Document:

STOCK OPTION AGREEMENT

 

Exhibit 4.01

Option No. 00003256

HEALTH MANAGEMENT SYSTEMS, INC.

Incentive Stock Option Agreement

     THIS AGREEMENT, made as of the January 10, 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”), was approved by the shareholders (the “Shareholders”) of the
Corporation on January 10, 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 750,000 shares of the Corporation’s
common shares, $.01 par value per share (the “Common Stock”), at $1.31 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 January 10, 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 650,000 shares shall vest thereafter in
eight equal quarterly installments beginning April 30, 2002.

Page 1

 

     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
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

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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 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

Page 3

 

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 a
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, or 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, the unvested portion of this Option
will become 100 percent vested. 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 future activities to the distribution of the proceeds of such
transaction.

     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

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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.

     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.

Page 5

 

     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:
	 	/s / Alan Bendes
	 	 	 	 	

	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	/s/ William F. Miller III
	 	 	 	 	

	 	 	 	 	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.

	 	 	 
	/s/ William F. Miller III

Optionee	 	
  

Page 6STOCK OPTION AGREEMENT

 

Exhibit 4.02

Option No. 00003258

HEALTH MANAGEMENT SYSTEMS, INC.

Non-Qualified Stock Option Agreement

     THIS AGREEMENT, made as of the March 30, 2001 between HEALTH MANAGEMENT
SYSTEMS, INC., a New York corporation (the “Corporation”), and Robert M.
Holster (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.

     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 so long as the Optionee continues to be in the service of the
Corporation. A leave of absence or an interruption in

Page 1

 

service (including an interruption during military service) authorized or
approved by the Corporation shall not be deemed an interruption of service 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
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 service of the Corporation or affect the right of the
Corporation to terminate his service 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

Page 2

 

		
	 	    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 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 or 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)

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

Page 3

 

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.

     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.

Page 4

 

     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.

	 	 	 	 	 
	 	 	
By:
	 	HEALTH MANAGEMENT SYSTEMS, INC.
	 	 	 	 	 
	 	 	
Signature:	 	 
	 	 	 	 	

     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:
	 	/s/ Robert M. Holster
	 	 	 	 	

Page 5

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