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CONSULTING SERVICES AGREEMENT
THIS AGREEMENT FOR THE PROVISION OF CONSULTING SERVICES is made and
entered into as of May 1, 1997 by and between Improved Funding Techniques, Inc.
("IFTI"), a New Jersey corporation with its principal place of business at 211
Broadway, Lynbrook, New York 11563, and Health Management Systems, Inc. ("HMS"),
a New York corporation with its principal place of business at 401 Park Avenue
South, New York, New York 10016.
W I T N E S S E T H
WHEREAS, IFTI possesses in-depth professional knowledge of the commercial
and governmental insurance marketplace and of the procedure and process utilized
within the marketplace to acquire goods and services; and
WHEREAS, HMS is engaged in the business of furnishing proprietary
information management services and software to hospitals and other healthcare
providers, government health services agencies, payors and purchasers of
healthcare (including Blue Cross, commercial insurers and managed care
organizations), and companies serving the healthcare industry; and
WHEREAS, IFTI has extensive experience in the business of marketing
vendor services in the insurance and healthcare industries; and
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WHEREAS, IFTI and HMS, together with HHL Financial Services, Inc., were
parties to a Consulting Services Agreement dated March 1, 1993 (the "1993
Agreement"), which was terminated by a Consulting Services Agreement between
IFTI and HMS dated as of November 1, 1994 (the "1994 Agreement"), which in turn
has been terminated and replaced in its entirety by this Agreement; and
WHEREAS, HMS desires to retain the advice, counsel and professional
services of IFTI in connection with the overall HMS business agenda, including
but not limited to representation and sale of revenue enhancement and cost
containment services to be provided by HMS to healthcare payors and to providers
of healthcare services throughout the United States, as outlined below.
NOW THEREFORE, in consideration of the mutual covenants set forth below,
the parties hereto agree as follows:
1.0 Termination of 1994 Agreement. The 1994 Agreement is hereby terminated
effective as of the date hereof. IFTI hereby acknowledges that all liabilities
and obligations for cash, equity obligations, fees and reimbursement of expenses
owed by HMS to IFTI under the 1993 or 1994 Agreements, except as otherwise
provided in Sections 3.2(a) and 3.4(d) hereunder, have been fully met and
satisfied and IFTI hereby waives any claims it may have against HMS in
connection with a breach by HMS of any of its financial obligations to IFTI
pursuant to the 1993 and 1994
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Agreements, except for claims which may be asserted as a result of an audit of
HMS's revenue in connection with such financial obligations. IFTI warrants and
represents that it know of no such claims.
2.0 Services.
2.1 Provision of Consulting Services. HMS shall utilize the services of
IFTI, and IFTI agrees to provide such services to support HMS marketing and
sales activity with new and existing clients, across all HMS product lines
(present and future) as requested, without exception or qualification, for the
purpose of securing operational contracts for the provision by HMS of its
various revenue enhancement and cost containment services (offered among other
services) by HMS to healthcare providers and payors variously as Retroactive
Claims Reprocessing [RCR]sm, Comprehensive Accounts Management [CAMS]sm, Third
Party Liability Recovery [TPLR]sm, Electronic Data Interchange [EDI] services
and Managed Care Support [MCS], including the HMS software companies, (the
services and software provided by HMS are sometimes hereinafter referred to
collectively as the "Business").
2.2 Authorized Officials. HMS shall designate an authorized official to
coordinate its activities with IFTI. For purposes of this Agreement, the
authorized official for HMS's TPLR services shall be Laurence B. Simon and the
authorized official for HMS's other services shall be Mark D. Mandel, until
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and unless HMS shall notify IFTI otherwise pursuant to Section 10.2 of this
Agreement.
2.3 Capacity to Contract. Each of the parties hereto warrants that (a) it
has the capacity to enter into this Agreement and (b) the Agreement has been
duly authorized and does not violate any charter document of the party or any
existing contract, mortgage, deed of trust or similar instrument by which the
party is bound or any law or regulation to which the party is subject.
3.0 Compensation, Expenses and Payments.
3.1 Revenue Based Consideration.
(a) Consolidated Revenue Component.
