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach (and the Employee hereby waives any requirement that the Company or any such subsidiary provide a bond or other security in connection with the issuance of any such injunction); provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its subsidiaries from pursuing any other rights and remedies available for any such breach or threatened breach. 10. Binding Effect. Without limiting or diminishing the effect of the provisions affecting assignment of this Agreement, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 11. Notices. All notices that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and (i) delivered personally, (ii) mailed by certified or registered mail, return receipt requested and postage prepaid, (iii) sent via a nationally recognized overnight courier or (iv) sent via facsimile confirmed in writing to the recipient, if to the Company at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto, provided, however, that any notice sent by certified or registered mail shall be deemed delivered on the date of delivery as evidenced by the return receipt. 12. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 13. Severability. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 9 hereof is void or constitutes an unreasonable restriction against the Employee, the provisions of such Section 6 or 9 shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 9 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and 9 10 provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. Arbitration. With the exception of any dispute regarding the Employee's compliance with the provisions of Sections 6 and 9 above, any dispute relating to or arising out of the provisions of this Agreement shall be decided by arbitration in New York, New York, in accordance with the Expedited Arbitration Rules of the American Arbitration Association then obtaining, unless the parties mutually agree otherwise in a writing signed by both parties. This undertaking to arbitrate shall be specifically enforceable. The decision rendered by the arbitrator will be final and judgment may be entered upon it in accordance with appropriate laws in any court having jurisdiction thereof. Each of the parties shall pay his or its own legal fees associated with such arbitration. 16. Entire Agreement; Modifications. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10 11 IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. HEALTH MANAGEMENT SYSTEMS, INC. By _____________________________________ Name: Title: Date: ________________________________________ Robert M. Holster Dated: 11 EX-10.2.II 9 y50367ex10-2_ii.txt STOCK OPTION AGREEMENT 1 Exhibit 10.2(ii) Option No. 00003258 HEALTH MANAGEMENT SYSTEMS, INC. Incentive Stock Option Agreement THIS AGREEMENT, made as of the March 30, 2001 between HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (the "Corporation"), and William F. Miller III (the "Optionee"), is approved by the Board of Directors (the "Board"), of the Corporation on March 30, 2001. A stock option is a form of executive compensation and is determined by the Compensation Committee (the "Committee") of the Board. The Board has determined that it would be to the advantage and interest of the Corporation and its shareholders to grant the option provided for herein to the Optionee as an inducement to remain in the service of the Corporation, or a Parent or a Subsidiary thereof, and as incentive for increased efforts during such service. NOW, THEREFORE, the Corporation, with the approval of the Committee, hereby grants to the Optionee as of the date hereof an option (the "Option") to purchase all or any part of an aggregate of 700,000 shares of the Corporation's common shares, $.01 par value per share (the "Common Stock"), at $1.19 per share upon the following terms and conditions: 1. The Option and all rights of the Optionee to purchase shares of Common Stock hereunder shall terminate on March 30, 2011 (hereinafter referred to as the "Expiration Date"). 2. The Optionee's right and option to purchase shares of Common Stock pursuant to the Option shall vest as to 100,000 shares on the first anniversary date of the Option and the remaining 600,000 shares shall vest over a 24-month period thereafter in eight equal quarterly installments. Page 1 2 3. Once the Option has vested in accordance with the preceding Section 2, it shall continue to be exercisable until the earlier of the termination of the Optionee's rights hereunder pursuant to Section 5, or the Expiration Date. A partial exercise of the Option shall not affect the Optionee's right to exercise the Option with respect to the remaining shares subject thereto, subject to this Agreement. Full payment for shares acquired shall be made in cash or in shares, or a combination of cash and shares, at or prior to the time that an Option, or any part thereof, is exercised. 4. (a) Except as provided in Section 5, the Option may not be exercised unless the Optionee is, at the time of exercise, an employee, of the Corporation or of a Parent or Subsidiary, thereof (collectively hereinafter referred to as the "Corporation"). The Option shall not be affected by any change of duties or position so long as the Optionee continues to be an employee of the Corporation. A leave of absence or an interruption in service (including an interruption during military service) authorized or approved by the Corporation shall not be deemed an interruption of employment for the purposes of Section 5. (b) No partial exercise of the Option may be for less than 100 full shares (or less than all the shares as to which the Option is exercisable, if less than 100 shares), and in no event shall the Corporation be required to issue any fractional shares. 