Document:

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                                                                   Exhibit 10.17

                              EMPLOYMENT AGREEMENT

                  EMPLOYMENT AGREEMENT dated as of October 2, 2000, by and
between HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (the "Company"),
and WILLIAM F. MILLER III (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".
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                  3. Duties. The Employee shall be employed as the President and
Chief Executive 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 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 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 an outside director of up to three companies 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 Four Hundred Thousand Dollars ($400,000) (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 receive a minimum bonus from the
Company in respect of each of the first two fiscal years (or portion thereof)
occurring during the Employment Term (pro rated for any portion of a fiscal year
occurring during the Employment Term), payable on the December 15 following the
end of such fiscal year, in the following amounts:

<TABLE>
<CAPTION>
                                                                                        Minimum
                           Fiscal Year Ending Oct. 31,                                  Bonus
                           ---------------------------                                  -------
<S>                                                                                     <C>
                                    2001                                                $80,000
                                    2002                                                 40,000
</TABLE>
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                  In addition, 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 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; 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 (including,
         without limitation, reimbursement of the annual dues of professional
         organizations approved by the Board of Directors and relocation
         expenses if the Employee decides to relocate his principal residence);

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                  (vii) be entitled, so long as the Employee shall maintain his
         current residence in Dallas, Texas, to the occasional use of an
         apartment in the New York City area on terms to be agreed upon by the
         Employee and the Compensation Committee of the Board of Directors;

                  (viii) be entitled to a travel allowance in a reasonable
         amount to be agreed upon by the Employee and the Compensation Committee
         of the Board of Directors for regular weekend travel between the
         Employee's home in Dallas, Texas and New York City; and

                  (ix) be entitled to acquire a 7% interest in the outstanding
         Common Stock of the Company, as to be provided in arrangements to be
         entered into by the Company and the Employee.

                  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 prop-
         erty, 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

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         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, 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;

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                  (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

                  (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 Board of Directors 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 of the Company adheres
to its position).

                  (b) In the event that the Employee's employment terminates
pursuant to clause (i) or (ii) of Section 7(a) above or is terminated by the
Company pursuant to clause (iv) of Section 7(a) above, or the Employee
terminates his employment within 45 days of a Change of Control Transaction (as
hereinafter defined), in each case 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,

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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, 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 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's 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.

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                  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 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

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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 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

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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.

                  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.

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                  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:

                                        ----------------------------------------
                                              William F. Miller III

                                       11<PAGE>   1
                                                               Exhibit 10.17(ii)

                         HEALTH MANAGEMENT SYSTEMS, INC.

                                                              January 10, 2001

Mr. William F. Miller III
3618 Harvard
Dallas, Texas 75203

                       Restricted Stock Purchase Agreement

Dear Mr. Miller:

            This letter sets forth our entire agreement with respect to the
550,000 shares of Common Stock, $.01 par value, of Health Management Systems,
Inc., a New York corporation (the "Company"), being purchased by you as of the
date hereof from the Company. As used herein, such shares of Common Stock are
hereinafter collectively referred to as the "Shares".

            The total amount to be paid by you to the Company to purchase the
Shares is $721,875 or $1.3125 per Share. As payment in full for the Shares, you
are hereby delivering to the Company such sum which has been loaned to you by
the Company's subsidiary, Accelerated Claims Processing, Inc. ("ACP"). To
evidence such loan, you have delivered to ACP your promissory note in the form
of Exhibit A hereto (the "Note") in the aggregate principal amount of $721,875
payable to the order of ACP.

            1. Right and Option of Company to Repurchase Shares.

            (a) In the event that you cease to perform services for the Company
as a result of (i) your disability (as defined in your employment agreement with
the Company dated as of October 2, 2000) or (ii) the termination (as a result of
your resignation or termination by the Company with our without cause or
otherwise) of your position as President and Chief Executive Officer of the
Company, the Company shall thereupon have the right and option, but not the
obligation, to purchase from you all, or any part, of the Purchase Option Shares
(as hereinafter defined) held by you as of the date of such disability or
termination. The purchase price to be paid by the Company to purchase such
Purchase Option Shares under this Section 1(a) shall be an amount equal to the
amount paid by you pursuant to this Agreement to purchase such Purchase Option
Shares.