(i) For the period from May 1, 1997 through October 31, 1997,
subject to the limitations set forth in Sub-Section (c) of this Section 3.1, HMS
shall pay to IFTI as a monthly fee for the consulting services to be rendered by
IFTI hereunder an amount equal to 0.4 percent (0.004) of HMS's Consolidated
Revenue, as hereinafter defined. For purposes of this paragraph, HMS's
Consolidated Revenue shall be defined as the revenue reported by HMS in
accordance with the accrual method prescribed by Generally Accepted Accounting
Principles (GAAP), but shall exclude, for a period of twelve (12) months from
the date of acquisition, all revenue attributable to any companies acquired by
HMS during the term of the Agreement, unless the
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acquired company was brought to HMS by IFTI's Chairman, Joel Boyarsky
("Boyarsky").
(ii) For the period from November 1, 1997 through October 31,
2002, HMS shall pay to IFTI as a monthly fee for the consulting services to be
rendered by IFTI hereunder an amount equal to eight tenths of one percent
(0.008) of HMS's Consolidated Revenue. For purposes of this paragraph, HMS's
Consolidated Revenue shall be defined as the revenue reported by HMS in
accordance with the accrual method prescribed by GAAP, but shall (x) exclude for
a period of twelve (12) months from the date of acquisition all revenue
attributable to any companies acquired by HMS during the term of the Agreement,
unless the acquired company was brought to HMS by IFTI, and (y) include for a
period of twelve (12) months from the date of sale all revenue attributable to
any companies [presumed to be equal to the revenue of the prior twelve (12)
months] sold by HMS during the term of the Agreement, unless, the company sold
was introduced to the purchaser by IFTI.
(b) "Designated IFTI Client Incremental Revenue" Component. For the
period from May 1, 1997 through October 31, 1997 only, as an additional fee for
the consulting services to be rendered by IFTI hereunder, and subject to the
limitations set forth in Sub-Section (c) of this Section 3.1, HMS shall pay to
IFTI an amount equal to 5.0 percent (0.05) of all net revenue
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received, on a cash basis, by HMS attributable to the operational contracts
between HMS and any of the IFTI Designated Clients (as such term is hereinafter
defined) specified on Annex A hereto, subject to such deletions and additions in
the future as the parties shall mutually agree ("Designated IFTI Client
Incremental Revenue"). Designated IFTI Client Incremental Revenue shall be
computed net of any payments HMS makes to other marketing partners with respect
to Designated IFTI Clients, as may be agreed to by HMS and IFTI. For Designated
IFTI Clients who are existing clients of HMS, Designated IFTI Client Incremental
Revenue shall include net revenue, on a cash basis, in excess of the net revenue
received by HMS from the Designated IFTI Client during HMS's fiscal year
preceding the fiscal year in which the client becomes a Designated IFTI Client.
Designated IFTI Clients are those clients incident to an operational contract
secured as a result of IFTI's efforts ("IFTI Operational Contracts"). IFTI
Operational Contracts will generally be awarded on the basis of a contingency
fee. Upon award of an IFTI Operational Contract to HMS, IFTI will serve as may
be necessary as liaison with the Designated IFTI Client to the degree required
to enable HMS to fulfill the objective of the IFTI Operational Contract.
(c) Maximum Annual Revenue Based Consideration. Revenue based
consideration payable to IFTI shall not exceed $1,250,000 in Fiscal Year 1998
("FY98"), $1,500,000 in FY99 and
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$1,650,000 in FY00 and each fiscal year thereafter for the term of this
Agreement. In addition, the Revenue Based Consideration shall include all costs
incurred by IFTI in connection with IFTI's performance of its responsibilities
to HMS hereunder, excluding the costs of all required travel, "Approved IFTI
Consultants" and "Approved Supplemental Bilateral Consultants" (as such terms
are defined hereinafter in Sections 3.3(b) and (c), respectively), the
reimbursement for which shall be subject to Section 3.3 hereunder.
(d) Expenses. Except as otherwise expressly provided in Section 3.3
hereunder, IFTI shall be responsible for all costs incurred by it in its
performance of services under this Agreement.
3.2 Equity Based Consideration.
(a) Equity Retainer. Upon IFTI's execution of this Agreement, HMS
will consummate the award to IFTI of additional non-qualified options on 150,000
shares of HMS common stock at an exercise price equal to $5.88 per share.