5. Except as provided in Section 8 (b), in the event the Optionee shall cease to be employed by the Corporation for any reason, including but not limited to by reason of the Optionee's death or disability, all unexercised Options held by the Optionee which are not then exercisable by the Optionee shall lapse effective the date of termination of employment. To the extent not theretofore exercised, any Options held by the Optionee which are then exercisable shall terminate as follows: If the employment is terminated for any reason other than "for cause", disability, as such terms are defined below, or death, any then exercisable Options shall terminate upon the expiration of one month after the termination of employment. If the employment terminates because of a permanent and total disability as defined by Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") as it now exists or may hereafter be amended or because of death or retirement under the Corporation's retirement plan, any then exercisable Options shall terminate upon the expiration of one Page 2 3 year after the termination of employment. If the termination is "for cause" as determined by the Board, or the violation by the Optionee, after termination of employment, of the terms of a Restrictive covenant and Confidentiality/Non-Disclosure Agreement with the Corporation, any then exercisable Options shall terminate upon the termination of employment. 6. Nothing in this Agreement shall confer upon the Optionee any right to continue in the employ of the Corporation or affect the right of the Corporation to terminate his employment at any time. 7. (a) The Optionee may exercise the Option with respect to all or any part of the shares then exercisable by giving the Corporation written notice as provided in Paragraph 11 hereof such exercise. Such notice shall specify the number of shares as to which the Option is being exercised and shall be preceded or accompanied by payment in full in accordance with Section 3 hereof. (b) Prior to or concurrently with delivery by the Corporation to the Optionee of a certificate(s) representing such shares, the Optionee shall: (i) upon notification of the amount due, pay promptly any amount necessary to satisfy applicable federal, state or local tax requirements; and (ii) if such shares are not currently or effectively registered under the Securities Act of 1933, as amended (the "Act") and applicable state securities laws, give satisfactory assurance in writing signed by the Optionee or his legal representative, as the case may be, that such shares are being purchased for investment and not with a view to the distribution thereof. (c) As soon as practicable after receipt of the notice and payment referred to in subparagraph (a) of this Section 7, the Corporation shall cause to be delivered to the Optionee at the office of the Corporation at 401 Park Avenue South, New York, New York 10016 or such other place as may be mutually acceptable to the Page 3 4 Corporation and the Optionee, a certificate or certificates for such shares; provided however, that the time of such delivery may be postponed by the Corporation for such period of time as may be required for the Corporation, with reasonable diligence, to comply with applicable registration requirements under the Act, the Securities Exchange Act of 1934, as amended, and any requirements under any other law or regulation applicable to the issuance or transfer of shares. If the Optionee fails for any reason to accept delivery of all or any part of the number of shares specified in such notice upon tender of delivery thereof, his right to purchase such undelivered shares may be terminated. (d) The Optionee shall not sell, transfer, assign, pledge, hypothecate or otherwise dispose of any shares of Common Stock received upon exercise of the Option prior to the expiration of six months following such grant. 8. (a) If the total outstanding shares of Common Stock of the Corporation shall be increased or decreased or changed into the exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation through reorganization, merger or consolidation, recapitalization, stock split, split-up, combination or exchange of shares or declaration of any dividends payable in stock, then the Board shall proportionally adjust the number of shares (and price per share) subject to the unexercised portion of this Option (to the nearest possible full share) subject in all cases to the limitations of Section 425 of the Code. (b) Notwithstanding the foregoing provisions of subparagraph (a) of this Section 8, the Optionee understands and acknowledges that, in the event of: (i) any offer to holders of Common Stock generally relating to the acquisition of their shares including, without limitation, through purchase, merger, consolidation or otherwise; or (ii) any transaction generally relating to the acquisition of substantially all of the assets or business of the Corporation (as determined by the Board) Page 4 5 the unvested portion of this Option will become 100 percent vested. 