10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File Number: 0000-50194

HMS HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

New York	11-3656261
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
401 Park Avenue South, New York, New York	10016
(Address of principal executive offices)	(Zip Code)

(212) 725-7965

(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:

Title of Each Class	Name of Exchange on Which Registered
Common Stock, $0.01 par value	NASDAQ Global Select Market

Securities registered pursuant to 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2008, the last business day of the registrant’s most recently completed second quarter was $513.5 million based on the last reported sale price of the registrant’s Common Stock on the NASDAQ Global Select Market on that date.

The approximate aggregate market value of the registrant’s common stock, $0.01 par value, held by non-affiliates (based on the last reported sales price on the Nasdaq Global Select Market) was $775.1 million at March 5, 2009.

There were 25,618,279 shares of Common Stock outstanding as of March 5, 2009.

Documents Incorporated by Reference

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2008. The proxy statement is incorporated herein by reference into the following parts of the Form 10-K:

Part III, Item 10, Directors, Executive Officers and Corporate Governance;

Part III, Item 11, Executive Compensation;

Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters;

Part III, Item 13, Certain Relationships and Related Transactions, and Director Independence;

Part III, Item 14, Principal Accountant Fees and Services.

HMS HOLDINGS CORP. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		3
	Item 1A.	Risk Factors		7
	Item 1B.	Unresolved Staff Comments		11
	Item 2.	Properties		11
	Item 3.	Legal Proceedings		11
	Item 4.	Submission of Matters to a Vote of Security Holders		11
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		12
	Item 6.	Selected Financial Data		15
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risks		27
	Item 8.	Financial Statements and Supplementary Data		27
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		27
	Item 9A.	Controls and Procedures		27
	Item 9B.	Other Information		28
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		29
	Item 11.	Executive Compensation		29
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		29
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		29
	Item 14.	Principal Accountant Fees and Services		29
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		29
Signatures				30
Index to Consolidated Financial Statements				31
Exhibit Index				57

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Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. These statements involve unknown risks, uncertainties and other factors, which may cause our actual results to differ materially, from those implied by the forward looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include those risks identified in “Item 1A — Risk Factors” and other risks identified in this Form 10-K and presented elsewhere by management from time to time. Such forward-looking statements represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations.

PART I

Item 1.   Business

General Overview

HMS Holdings Corp. (HMS or the Company) provides a variety of cost management services for government-sponsored health and human services programs. These services help customers recover amounts due from third parties, avoid and reduce costs, and ensure regulatory compliance.

HMS’s customers are State Medicaid agencies, Medicaid managed care plans, Pharmacy Benefits Managers (PBM), child support agencies, the Veterans Health Administration, the Centers for Medicare & Medicaid Services (CMS), and other public programs. The Company helps these programs contain healthcare costs by identifying third party insurance coverage and recovering expenditures that were the responsibility of the third party, or that were paid in error. The identification of both other insurance and claim adjudication errors helps these programs avoid future expenditures.

On September 16, 2008, the Company purchased the net assets of Prudent Rx, Inc., (Prudent Rx) an independent pharmacy audit and cost-containment company based in Culver City, California. With this acquisition, the Company further expanded its portfolio services for government and commercial healthcare organizations, particularly in the pharmacy arena. Prudent Rx’s key products and services include pharmacy audits, PBM audits and Long-Term Care Audits.

HMS’s 2008 revenue increased to $184.5 million, $37.8 million or 26% over 2007 revenue, primarily as the result of internal growth.

The Healthcare Environment

In 2008, the cost of healthcare in the U.S. continued to grow, placing ever more pressure on patients, insurers, providers and government healthcare programs. The largest government healthcare programs are Medicare, the healthcare program for aged and disabled citizens that is administered by CMS, and Medicaid, the program that provides medical assistance to eligible low income persons, and is regulated by CMS but administered by state Medicaid agencies. Many beneficiaries of both Medicare and Medicaid are enrolled in managed care plans, which have the responsibility for both patient care and claim adjudication.