One-sixth of these options shall vest immediately and annually thereafter on May
1st each year commencing May 1, 1998 and ending May 1, 2002, provided that IFTI
shall be actively providing services to HMS at the time of such scheduled
vesting. The 150,000 non-qualified options are in addition to the 115,500
non-qualified options previously awarded to IFTI in accordance with the terms of
the 1993 and 1994
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Agreements (including 15,000 options awarded for Fiscal Year 1996), which are
subject to the vesting and other terms set forth in the respective stock option
agreements.
(b) Annual Equity Award. Commencing October 31, 1997, at the close
of each HMS fiscal year, IFTI shall be eligible for the award of additional
non-qualified options on HMS common stock from the annual options pool as
determined by the HMS Board of Directors upon the recommendation of HMS's Chief
Executive Officer. The options (if granted) shall vest in no more than four (4)
equal consecutive annual installments on November 1st in each year commencing
the year of grant and ending not later than November 1, 2002.
3.3 Reimbursement for Certain Expenses.
(a) Reimbursement for Travel Expenses. Travel costs incurred by IFTI
in connection with its performance of services shall be subject to a budget of
up to $25,000 for May 1, 1997 to October 31, 1997, $60,000 for FY98 and each
fiscal year thereafter for the term of this Agreement, and shall be reimbursed
to IFTI in accordance with HMS's then current travel policy.
(b) Reimbursement for Approved IFTI Consultants. IFTI shall retain
as consultants Plunkett & Jaffee, P.C. (at $2,500 per month) and Dick Swett
Associates, Inc. (at $10,000 per quarter) and HMS shall reimburse IFTI in full
for the cost of
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such consultants ("Approved IFTI Consultants") and their reasonable expenses.
(c) Reimbursement for Approved Supplemental Bilateral Consultants. It is
recognized in advance by both parties that certain engagements may require the
retention by IFTI of consulting assistance to supplement IFTI's and HMS's
bilateral efforts. The costs of such consultants ("Approved Supplemental
Bilateral Consultants") retained by IFTI on a supplemental basis must be
approved by HMS in advance (Annex B appended hereto includes a list of current
and/or anticipated Supplemental Bilateral Consultants) and will be paid by IFTI,
with the costs to be shared by IFTI and HMS on a 50/50 basis. HMS will reimburse
IFTI for HMS's share of the actual costs incurred for all Approved Supplemental
Bilateral Consultants on a monthly basis upon receipt of proper documentation
from IFTI.
3.4 Payment Terms.
(a) Revenue Based Fees. The Consolidated Revenue and the Designated
IFTI Client Incremental Revenue Components of the revenue based fees payable
hereunder shall be paid by HMS to IFTI on or before the 30th day of each month
with respect to HMS Consolidated Revenue and Designated IFTI Client Incremental
Revenue recorded on the respective accounting bases set forth in Sections 3.1(a)
and (b) above by HMS during the preceding month. A detailed report shall
accompany all such payments.
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(b) Reimbursable Expenses. Any expenses reimbursable under this
Agreement in accordance with the limitations set forth in Section 3.3 shall be
invoiced by IFTI monthly and shall be paid by HMS within thirty (30) days after
approval.
(c) One-Time Advance Payment. Upon execution of this Agreement, HMS
shall pay to IFTI an advance in the amount of $200,000. Commencing June 1, 1997,
the advance shall be applied in 40 equal monthly installments of $5,000 against
Revenue Based Consideration.
(d) Repayment of Outstanding Balance of Prior Advance Payment. As of
the effective date of this Agreement, the outstanding balance of the advance
paid to IFTI in connection with the terms of the 1994 Agreement was $15,133,
which amount shall be applied in full against Revenue Based Consideration
payable to IFTI in November 1997 with respect to the month of October 1997.
4.0 Nature of Relationship.
4.1 Independent Contractor Status. IFTI shall perform its consulting
services as an independent contractor and not as an employee or agent of HMS.
With respect to the consulting services to be provided to HMS, IFTI shall use
its discretion and best judgment with respect to the actions of its employees
and such agents as may be retained by IFTI. IFTI may not and will not act as,
and is not an agent or employee of, HMS for any
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purpose, and shall not enter into or incur any obligation on behalf of HMS
except as expressly provided herein.