9. This Option shall not be transferable other than by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. During the lifetime of the Optionee, this Option shall be exercisable only by the Optionee. In the event of any attempt by the Optionee to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or of any right hereunder, except as provided for herein, or in the event of the levy of any attachment, execution or similar process upon the rights or interest hereby conferred, the Corporation may terminate this Option by notice to the Optionee and it shall thereupon become null and void. 10. Neither the Optionee, nor in the event of his death or otherwise, any person entitled to exercise his rights, shall have any of the rights of a shareholder with respect to the shares subject to the Option until share certificates have been issued and registered in the name of the Optionee or his estate, as the case may be. 11. Any notice to the Corporation provided for in the Option shall be addressed to the Corporation at 401 Park Avenue South, New York, New York 10016, and any notice to the Optionee shall be addressed to him at his address now on file with the Corporation, or to such other address as either party may last have designated to the other by notice as provided herein. Any notice so addressed shall be deemed to be given on the fourth business day after mailing, by registered or certified mail, at a post office or branch post office within the United States. 12. In the event that any question or controversy shall arise with respect to the nature, scope or extent of any one or more rights conferred by this Option, the determination by the Board or the Committee (as constituted at the time of such determination) of the rights of the Optionee shall be conclusive, final and binding upon the Optionee and upon any other person who shall assert any right pursuant to this Option. 13. Nothing herein contained shall affect the Optionee's rights to participate in and receive benefits under and in accordance with any pension, profit sharing, insurance or other employee welfare plan or program of the Corporation. Page 5 6 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 15. The Option granted hereby is designated an Incentive Stock Option under Section 422A(b) of the Code, to the extent permitted and subject to the time provisions set forth within Section 5 of this Agreement. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed by a duly authorized officer, and the Optionee has affixed his signature hereto. HEALTH MANAGEMENT SYSTEMS, INC. By: _____________________________________ _____________________________________ Optionee The undersigned reaffirms his (her) obligations under a previously executed Restrictive Covenant/Non-Compete Agreement with the Corporation and agrees that his (her) reaffirmation of such obligations is an inducement to the Corporation to grant the Option covered by this Agreement. _____________________________________ Optionee Page 6 EX-10.3 10 y50367ex10-3.txt ALAN HAYES EMPLOYMENT AGREEMENT 1 Exhibit 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of March 1, 2001, by and between HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (the "Company"), and ALAN HAYES (the "Employee"). W I T N E S S E T H: WHEREAS the Company desires to induce the Employee to enter into employment with the Company for the period provided in this Agreement, and the Employee is willing to accept such employment with the Company on a full-time basis, all in accordance with the terms and conditions set forth below; NOW, THEREFORE, for and in consideration of the premises hereof and the mutual covenants contained herein, the parties hereto hereby covenant and agree as follows: 1. Employment. (a) The Company hereby agrees to employ the Employee, and the Employee hereby agrees to accept such employment with the Company, beginning on the date hereof and continuing for the period set forth in Section 2 hereof, all upon the terms and conditions hereinafter set forth. (b) The Employee affirms and represents that as of the commencement of his employment by the Company on the date hereof he is under no obligation to any former employer or other party that is in any way inconsistent with, or that imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement. 2. Term of Employment. (a) Unless earlier terminated as provided in this Agreement, the term of the Employee's employment under this Agreement shall be for a period beginning on the date hereof and ending on the second anniversary of the date hereof (the "Initial Term"). (b) The term of the Employee's employment under this Agreement will be renewed for additional one-year terms (each a "Renewal Term") upon the expiration of the Initial Term or any Renewal Term unless the Company or the Employee delivers to the other, at least 90 days prior to the expiration of the Initial Term or the then current Renewal Term, as the case may be, a written notice specifying that the term of the Employee's employment will not be renewed at the end of the Initial Term or such Renewal Term, as the case may be. The period from the date hereof until the second anniversary of said date or, in the event that the Employee's employment hereunder is earlier terminated as provided herein or renewed as provided in this Section 2(b), such shorter or longer period, as the case may be, is hereinafter called the "Employment Term". 