In February 2009, the American Recovery and Reinvestment Act was passed into law. The law was written, in part, to address some of the pressures facing state and local governments. The Act includes $86.6 billion in increased federal Medicaid matching funds to be provided to states over two years. The Company believes that demand for its services will remain strong and that the passage of this Act could increase demand for its services. However, any increases in demand resulting from Act will depend largely upon the timing, amount and nature of the federal legislation targeted at the states as well as the timing and nature of the states’ actions in response to such

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funding. It is difficult to predict the impact of the stimulus legislation with precision over the mid to long-term time horizon.

There is regular dialogue about healthcare reforms at both state and national levels, due to the size of and national interest in the health economy. Examples of these healthcare reform proposals include policy changes that would change the dynamics of the healthcare industry, such as having the federal or one or more state governments assume a larger role in the healthcare system.

The Company could see simultaneous increases and decreases in demand for our products and services, depending on the scope, shape and timing of healthcare reforms.

As government healthcare programs expand, there is increased pressure at the state and federal levels to contain costs. Growth in government spending, including Medicare and Medicaid, has continued to exceed the growth of GDP by approximately 2.0% annually. Medicaid expenditures have grown at an annual compound growth rate of 8% since the program’s inception.

The Deficit Reduction Act (DRA), signed into law in February 2006, established a new Medicaid Integrity Program to increase the government’s capacity to prevent, detect, and address fraud and abuse in the Medicaid program. It is the single, largest dedicated investment the federal government has made in ensuring the integrity of the program.

Under the Social Security Act, Title XIX (Act), states are required to take all reasonable measures to ascertain the legal liability of “third parties” for healthcare services provided to Medicaid recipients. The DRA added new entities — self-insured plans, PBMs and other “legally responsible” parties — to the list of entities subject to the provisions of the Act. At least 40 states have enacted language in response to the DRA.

Principal Products and Services

The demand for HMS’s services arises from the small but significant percentage of government funds spent in error, where another payor was actually responsible for the service, or a mistake was made in applying complex claim processing rules. In November 2008, CMS estimated that 10.5% of Medicaid claims are paid in error. The Company’s services focus on containing costs by reducing this error rate.

Medicaid is by law the “payor of last resort” for low-income Americans, designed to cover the cost of care that other healthcare benefits do not. It is for this reason that the federal government requires that states attempt to recover payments made on behalf of beneficiaries with other health insurance. Since 1985, the Company has provided state Medicaid agencies with services to identify the other parties with liability for Medicaid claims, and since 2005, has provided these services to Medicaid managed care plans.

The Company’s services draw upon its proprietary information management and data mining techniques, and include coordination of benefits, cost avoidance, and program integrity. In 2008, the Company recovered more than $1 billion for its clients and provided data to clients that assisted them in preventing billions of dollars more in erroneous payments.

The Company provides the following services:

•  Coordination of benefits services route claims already paid by a government program to the liable third party, which then reimburses the government payor. State Medicaid programs, Medicare, and the Veterans Health Administration must all coordinate benefits with other payors to ensure that claims are paid by the entitlement program, group health plan or other party that actually bears responsibility for a particular incident of medical service. By properly coordinating benefits, these programs are able to recover dollars spent in error and avoid future costs.

•  Cost avoidance services provide validated insurance coverage information that is used by government payors to reject claims that are the responsibility of a third party, typically a group health plan sponsored by a beneficiary’s employer. Child support agencies use this information to enforce child support orders requiring that non-custodial parents provide health insurance coverage for their children. With verified insurance information, healthcare payors can avoid future unnecessary costs.

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•  Program integrity services are designed to review claims paid by government programs, identify payment errors, and then recover the erroneous payments, if appropriate. The Company assists states in ensuring integrity and accuracy of medical and pharmacy claims through audits, data mining, clinical review, repricing, and recoupment services.

To perform its services, the Company aggregates medical claim, health insurance and other beneficiary data from a variety of sources. The data is mined to identify instances of health insurance coverage, or claims that were paid in error for administrative or clinical reasons. The Company provides its clients with ways to recover funds or avoid future errors, including validating primary insurance coverage, generating electronic claims to liable third parties, documenting liens that attach to personal injury litigation and estates, and enrolling children under the insurance of non-custodial and custodial parents.