4.2 Benefits and Taxes. IFTI shall not be entitled to, or eligible for,
participation in any benefits or privileges given or extended to HMS or its
agents or employees. IFTI shall be responsible for and shall make all required
payments of federal, state and local withholding taxes, and requisite FICA and
FUTA contributions, and requisite contributions with respect to such other tax
liabilities as may result from IFTI's entering into this Agreement.
4.3 Required Reporting and Disclosure. IFTI agrees that it is solely
responsible for cognizance of and timely adherence to all applicable reporting
and disclosure requirements arising out of IFTI's performance of the consulting
services to be performed pursuant to this Agreement. IFTI shall promptly notify
HMS upon learning of any such reporting or disclosure requirements and shall
furnish HMS copies of all such reports or other required disclosures.
5.0 Confidentiality.
5.1 Nondisclosure of Confidential Information. IFTI acknowledges that,
pursuant to the 1993 and 1994 Agreements and to this Agreement, it has had and
will continue to have access to, and has become acquainted and become further
acquainted with, proprietary confidential information that relates to the
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Business. This information includes, but is not limited to, information
regarding those systems included in the Business, and the proprietary methods
and processes by which such systems are installed and operated by HMS. IFTI
acknowledges that the systems, to the extent not known prior to the 1993
Agreement, are unique, secret and confidential and constitute trade secrets of
HMS. IFTI further acknowledges that prior to entering into the 1993 Agreement,
it had no knowledge of the systems or the method of installation and operation
of the systems, to the extent not already publicly known. IFTI represents,
covenants and agrees that it has not and will not, at any time, directly or
indirectly, without the prior written consent of HMS, disclose to any person any
confidential or proprietary information ("Confidential Information") obtained or
developed by it relating to the Business, except information which at the time
is available to others in the business or generally known to the public other
than as a result of disclosure by IFTI not permitted hereunder, or lawfully
acquired from a third party who is not obligated to HMS to maintain such
information in confidence; provided that in no event shall the identity of a
Designated IFTI Client be considered Confidential Information. This
representation, covenant and agreement shall survive the termination of this
Agreement and shall continue for three (3) years after such termination. IFTI
represents, covenants and
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agrees that it has caused and will continue to cause its agents and employees to
comply with the provisions of this Section 5.1, and its counterparts in the 1993
and 1994 Agreements and it expressly acknowledges that a violation of the
representations, covenants and agreements herein contained by any of such agents
and employees will be deemed to be a violation by IFTI of the provisions hereof.
5.2 Indemnification. IFTI shall assume liability for damages resulting from
disclosure of Confidential Information in violation of the foregoing Section
5.1, and shall indemnify and hold HMS harmless from any obligation to make
payments of damages to any person or entity as a result of any such violation.
6.0 Conflicts of Interest. During the term of this Agreement, except as
may be specifically authorized by HMS, IFTI, in its capacity pursuant to this
Agreement, shall not contract with nor represent any other person or entity that
engages in the provision of revenue enhancement and cost containment services
for the healthcare industry or otherwise competes with the Business. There is no
requirement, however, that IFTI devote its exclusive efforts to servicing HMS
pursuant to this Agreement during the term.
7.0 Term. This Agreement shall commence as of May 1, 1997 and shall
continue in full force and effect for a period of
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sixty-six (66) months (through 31 October 2002), or until terminated earlier
pursuant to the provisions of this Agreement.
8.0 Termination of Agreement.
8.1 Termination for Convenience. Subject to the terms and conditions of
Sections 9.1(a)(i) and 9.1(b)(iii) hereunder, either party may terminate this
Agreement at any anniversary date hereof by providing the other party hereto not
less than thirty (30) days prior written notice of its intention to terminate
this Agreement.
8.2 Termination for Cause.
(a) Either party may, upon three (3) business days written notice to
the other, terminate this Agreement for "cause". For purposes of this Agreement,
"cause" shall be deemed to exist, in the case of IFTI, if HMS reasonably
determines that either (x) IFTI violated the provisions of Sections [5.1 or 6.0]
[5.1, 6.0 or 10.4] of this Agreement or (y) IFTI or Boyarsky have been indicted
or convicted for a felony offense or crime of dishonesty or moral turpitude; and
in the case of HMS, if IFTI reasonably determines that HMS or its Chief
Executive Officer have been indicted or convicted for a felony offense or crime
of dishonesty or moral turpitude.