3. Duties. The Employee shall be employed as the Chief Information Officer of the Company, shall faithfully and competently perform such duties as inhere in such position and as are specified in the By-laws of the Company and shall also perform and discharge such 2 Alan Hayes Agreement other executive employment duties and responsibilities as the Chief Executive Officer or the Chief Operating Officer or the Board of Directors of the Company shall from time to time determine. The Employee shall perform his duties principally at such offices of the Company and its subsidiaries as their respective businesses shall require, from time to time, with such travel to such other locations from time to time as the Chief Executive Officer or the Chief Operating Officer or the Board of Directors of the Company may reason-ably prescribe. Except as may otherwise be approved in advance by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sick-ness, personal injury or other disability, the Employee shall devote his full business time throughout the Employment Term to the services required of him hereunder. The Employee shall render his business services exclusively to the Company and its subsidiaries during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company and its subsidiaries in a manner consistent with the duties of his position. Nothing contained in this Section 3 shall preclude the Employee from performing services for charitable or not-for-profit community organizations, provided that such activities do not interfere with the Employee's performance of his duties and responsibilities under this Agreement. EXEMPT FROM THIS AGREEMENT IS THE CONSULTING SERVICES AGREEMENT BETWEEN THE EMPLOYEE AND CYNATEK. 4. Salary and Bonus. (a) Salary. As compensation for the performance by the Employee of the services to be performed by the Employee hereunder during the Employment Term, the Company shall pay the Employee a base salary at the annual rate of Two Hundred Twenty Five Thousand Dollars ($225,000) (said amount, together with any increases thereto as may be determined by the Board of Directors of the Company, in its sole discretion, in annual salary reviews, commencing March 1, 2002, being hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid in regular intervals in accordance with the Company's payroll practices from time to time in effect. (b) Bonus. The Employee shall be eligible to receive bonus compensation from the Company in respect of each fiscal year (or portion thereof) during the Employment Term in an amount OF 50% of Salary, in each case as may be determined by the Board of Directors of the Company in its sole discretion on the basis of meeting IT re-engineering objectives established from time to time by the Board of Directors and, in the case of fiscal 2001, the successful launch of the Remit Project in the Summer of 2001. (Attachment ) (c) Special Bonus. In addition, the Employee shall be entitled to receive bonus compensation from the Company at the expiration of the Initial Term in an amount of $225,000, as may be determined by the Board of Directors of the Company in its sole discretion on the basis of the success of the IT re-engineering project. (attachment) (d.) Equity. The employee will be awarded 85,000 options vesting over three years. Twenty percent of the options vest immediately, 20 percent on 31 December 2001. The remainder vest 30 percent on 31 December 2002, and 31 December 2003. On 1 November 2001, the employee will be awarded an additional 75,000 options to vest as follows: 20% of the award will vest immediately, 40% will vest on 1 November 2002 and 40% will vest on 1 November 2003. In the event of a Change Of Control (as defined in paragraph 7 (c)), all outstanding 2 3 Alan Hayes Agreement unvested options will vest. Option Awards will be governed by the terms and conditions described in the Option Award Plan that was approved by the shareholder in 1999. 5. Other Benefits. During the Employment Term, the Employee shall: (i) be eligible to participate in employee fringe benefits and pension and/or profit sharing plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (ii) be eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees in accordance with the provisions of any such plans, as the same may be in effect from time to time; (iii) be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, provided that such number of paid vacation days in each calendar year shall not be less than twenty work days (four calendar weeks); the Employee shall also be entitled to all paid holidays given by the Company to its senior executive officers; (iv) be eligible for consideration by the Board of Directors of the Company for awards of stock options under any stock option plan that may be established by the Company for its and its subsidiaries' key employees, the amount, if any, of shares for which options may be granted to Employee to be in the sole discretion of the Board of Directors of the Company; (v) be entitled to sick leave, sick pay and disability benefits in accordance with any Company policy that may be applicable to senior executive employees from time to time; and (vi) be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of his duties hereunder in accordance with the Company's normal policies from time to time in effect. As well, the company will reimburse you for commutation expenses from your primary residence to the New York office as well as weekly hotel expense only. 6. Confidential Information. The Employee hereby covenants, agrees and acknowledges as follows: (a) The Employee has and will have access to and will participate in the development of or be acquainted with confidential or proprietary information and trade secrets related to the business of the Company and any present or future subsidiaries or affiliates of the 3 4 Alan Hayes Agreement Company (collectively with the Company, the "Companies"), including but not limited to (i) customer lists; claims histories, adjustments and settlements and related records and compilations of information; the identity, lists or descriptions of any new customers, referral sources or organizations; financial statements; cost reports or other financial information; contract proposals or bid-ding information; business plans; training and operations methods and manuals; personnel records; software programs; reports and correspondence; and management systems, policies or procedures, including related forms and manuals; (ii) information pertaining to future