Customers

A majority of the Company’s customers are state Medicaid agencies. From 2005 through 2008, the Company increased its penetration into the Medicaid managed care market, as states increased their use of contracted health plans. At the conclusion of 2008, the Company served 36 state Medicaid agencies and 92 Medicaid health plans (under 37 contracts).

In 2007, the Company was awarded an umbrella audit contract by CMS under the Medicaid Integrity Program. The contract qualifies the Company to bid on individual Task Orders issued by CMS for a variety of auditing functions designed to identify inappropriate payments made to Medicaid providers. In 2008, CMS awarded the Company a Medicaid Integrity Program (MIP) Task Order, under which HMS examines payments to providers made under Title XIX of the Act. HMS performs these services in the CMS Dallas Jurisdiction.

HMS also provides coordination of benefits and third party insurance identification services to 21 Veterans Integrated Service Networks of the Veterans Health Administration, and child support agencies in 11 states.

In most cases, customers pay HMS contingency fees calculated as a percentage of the amounts recovered, or fixed fees for cost avoidance data. Most contracts have terms of three to four years.

The Company’s largest client in 2008 was the New York State Office of Medicaid. This client accounted for 7.9%, 8.9% and 3.6% of the Company’s total revenue in the years ended December 31, 2008, 2007 and 2006, respectively. The New York State Office of Medicaid became a client of the Company in September 2006 as part of our acquisition of all or substantially all of the assets used exclusively in the Public Consulting Group, Inc. (PCG) Benefits Solutions Practice Area (BSPA). The Company provides services to this client pursuant to a contract awarded in October 2001 and subsequently re-procured through January 6, 2015. The Company’s second largest client in 2008 was the New Jersey Department of Human Services. This client accounted for 6.6%, 7.1%, and 10.9% of the Company’s total revenue in the years ended December 31, 2008, 2007, and 2006, respectively. The Company provides services to this client pursuant to a contract awarded in January 2008 for an initial three year contract term with two additional one-year renewals through December 2012. This customer has been a client of the Company since 1985. The loss of either one of these contracts would have a material impact upon the Company’s financial position, results of operations and cash flows.

The list of our ten largest clients changes periodically. The concentration of revenue in the ten largest accounts was 43.5%, 42.5% and 50.5% of our revenue in the fiscal years ended December 31, 2008, 2007, and 2006, respectively. In many instances, we provide our services pursuant to agreements subject to competitive re-procurement. All of the agreements with our ten largest clients expire prior to 2015. Many of these contracts may be terminated at will. We cannot provide any assurance that any of these agreements will be renewed and, if renewed, that the fee rates will be equal to those currently in effect.

Market Trends/Opportunities

CMS estimated in November 2008 that 10.5% of Medicaid claims are paid in error, including payments made to beneficiaries who were not eligible for either the program or for the services received. The Company’s coordination of benefits services and program integrity services address these errors.

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Containing healthcare expenditures presents challenges for the government due to the number and variety of programs at the state and federal level, the government appropriations process, and the rise in the cost of care and number of beneficiaries. At the same time, more than half the states in the U.S. are experiencing fiscal stress and projecting significant budget deficits, making cost containment a high priority.

Government healthcare programs continue to grow. The Congressional Budget Office has projected that Medicaid and Medicare will continue to grow indefinitely at a rate of approximately 8% per year.

In 2008, Medicare covered approximately 45 million people and spent approximately $461 billion. Medicaid covered about 49 million people at any given time during 2008, although more than 60 million people passed through the program over the course of the year. In 2008, Medicaid spent approximately $339 billion. The uninsured population numbers about 45 million lives, the healthcare cost of which falls disproportionately on municipalities. Altogether, the government programs served by the Company covered approximately 94 million people and spent nearly $800 billion in 2008. Under the new Obama administration, there is a focus on expanding healthcare coverage to a large portion of the uninsured by utilizing existing programs, including Medicaid, Medicare, State Children’s Health Insurance Program (SCHIP), and commercial insurance.