(b) During a period of five (5) business days following receipt by
IFTI of a written notice of termination for "cause", IFTI shall have the
opportunity to cure any inadvertent
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violation of Sections 5.1 or 6.0 of this Agreement, as the case may be;
provided, however, that HMS shall not be obligated to accept any such attempted
cure if HMS reasonably determines that, notwithstanding IFTI's attempt to cure,
HMS has suffered damages as a result of such violation. IFTI may exercise the
foregoing right to cure only once during the term of the Agreement.
8.3 Termination for Reasonable Cause. A termination by HMS for reasonable
cause must entail the continued failure of IFTI to exert a reasonable amount of
effort consistent with its past performance or to follow the reasonable
instructions of HMS; in either instance, a termination for reasonable cause by
HMS must be preceded by written notification of HMS's dissatisfaction with
IFTI's performance and by a cure period of not less than two (2) months and not
more than six (6) months (the actual duration to be predicated upon the nature
of the problem and the time reasonably required for IFTI to effect a cure). To
the extent that IFTI fails to cure the problem by the end of the cure period,
HMS shall be entitled to proceed with a termination of IFTI for reasonable
cause.
8.4 Termination for Death, Disability or Cessation of Employment of
Boyarsky with IFTI. The death, disability or cessation of full-time employment
of Boyarsky with IFTI shall constitute termination for convenience by IFTI,
except that (i) the effect of such termination upon the fees due to IFTI shall
be
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treated differently than for any other termination for convenience, and (ii)
such termination shall be stayed for thirty (30) days for the purpose of
providing the parties with the opportunity to negotiate, if possible, a
satisfactory modification to this Agreement prior to its termination.
9.0 Fees Upon Termination.
9.1 Effects of Termination.
(a) Termination by IFTI.
(i) Termination for Convenience. IFTI's entitlement to payment
of the Revenue Based Consideration and reimbursement for Approved IFTI
Consultants and Approved Supplemental Bilateral Consultants (collectively, the
"Approved Consultants") shall cease effective with the date of termination by
IFTI; payment for a partial month shall be on a pro rata basis. IFTI shall
retain all options vested at date of termination and all unvested options shall
terminate. Participation in the Annual Equity Award requires IFTI's performance
for the full fiscal year for which the award is being made.
(ii) Termination for Death, Disability or Cessation of
Employment of Boyarsky with IFTI. The death, disability or cessation of
full-time employment of Boyarsky with IFTI shall constitute termination for
convenience by IFTI, except that (x) IFTI shall be eligible for participation in
the Annual
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Equity Award on a pro rata basis for that portion of the fiscal year
during which Boyarsky and IFTI actively provided services to HMS, and (y) all
unvested options shall vest.
(iii) Termination for Cause. A termination for cause by reason
of the indictment or conviction of HMS or its Chief Executive Officer for a
felony offense or crime of dishonesty or moral turpitude shall entitle IFTI to
continued payment of the Revenue Based Consideration for the balance of the
contract term or nine (9) months, whichever is less. IFTI shall be entitled to
continued payment of the reimbursement for Approved Consultants for the balance
of the contract term or three (3) months, whichever is less. IFTI shall be
eligible for participation in the Annual Equity Award for the full fiscal year
in which the termination occurs; moreover, IFTI shall receive credit for a full
year's service for purposes of determining the vesting of unvested options
previously awarded to IFTI. IFTI shall retain all options vested at the date of
termination; all unvested options shall vest.
(b) Termination by HMS.
(i) Termination for Cause.
(A) A termination by HMS for cause by reason of the
indictment or conviction of either Boyarsky or IFTI for a felony offense or
crime of dishonesty or moral turpitude will result in the immediate cessation of
payment by HMS to IFTI of
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the Revenue Based Consideration and reimbursement for Approved Consultants;
payment for a partial month shall be on a pro rata basis. IFTI shall retain all
options vested at date of termination; all unvested options shall terminate.