developments such as future marketing or acquisition plans or ideas, and potential new business locations; (iii) confidential or non-public information relating to business operations and strategic plans of third parties with which the Companies have or may be assessing commercial arrangements ("Third Party Information") and (iv) all other tangible and intangible property, that are used in the business and operations of the Companies but not made public. The information and trade secrets relating to the business of the Companies described herein above (including Third Party Information) in this paragraph (a) are hereinafter referred to collectively as the "Confidential Information", provided that the term Confidential Information shall not include any information (x) that is or becomes generally publicly avail-able (other than as a result of violation of this Agreement by the Employee), (y) that the Employee receives on a nonconfidential basis from a source (other than the Companies or their representatives) or, in the case of Third Party Information, from a source (other than the Companies, the third parties to which such information relates or their respective representatives) that is not known by him to be bound by an obligation of secrecy or confidentiality to any of the Companies (or such third parties, in the case of Third Party Information) or (z) that was in the possession of the Employee prior to disclosure by the Companies (or such third parties, in the case of Third Party Information). (b) The Employee shall not disclose, use or make known for his or another's benefit any Confidential Information or use such Confidential Information in any way except as is in the best interests of the Companies in the performance of the Employee's duties under this Agreement. The Employee may disclose Confidential Information when required by a third party and applicable law or judicial process, but only after providing immediate notice to the Company at any third party's request for such information, which notice shall include the Employee's intent with respect to such request. (c) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, there-fore, agrees that the Companies shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach by the Employee (and the Employee hereby waives any requirement that any of the Companies provide a bond or other security in connection with the issuance of any such injunction); provided, however, that nothing contained herein shall be construed as prohibiting the Companies from pursuing any other rights and remedies available for any such breach or threatened breach. 4 5 Alan Hayes Agreement (d) The Employee agrees that, upon termination of his employment with the Company for any reason, the Employee shall forthwith return to the Company all Confidential Information in whatever form maintained (including, without limitation, computer discs and other electronic media). (e) The obligations of the Employee under this Section 6 shall, except as otherwise provided herein, survive the termination of the Employment Term and the expiration or termination of this Agreement. (f) Without limiting the generality of Section 10 hereof, the Employee hereby expressly agrees that the fore-going provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. Termination. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) the death of the Employee; (ii) the Employee's inability to per-form his duties on account of disability or incapacity for a period of one hundred eighty (180) or more days, whether or not consecutive, within any period of twelve (12) consecutive months; (iii) the Company giving written notice, at any time, to the Employee that the Employee's employment is being terminated "for cause" (as defined below); (iv) the Company giving written notice, at any time, to the Employee that the Employee's employment is being terminated other than pursuant to clause (i), (ii) or (iii) above; or (v) the Employee terminates his employment hereunder for any reason whatsoever (whether by reason of retirement, resignation or otherwise). The following actions, failures and events by or affecting the Employee shall constitute "cause" for termination within the meaning of clause (iii) above: (A) a conviction of the Employee of, or the entering of a plea of nolo contendere by the Employee with respect to, a felony, (B) dependence on, or habitual abuse of, controlled substances or alcohol (in the case of alcohol abuse, that has a material adverse affect on Employee's performance of his obligations under this Agreement) or acts of dishonesty by the Employee that are materially detrimental to one or more of the Companies, (C) willful misconduct by the Employee that materially damages the business of one or more of the Companies, (D) gross negligence by the Employee in the performance of, or willful disregard by the Employee of, his material obligations under this Agreement or otherwise relating to his employment, which gross negligence or willful disregard continues unremedied for a period of fifteen (15) days after written notice thereof to the Employee or (E) failure by the Employee to obey the reasonable and lawful orders and policies of the Chief Executive Officer or the Chief Operating Officer or the Board of Directors of the Company that are material to and consistent with the provisions of this Agreement (pro-vided that, in the case 5 6 Alan Hayes Agreement of an indictment described in clause (A) above, and in the case of clauses (B), (C) and (E) above, the Employee shall have received written notice of such proposed termination (which notice shall state the Sections of this Agreement pursuant to which