            (b) The Company may exercise the right and option set forth in
Section 1(a) above by giving you (or, in the case of your death, your legal
representative) a written notice of
<PAGE>   2
election to purchase at any time within 90 days after the termination of your
employment with the Company. The closing for the purchase by the Company of any
such Shares pursuant to the provisions of this Section 1 will take place at the
offices of the Company on the date specified in such written notice, which date
shall be a business day not later than 30 days after the date such notice is
given. At such closing, you will deliver such Shares, duly endorsed for
transfer, against payment of the purchase price therefor. Such purchase price
shall be payable to you by check payable to your order. To the extent the
Company chooses not to exercise such right and option under this Section 1 to
repurchase any Purchase Option Shares, such Purchase Option Shares shall
thereafter cease to be subject to the provisions of this Section 1.

            2. Purchase Option Shares.

            (a) As of the date hereof, fifty percent (50%) of the Shares (or
275,000 Shares) shall be subject to the Company's purchase option pursuant to
Section 1(a) (the "Purchase Option Shares") and fifty percent (50%) of the
Shares (or 275,000 Shares) shall not be so subject ("Unencumbered Shares"). The
Purchase Option Shares shall cease to be subject to the Company's purchase
option (and, thus, become Unencumbered Shares) on the first anniversary of the
date hereof as long as you shall be performing services for the Company as its
President and Chief Executive Officer on such anniversary.

            (b) The Board of Directors of the Company, in its sole discretion,
may at any time accelerate the time set forth in Section 2(a) above at which the
Shares shall cease to subject to the Company's purchase option.

            (c) In the event that (i) you die or (ii) a Change of Control
Transaction (as defined in your employment agreement with the Company dated as
of October 2, 2000) occurs, in either case during the period during which you
are providing services to the Company as described in this Agreement, then 100%
of the Shares shall cease to be subject to the Company's purchase option on and
as of the date of your death or the date of the Change of Control Transaction.

            3. Rights as a Stockholder. Subject to the provisions of Sections 1,
2, 4 and 5 hereof, you will have all rights of a stockholder with respect to all
Shares being purchased by you today, including the right to vote such Shares and
to receive any dividends paid thereon.

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            4. Transfer Restrictions on Shares. Notwithstanding anything
contained in this Agreement to the contrary, you hereby agree with the Company
that you will not sell, assign, transfer, pledge, convey or otherwise dispose of
any Shares, or subject the same to any lien, encumbrance, mortgage or other
security interest of any kind whatsoever, (i) so long as the Note shall be
outstanding or (ii) prior to the date on which such Shares (or a portion
thereof) are no longer subject to repurchase by the Company pursuant to Section
2.

            5. Recording of Assignments. The Company shall not record any
assignment, transfer or other disposition of any Shares on its transfer books
unless the provisions of this Agreement shall have been fully complied with and
the Company shall have received satisfactory evidence thereof.

            6. Certain Tax Matters. You hereby acknowledge that you understand
the Federal, state and local income tax consequences of your purchase of the
Shares, the repurchase provisions relating to the Shares, and any subsequent
sale of the Shares, including, if applicable, the consequences of making (or not
making) a timely election under Section 83(b) of the Internal Revenue Code of
1986 with respect to the Shares. In addition, you fully understand that, at the
time that you realize any compensation income in respect of the Shares, the
Company will be required to withhold Federal, state and local taxes on the full
amount of the compensation income realized by you. Accordingly, at or prior to
the time that you realize any compensation income in respect of the Shares, you
hereby agree to provide the Company with cash funds equal to the total Federal,
state and local taxes required to be withheld by the Company in respect of such
compensation income, or make other arrangements satisfactory to the Company
regarding such payment. It is understood that all matters with respect to the
total amount of taxes to be withheld in respect of such compensation income
shall be determined by the Company in its sole discretion.