Coordinating benefits among these growing programs represents both an enormous challenge and an opportunity for HMS.

Competition

HMS competes primarily with large business outsourcing and technology firms, and with small regional firms specializing in one or more of its services, in addition to the states themselves, which may elect to perform coordination of benefits and cost avoidance functions in-house. Against these competitors, the Company typically succeeds on the basis of its leadership position in the marketplace, staff expertise, extensive benefit eligibility database, proprietary systems and processes, existing relationships, effectiveness in cost recoveries and pricing.

Business Strategy

Over the course of 2009, the Company expects to grow its business through a number of strategic initiatives that may include:

•  Drive organic growth.  HMS will continue to tap demand for its services created by the steadily increasing expenditures of government-funded healthcare, particularly in the managed care arena, as a greater proportion of the Medicaid and Medicare population are enrolled in contracted, risk-bearing health plans or prescription drug plans.

•  Strengthen regulatory framework.  On behalf of its clients, HMS will take advantage of congressional and state legislation reinforcing the ability of government agencies to implement more rigorous cost-containment programs.

•  Expand scope.  HMS will actively seek to expand its role with existing clients, extending its reach to new services and claim types, and earlier access to claim data.

•  Improve the quality and effectiveness of our services.  HMS plans to continue implementing new technology and processes to continuously better engineer the services we provide our clients, enabling us to increase recovery cost-containment and customer satisfaction.

•  Add new clients.  The Company will continue to market additional programs, including SCHIP, middle market Medicaid managed care plans, and state employee benefit plans.

•  Expand program integrity footprint.  HMS will seek to acquire new business under the federal Medicaid Integrity Program, as well as at the state level.

•  Add new services.  Where opportunities exist, the Company will continue to add services closely related to cost containment through internal development and/or acquisition.

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Employees

As of December 31, 2008, the Company had 922 full time employees. No employees are covered by a collective bargaining agreement or are represented by a labor union. HMS believes its relations with its employees are good.

Financial Information About Industry Segments

Beginning in the first quarter of 2007, the Company was managed and operated as one business, with a single management team that reports to the chief executive officer. The Company does not operate separate lines of business with respect to any of its product lines. Accordingly, the Company does not prepare discrete financial information with respect to separate product lines or by location and does not have separately reportable segments as defined by Statement of Financial Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

Available Information

The Company maintains a website that contains various information about it and its services, accessible at www.hmsholdings.com. Through our website, we make available, free of charge, access to all reports filed with the U.S. Securities and Exchange Commission (SEC) including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and Proxy Statements, as well as amendments to these reports or statements, as filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, after we electronically file such material with, or furnish it to, the SEC. Additionally, our corporate governance materials, including the charters of the Audit, Compensation and Compliance Committees and the code of ethical behavior, may also be found under the “Company Overview/Corporate Governance” section of our web site. We make no provisions for waivers of the code of ethical behavior. A copy of the foregoing corporate governance materials is available upon written request. The SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.

Item 1A.   Risk Factors

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS

In passing the Private Securities Litigation Reform Act of 1995 (the Reform Act), Congress encouraged public companies to make “forward-looking statements” by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. We intend to qualify both our written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor provisions.

“Forward-looking statements” are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to those uncertainties and risks, prospective investors are urged not to place undue reliance on written or oral forward-looking statements of the Company. We undertake no obligation to update or revise this safe harbor compliance statement for forward-looking statements to reflect future developments. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

We provide the following risk factor disclosures in connection with our continuing effort to qualify our written and oral forward-looking statements for the safe harbor protection of the Reform Act and any other similar safe

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harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following:

Our Operating Results Are Subject To Significant Fluctuations Due To Variability In The Timing Of When We Recognize Contingency Fee Revenue And Other Factors. As A Result, You Will Not Be Able To Rely On Our Operating Results In Any Particular Period As An Indication Of Our Future Performance