such termination is being effected and a description of the facts supporting such termination) and a reason-able opportunity (together with the Employee's counsel) to discuss the matter with the Board of Directors of the Company, followed by a notice that the Board of Directors adheres to its position). (b) In the event that the Employee's employment is terminated by the Company pursuant to clause (iv) of Section 7(a) above, under circumstances not involving a Change of Control Transaction (as hereinafter defined) within 45 days of such termination, whether such termination occurs during the Initial Term or during any Renewal Term pursuant to Section 2(b) above, then (i) during the period beginning on the date of such termination and ending on the six month anniversary thereof, the Company shall pay to the Employee, as severance pay or liquidated damages or both, monthly payments equal to one-twelfth of the rate per annum of his Salary at the time of such termination, provided, however, that no such payments shall be required to be made if the Employee fails to comply with his obligations under Section 9 below; and (ii) the Company shall continue to provide the Employee with the health insurance benefits provided to other employees of the Company (including employer contributions) from the date of such termination until the earlier to occur of (x) the six month anniversary thereof and (y) the date upon which the Employee becomes eligible for coverage under the health insurance plan of another employer. (c) In the event that the Employee's employment is terminated by the Company pursuant to clause (iv) of Section 7(a) above, or the Employee terminates his employment, in each case, within 45 days of a Change of Control Transaction, whether during the Initial Term or during any Renewal Term pursuant to Section 2(b) above, then (i) during the period beginning on the date of such termination and ending on the last day of the Applicable Period (as defined in Section 9(a)), the Company shall pay to the Employee, as severance pay or liquidated damages or both, monthly payments equal to one-twelfth of the rate per annum of his Salary at the time of such termination, provided, however, that no such payments shall be required to be made if the Employee fails to comply with his obligations under Section 9 below or if the Employee shall be entitled to receive payments pursuant to Section 7(b) above; and (ii) the Company shall continue to provide the Employee with the health insurance benefits provided to other employees of the Company (including employer contributions) from the date of such termination until the earlier to occur of (x) the last day of the Applicable Period and (y) the date upon which the Employee becomes eligible for coverage under the health insurance plan of another employer. For purposes of this Agreement, a "Change of Control Transaction" means the sale or transfer of all or substantially all of the assets of the Company or any merger, consolidation or other transaction that would result in the transfer, directly or indirectly, of more than 50% of the then outstanding capital stock of the Company to holders who were not holders of its capital stock immediately prior to such merger. It is understood by the Company and the Employee that "a sale of substantially all" the Company's assets may occur, for purposes of the New York Business Corporation Law, but that such an event will not constitute a "Change of Control Transaction" for purposes of this Agreement unless the Company has sold all its 6 7 Alan Hayes Agreement significant lines of business and intends to limit its future activities to the distribution of the proceeds of such transaction. (d) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in Section 7(b) above, the Company (and its affiliates) shall not be obligated to make any payments to the Employee or on his behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of his Salary as shall have accrued and remained unpaid as of the date of said cessation and (ii) such other amounts, if any, that may be then otherwise payable to the Employee pursuant to the terms of the Company's benefits plans. (e) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. 8. Non-Assignability. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee or his beneficiaries or legal representatives without the Company's prior written consent; provided, however, that nothing in this Section 8(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to exclusion, attachment, levy or similar process or to assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. Restrictive Covenants. (a) Competition. During the Employment Term and during the Applicable Period (as defined below), the Employee shall not directly or indirectly (as a director, officer, executive employee, manager, consultant, independent contractor, advisor or other-wise) engage in competition with, or own any interest in, perform any services for, participate in or be connected with any business or organization that engages in competition with the Company or any of its subsidiaries within the meaning of Section 9(d), provided, however, that the provisions of this Section 9(a) shall not be deemed to prohibit the Employee's ownership of not more than two percent (2%) of the total outstanding shares of common stock of any publicly held company, or ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of the equity of any other business. For purposes of this Agreement, the "Applicable Period" shall mean the twelve (12) month period following the termination of the Employee's employment hereunder for any reason whatsoever. Exempt from this Agreement is any investments