            7. Escrow Agent. In order to facilitate any repurchase of the Shares
by the Company under this Agreement, the stock certificates representing any
part of the Shares shall, for so long as such Shares are subject to repurchase
under any of the provisions of this Agreement (including any period during which
the Company has an option to repurchase and any period after the Company gives
notice of its election to repurchase but before the closing of such repurchase
has occurred), remain in the custody of the Company acting as escrow agent and
as custodian for your account. You agree to provide the Company, acting in such
custodial capacity, with a stock power or other instrument of transfer,
appropriately endorsed in blank, in respect of the Shares.

            8. Investment Representations. You hereby represent and warrant to
the Company that you are acquiring the Shares for your own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof and that you understand that (i) the Shares are not being
registered with the Securities and Exchange Commission by reason

                                       3
<PAGE>   4
of their being issued in a transaction exempt from the registration requirements
of the Securities Act of 1933, and (ii) the Shares must be held indefinitely by
you unless a subsequent disposition thereof is registered under that Act or is
exempt from such registration.

            9. Legend on Stock Certificates. Each stock certificate representing
the Shares shall be conspicuously endorsed with the following legend written on
the face thereof:

            "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
            UNDER THE SECURITIES ACT OF 1933, AND THE RIGHTS OF THE HOLDER OF
            THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND LIMITED
            BY THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT DATED JANUARY 10,
            2001 BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF SUCH SHARES. A
            COPY OF SAID AGREEMENT, TO WHICH REFERENCE IS HEREBY MADE, IS ON
            FILE AND MAY BE EXAMINED AT THE OFFICES OF HEALTH MANAGEMENT
            SYSTEMS, INC."

            10. General Provisions.

            (a) The terms and provisions of this Agreement shall apply to any
shares of capital stock that may subsequently be issued to you in exchange for
or in addition to the Shares as a result of any recapitalization, stock
dividend, stock split, reclassification, merger, consolidation or similar
corporate transaction. All Share numbers herein shall be appropriately adjusted
to account for any of the foregoing.

            (b) Except as herein expressly provided, the respective rights and
obligations of you and the Company under this Agreement shall not be assignable
by either party without the prior written consent of the other party. Nothing
herein expressed or implied is intended to confer upon any person, other than
the parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.

            (c) Nothing contained in this Agreement shall confer upon you any
right to continue to provide services to the Company nor limit in any respect
the right of the Company to terminate your services to the Company at any time.

            (d) All notices and other communications to be given to any party
hereunder shall be in writing and shall be deemed given if delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, sent via a nationally recognized

                                       4
<PAGE>   5
overnight courier or sent via facsimile confirmed in writing, to such party at
the following address (or at such other address for a party as shall be
specified by like notice):

            (i)   if to the Company:

                  Health Management Systems, Inc.
                  401 Park Avenue South
                  New York, New York  0016
                  Attention: Chief Financial Officer

            (ii)  if to you, at your address specified at the head of this
                  Agreement,

or in either case to such other address or addresses as such other party shall
have designated to the other from time to time.

            (e) This Agreement contains the entire agreement between the Company
and you, and supersedes all prior agreements and understandings, relating to the
subject matter hereof.

            (f) The transfer restrictions set forth in Section 4 hereof are in
addition to any and all restrictions on transfer of securities imposed pursuant
to any applicable Federal or state law or regulation or established by the
Company's board of directors with respect to sales by corporate insiders.

            (g) This Agreement may not be amended, changed or waived other than
by an instrument in writing signed by the party against which the enforcement of
the change, waiver or discharge is sought.

            (h) In the event any provision of this Agreement shall be held void
or unenforceable, the unaffected provisions hereof shall remain in full force
and effect.

            (i) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.

            If the foregoing is in accordance with our agreement, please sign
both copies of the Agreement in the space provided below and return one copy to
the Company, whereupon this letter shall become a binding agreement between us.

                                    HEALTH MANAGEMENT SYSTEMS, INC.

                                    By
                                       -----------------------------------

Agreed and Accepted as of
the date first above written:

-----------------------------------
       William F. Miller III

                                       5

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