Our revenue and consequently our operating results may vary significantly from period to period as a result of a number of factors, including the loss of customers, fluctuations in sales activity given our sales cycle of approximately three to eighteen months, and general economic conditions as they affect healthcare providers and payors. Further, we have experienced significant variations in our revenue between reporting periods due to the timing of periodic revenue recovery projects and the timing and delays in third-party payors’ claim adjudication and ultimate payment to our clients where our fees are contingent upon such collections. The extent to which future revenue variations could occur due to these factors is not known and cannot be predicted. As a consequence, our results of operations are subject to significant fluctuations and our results of operations for any particular quarter or fiscal year may not be indicative of results of operations for future periods. A significant portion of our operating expenses are fixed, and are based primarily on revenue and sales forecasts. Any inability on our part to reduce spending or to compensate for any failure to meet sales forecasts or receive anticipated revenues could magnify the adverse impact of such events on our operating results.

The Majority Of Our Contracts With Customers May Be Terminated For Convenience

The majority of our contracts with customers are terminable upon short notice for the convenience of either party. Although to date none of our material contracts has ever been terminated under these provisions, we cannot be assured that a material contract will not be terminated for convenience in the future. Any termination of a material contract, if not replaced, could have a material adverse effect on our business, financial condition, results of operations and cashflows.

We Face Significant Competition For Our Services

Competition for our services is evident in the markets we serve. Increased competition could result in reductions in our prices, gross margins and market share. We compete with other providers of healthcare information management and data processing services, as well as healthcare consulting firms. Some competitors have formed business alliances with other competitors that may affect our ability to work with some potential customers. In addition, if some of our competitors merge, a stronger competitor may result.

Current and prospective customers also evaluate our capabilities against the merits of their existing information management and data processing systems and expertise. Major information management systems companies, including those specializing in the healthcare industry, that do not presently offer competing services may enter our markets. Many of our potential competitors have significantly greater financial, technical, product development, marketing and other resources, and market recognition than we have. As a result, our competitors may be able to respond more quickly to new or emerging technologies, changes in customer requirements and changes in the political, economic or regulatory environment in the healthcare industry. In addition, several of our competitors may be in a position to devote greater resources to the development, promotion, and sale of their services than we can.

Simplification Of The Healthcare Payment Process Could Reduce The Need For Our Services

The complexity of the healthcare payment process, and our experience in offering services that improve the ability of our customers to recover incremental revenue through that process, have been contributing factors to the success of our service offerings. Complexities of the healthcare payment process include multiple payors, and the coordination and utilization of clinical, operational, financial and/or administrative review instituted by third-party payors in an effort to control costs and manage care. If the payment processes associated with the healthcare industry are simplified significantly, the need for our services, or the price customers are willing to pay for our services, could be reduced.

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Changes In The United States Healthcare Environment Could Have A Material Negative Impact On Our Revenue And Net Income

The healthcare industry in the United States is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare organizations. Our services are designed to function within the structure of the healthcare financing and reimbursement systems currently being used in the United States. During the past several years, the healthcare industry has been subject to increasing levels of governmental regulation of, among other things, reimbursement rates, certain capital expenditures, and data confidentiality and privacy. From time to time, certain proposals to reform the healthcare system have been considered by Congress. These proposals, if enacted, may increase government involvement in healthcare, lower reimbursement rates and otherwise change the operating environment for our clients. Healthcare organizations may react to these proposals and the uncertainty surrounding such proposals by curtailing or deferring their retention of service providers such as us. We cannot predict what impact, if any, such proposals or healthcare reforms might have on our results of operations, financial condition or business.

We Are Subject To Extensive Government Regulation, And Any Violation Of The Laws And Regulations Applicable To Us Could Reduce Our Revenue And Profitability And Otherwise Adversely Affect Our Operating Results

Our business is regulated by the federal government and the states in which we operate. The laws and regulations governing our operations are generally intended to benefit and protect health plan members and providers rather than stockholders. The government agencies administering these laws and regulations have broad latitude to enforce them. These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer, and how we interact with our clients, providers and the public. We are subject, on an ongoing basis, to various governmental reviews, audits and investigations to verify our compliance with our contracts and applicable laws and regulations.

