CIO Employment Agreement - Alan Hayes

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


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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


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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


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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
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