Participation in the Annual Equity Award requires IFTI's performance for the
full fiscal year for which an award is being made.
(B) A termination by HMS for cause by reason of IFTI's
violation of either Sections 5.1 or 6.0 of this Agreement relating to
confidentiality and conflict of interest will result in the forfeiture by IFTI
of the right to all vested and unvested options awarded by HMS.
(ii) Termination for Reasonable Cause. Termination for
reasonable cause will result in the immediate cessation of payment by HMS to
IFTI of the Revenue Based Consideration and reimbursement for Approved
Consultants unless the cure period is less than three (3) months, in which case
IFTI shall be entitled to receive reimbursement for Approved Consultants for one
(1) month. IFTI shall not be eligible for participation in the Annual Equity
Award for the fiscal year in which termination occurs. IFTI shall retain all
options vested at termination date; one-half of all unvested options shall vest
and one-half shall terminate.
(iii) Termination for Convenience. IFTI shall be entitled to
continued payment of the Revenue Based Consideration
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for the balance of the contract term or nine (9) months, whichever is less. IFTI
shall be entitled to continued payment of the reimbursement for Approved
Consultants for the balance of the contract term or three (3) months, whichever
is less. IFTI shall be eligible for participation in the Annual Equity Award for
the full fiscal year in which the termination occurs; moreover, IFTI shall
receive credit for a full year's service for the fiscal year in which
termination occurs for purposes of determining the vesting of unvested options
previously awarded to IFTI. IFTI shall retain all options vested at termination
date; all unvested options shall vest.
10.0 Miscellaneous.
10.1 Assignment. This Agreement shall be binding upon the respective
successors and permitted assigns of the parties. No party may assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party, and any attempted assignment without such
consent shall be void.
10.2 Notices. All notices shall be in writing and shall be addressed to
the parties as set forth on the first page of this Agreement. Notices shall be
effective upon receipt when delivered personally or by telecopier and shall be
effective upon mailing when properly addressed with postage prepaid. Notices to
IFTI shall be to the attention of Joel B. Boyarsky, Chairman;
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notices to HMS shall be to the attention of Paul J. Kerz, President.
10.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
10.4 Standards of Conduct. IFTI covenants that it and its employees and
agents shall be in full compliance with all applicable laws, regulations and
standards of ethical conduct and that it shall hold HMS harmless from damages
caused by violation of the provisions of this Section 10.4.
10.5 Modifications. No modifications, amendments, supplements to or
waivers of this Agreement or any of its provisions shall be binding upon the
parties hereto unless made in writing and duly signed by all parties.
10.6 Waiver. A failure by any party to exercise any right provided for
herein or by applicable law shall not be deemed to constitute a waiver of any
right hereunder. The remedies provided herein shall be cumulative and shall not
be exclusive of any rights or remedies provided under law.
10.7 Dispute Resolution. The failure of the parties to agree on a matter
of contract interpretation for a period exceeding forty-five (45) days shall
allow submission of the dispute by either party to arbitration in New York City
before the American Arbitration Association, with three arbitrators: one
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selected by IFTI, one selected by HMS, and one (the chairman) selected by the
designees of IFTI and HMS.
10.8 Complete Agreement. This Agreement sets forth the entire
understanding of the parties as to the subject matter hereof and supersedes in
its entirety the 1993 and 1994 Agreements.
10.9 Severability. It is the intention of the parties that this Agreement
shall be enforceable to the fullest extent permissible under applicable law, but
that the unenforceability (or modification to conform to such law) of any
provision or provisions hereunder shall not render unenforceable, or impair, the
remainder thereof. In the event any one or more of the provisions of this
Agreement shall be deemed invalid or unenforceable, either in whole or in part,
this Agreement shall be deemed amended to delete or modify, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it valid and enforceable to the fullest extent permitted by law.
10.10 Headings. The headings used in this Agreement and the organization
of this Agreement are for convenience only and shall not affect in any way the
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first hereinabove written.
IMPROVED FUNDING TECHNIQUES, INC.
By:/s/ Joel B. Boyarsky
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Joel B. Boyarsky, Chairman
HEALTH MANAGEMENT SYSTEMS, INC.
By:/s/ Paul J. Kerz
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Paul J. Kerz, President
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