Because we receive payments from federal and state governmental agencies, we are subject to various laws, including the Federal False Claims Act, which permit the federal government to institute suit against us for violations and, in some cases, to seek treble damages, penalties and assessments. Many states, including states where we currently do business, likewise have enacted parallel legislation. In addition, private citizens, acting as whistleblowers, can sue as if they were the government under a special provision of the Act.

Any violations of any of these laws, rules or regulations or any adverse review, audit or investigation could reduce our revenues and profitability and otherwise adversely affect our operating results.

We Must Comply With Restrictions On Patient Privacy And Information Security, Including Taking Steps To Ensure That Our Business Associates Who Obtain Access To Sensitive Patient Information Maintain Its Confidentiality

The use of individually identifiable data by our businesses is regulated at the federal and state levels. These laws and rules are changed frequently by legislation or administrative interpretation. Various state laws address the use and disclosure of individually identifiable health data. Most are derived from the privacy and security provisions in the federal Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA also imposes guidelines on our business associates (as this term is defined in the HIPAA regulations). Even though we provide for appropriate protections through our contracts with our business associates, we still have limited control over their actions and practices. Compliance with these proposals, requirements, and new regulations may result in cost increases due to necessary systems changes, the development of new administrative processes, and the effects of potential noncompliance by our business associates. They also may impose further restrictions on our use of patient identifiable data that is housed in one or more of our administrative databases.

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Our Business Depends On Effective Information Systems And The Integrity Of The Data In Our Information Systems

Our ability to accurately report our financial results depends on the integrity of the data in our information systems. As a result of our acquisition activities, we have acquired additional systems. We have been taking steps to reduce the number of systems we operate. If we encountered a business disruption, found the information we rely upon to run our businesses to be inaccurate or unreliable, or if we failed to maintain our information systems and data integrity effectively, we could lose existing customers, have difficulty attracting new customers, have problems in establishing appropriate pricing, have disputes with customers and other healthcare providers, have regulatory problems, have increases in operating expenses or suffer other adverse consequences.

We Depend On Information Suppliers. If We Are Unable To Manage Successfully Our Relationships With A Number Of These Suppliers, The Quality And Availability Of Our Services May Be Harmed

We obtain some of the data used in our services from third party suppliers and government entities. If a number of suppliers are no longer able or are unwilling to provide us with certain data, we may need to find alternative sources. If we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, we could experience service disruptions, increased costs and reduced quality of our services. Additionally, if one or more of our suppliers terminates our existing agreements, there is no assurance that we will obtain new agreements with third party suppliers on terms favorable to us, if at all. Loss of such access or the availability of data in the future due to increased governmental regulation or otherwise could have a material adverse effect on our business, financial condition or results of operations.

We Depend On Our Largest Clients For Significant Revenue, And If We Lose A Major Client, Our Revenue Could Be Adversely Affected

We generate a significant portion of our revenue from our largest clients. For the years ended December 31, 2008, 2007, and 2006, our three largest clients accounted for approximately 20%, 22% and 27% of our revenue from continuing operations, respectively. If we were to lose a major client, our results of operations and cash flows could be materially and adversely affected by the loss of revenue, and we would seek to replace the client with new business, of which there could be no assurance.

Our Indebtedness Results In Significant Debt Service Obligations And Limitations

We have outstanding debt service obligations. Substantially all of our assets used in our business operations secure our obligations under our credit facilities. Our indebtedness may pose important consequences to investors, including the risks that:

•  we will use a portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the funds available for acquisitions, working capital, capital expenditures and other general corporate purposes;

•  increases in our borrowings under our credit facilities may make it more difficult to satisfy our debt obligations;

•  our borrowings under our credit facilities bear interest at variable rates, which could create higher debt service requirements if market interest rates increase;

•  our degree of leverage may limit our ability to withstand competitive pressure and could reduce our flexibility in responding to changes in business and economic conditions;

•  our degree of leverage may hinder our ability to adjust rapidly to changing market conditions and could make us more vulnerable to downturns in the economy or in our industry; and

•  our failure to comply with debt covenants could result in our indebtedness being immediately due and payable.