that employee has in Tech RX and Enterprise Bank. (b) Non-Solicitation. During the Employment Term and during the Applicable Period, the Employee shall not directly or indirectly induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of the Company or such subsidiary, 7 8 Alan Hayes Agreement or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof. (c) Non-Interference. During the Employment Term and during the Applicable Period, the Employee will not directly or indirectly hire, engage, send any work to, place orders with, or in any manner be associated with any supplier, contractor, subcontractor or other business relation of the Company or any of its subsidiaries if such action would be known by him to have a material adverse effect on the business, assets or financial condition of the Company or any of its subsidiaries or materially interfere with the relationship between any such person or entity and the Company or any of its subsidiaries. (d) Certain Definitions. For purposes of this Section 9, a person or entity (including, without limitation, the Employee) shall be deemed to be a competitor of the Company or any of its subsidiaries, or a person or entity (including, without limitation, the Employee) shall be deemed to be engaging in competition with the Company or any of its subsidiaries, if such person or entity engages in any business engaged in by the Company or such subsidiary at the time of termination of the Employee's employment with the Company, in either case in --the geographic region encompassing the service areas in which the Company or any of its subsidiaries conduct, or had an established plan to begin --conducting, their businesses at the time of term-nation of the Employee's employment with the Company. (e) Certain Representations of the Employee. In connection with the foregoing provisions of this Section 9, the Employee represents that his experience, capabilities and circumstances are such that such provisions will not prevent him from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 9 (including, without limitation, time and territorial limitations) are reasonable and properly required for the adequate protection of the current and future businesses of the Company and its subsidiaries. It is understood and agreed that the covenants made by the Employee in this Section 9 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement. (f) Injunctive Relief. The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of Section 9 hereof would be inadequate and, therefore, agrees that the Company and any of its subsidiaries shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach (and the Employee hereby waives any requirement that the Company or any such subsidiary provide a bond or other security in connection with the issuance of any such injunction); provided, however, that nothing contained herein shall be construed as prohibiting the Company or any of its subsidiaries from pursuing any other rights and remedies available for any such breach or threatened breach. 10. Binding Effect. Without limiting or diminishing the effect of the provisions affecting assignment of this Agreement, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 11. Notices. All notices that are required or may be given pursuant to the terms 8 9 Alan Hayes Agreement of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and (i) delivered personally, (ii) mailed by certified or registered mail, return receipt requested and postage prepaid, (iii) sent via a nationally recognized overnight courier or (iv) sent via facsimile confirmed in writing to the recipient, if to the Company at the Company's principal place of business, and if to the Employee, at his home address most recently filed with the Company, or to such other address or addresses as either party shall have designated in writing to the other party hereto, provided, however, that any notice sent by certified or registered mail shall be deemed delivered on the date of delivery as evidenced by the return receipt. 12. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 13. Severability. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 9 hereof is void or constitutes an unreasonable restriction against the Employee, the provisions of such Section 6 or 9 shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 9 is held by a court of competent jurisdiction to be invalid-id, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. Arbitration. With the exception of any dispute regarding the Employee's compliance with the provisions of Sections 6 and 9 above, any dispute relating to or arising out of the provisions of this Agreement shall be decided by arbitration in New York, New York, in accordance with the Expedited Arbitration Rules of the American Arbitration Association then obtaining, unless the parties mutually agree otherwise in a writing signed by both parties. This undertaking to arbitrate shall be specifically enforceable. The decision rendered by the arbitrator will be final and judgment may be entered upon it in accordance with appropriate laws in any court having jurisdiction thereof. Each of the parties shall pay his or its own legal fees associated with such arbitration. 16. Entire Agreement; Modifications. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 9 10 Alan Hayes Agreement 17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. AGREED AND ACCEPTED TO : HEALTH MANAGEMENT SYSTEMS /s/ Alan Hayes /s/ William F. Miller - ------------------------- ----------------------------- Alan Hayes William F. Miller 4/26/01 4/26/01 - ------------------------- ------------------------------ Date Date 10 -----END PRIVACY-ENHANCED MESSAGE-----