If we cannot generate sufficient cash flow from operations to meet our obligations, we may be forced to reduce or delay acquisitions and other capital expenditures, sell assets, restructure or refinance our debt, or seek additional equity capital. There can be no assurance that these remedies would be available or satisfactory. Our cash flow from

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operations will be affected by prevailing economic conditions and financial, business and other factors that may be beyond our control.

We May Not Be Able To Realize The Entire Book Value Of Goodwill And Other Intangible Assets From Acquisitions

As of December 31, 2008, we have approximately $82.3 million of goodwill and $19.8 million of intangible assets. We have implemented the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that existing goodwill not be amortized, but instead be assessed annually or sooner for impairment if circumstances indicate a possible impairment. We will monitor for impairment of goodwill on past and future acquisitions. We perform our impairment testing in the second quarter of each year. In the event that the book value of goodwill is impaired, any such impairment would be charged to earnings in the period of impairment. There can be no assurances that future impairment of goodwill under SFAS No. 142 will not have a material adverse effect on our business, financial condition or results of operations. Management performs the goodwill valuation.

Certain Provisions In Our Certificate Of Incorporation Could Discourage Unsolicited Takeover Attempts, Which Could Depress The Market Price Of Our Common Stock

Our certificate of incorporation authorizes the issuance of up to 5,000,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined by our Board of Directors. Accordingly, our Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights, which could adversely affect the voting power or other rights of holders of our common stock. In the event of issuance, preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control. Although we have no present intention to issue any shares of preferred stock, we cannot give assurance that we will not do so in the future. In addition, our by-laws provide for a classified Board of Directors, which could also have the effect of discouraging a change of control.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

Our New York City corporate headquarters consists of approximately 70,000 square feet of leased space. In addition, as of December 31, 2008, we leased approximately 192,000 square feet of office space in 26 other locations throughout the United States. See Note 14 of the Notes to Consolidated Financial Statements for additional information about our lease commitments.

Item 3.   Legal Proceedings

Legal proceedings to which we are a party, in the opinion of our management, are not expected to have a material adverse effect on our financial position, results of operations, or liquidity.

Item 4.   Submission of Matters to a Vote of Security Holders

Not applicable.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is included in the Nasdaq Global Select Market (symbol: HMSY). As of the close of business on March 5, 2009, there were approximately 37,000 holders of record of our common stock, including the individual participants in security position listings. We have not paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Our current intention is to retain earnings to support the future growth of our business.

The table below summarizes the high and low sales prices per share for our common stock for the periods indicated, as reported on the Nasdaq Global Select Market.

	High		Low
Year ended December 31, 2008:
Quarter ended December 31, 2008	$	31.93	$	18.91
Quarter ended September 30, 2008		27.39		19.44
Quarter ended June 30, 2008		30.05		18.13
Quarter ended March 31, 2008		37.09		26.97
Year ended December 31, 2007:
Quarter ended December 31, 2007	$	34.22	$	24.31
Quarter ended September 30, 2007		27.25		16.92
Quarter ended June 30, 2007		22.80		17.63
Quarter ended March 31, 2007		22.99		14.78

Equity Compensation Plan Information

The following table summarizes the total number of outstanding options and shares available for other future issuances of options under all of our equity compensation plans as of December 31, 2008.

					Number of Securities Remaining
	Number of Securities to		Weighted-Average		Available for Future Issuance
	be Issued upon Exercise		Exercise Price of		Under Equity Compensation
	of Outstanding Warrants,		Outstanding Warrants,		Plans (Excluding Securities
	Options and Rights		Options and Rights		Reflected in Column (a)
Plan Category	(a)		(b)		(c)(2)
Equity Compensation Plans approved by Shareholders(1)		3,365,189	$	12.94		374,299
Equity Compensation Plans not approved by Shareholders(3)		701,250	$	8.98		—
Total		4,066,439	$	12.26		374,299

(1)	This includes options to purchase shares outstanding under: (i) the 2006 amended and restated Stock Plan the 2006 Stock Plan, (ii) the 1999 Long-Term Incentive Plan, and (iii) the 1995 Non-Employee Director Stock Option Plan.
(2)	These shares remain available for issuance under the 2006 Stock Plan.

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(3) Options issued under plans not approved by the shareholders include (i) 300,000 options granted in March 2001 to our Chairman and Chief Executive Officer in connection with his joining us, (ii) 341,250 inducement options granted in September 2006 to ten former senior executives of BSPA in connection with their joining us and (iii) 60,000 inducement options granted to the Chief Financial Officer in 2007.

Issuer Purchases of Equity Securities

On May 28, 1997, the Board of Directors authorized the Company to repurchase such number of shares of our common stock that have an aggregate purchase price not to exceed $10 million. On February 24, 2006, the Board of Directors increased the authorized aggregate purchase price by $10 million to an amount not to exceed $20 million. During the years ended December 31, 2008, 2007 and 2006, there were no repurchases. At December 31, 2008, $10.6 million remains authorized for repurchases under the program.

13

Comparative Stock Performance Graph

The graph below compares the cumulative total stockholder return on our common stock with the cumulative total stockholders return of the NASDAQ Composite Index, the NASDAQ Computer and Data Processing Index and the NASDAQ Health Services Index assuming an investment of $100 on December 31, 2003.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among HMS Holdings Corp., The NASDAQ Composite Index,
The NASDAQ Computer & Data Processing Index And The NASDAQ Health Services Index

Total return assumes $100 invested on December 31, 2003 in our common stock, the NASDAQ Composite Index, the NASDAQ Computer and Data Processing Index and the NASDAQ Health Services Index with the reinvestment of dividends through fiscal year ended December 31, 2008.

	12/31/03		12/31/04		12/31/05		12/31/06		12/31/07		12/31/08
HMS Holdings Corp.		100.00		224.44		190.77		377.81		828.18		786.03
NASDAQ Composite		100.00		110.08		112.88		126.51		138.13		80.47
NASDAQ Computer & Data Processing		100.00		115.62		118.29		133.40		158.91		90.83
NASDAQ Health Services		100.00		127.29		135.26		141.82		142.06		100.14

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Item 6.   Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data at and for each of the five fiscal years in the period ended December 31, 2008. It should be read in conjunction with the Consolidated Financial Statements and Supplementary Data thereto, included in Item 8 of this Report, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Report.

	Year Ended December 31,
	2008			2007			2006			2005			2004
	(In thousands, except per share data)
Statement of Operations Data:
Revenue	$	184,495		$	146,651		$	87,940		$	60,024		$	50,451
Operating expenses		147,765			118,370			80,115			52,448			45,327
Operating income		36,730			28,281			7,825			7,576			5,124
Interest expense		(1,491	)		(2,207	)		(1,014	)		—			—
Interest and other income		719			475			1,686			1,238			313
Income from continuing operations before income taxes		35,958			26,549			8,497			8,814			5,437
Income tax expense		14,583			11,593			3,588			465			103
Income from continuing operations		21,375			14,956			4,909			8,349			5,334
Discontinued operations:
Income from discontinued operations, net		—			—			416			839			2,377
Estimated loss on disposal of discontinued operations, net		—			—			—			(1,161	)		—
Income (loss) from discontinued operations		—			—			416			(322	)		2,377
Net income	$	21,375		$	14,956		$	5,325		$	8,027		$	7,711
Net Income Per Common Share:
Basic income (loss) per share
From continuing operations	$	0.85		$	0.63		$	0.23		$	0.42		$	0.28
From discontinued operations		—			—			0.02			(0.01	)		0.12
Income per share — Basic	$	0.85		$	0.63		$	0.25		$	0.41		$	0.40
Diluted income (loss) per share:
From continuing operations	$	0.80		$	0.57		$	0.21		$	0.37		$	0.24
From discontinued operations		—			—			0.01			(0.01	)		0.11
Income per share — Diluted	$	0.80		$	0.57		$	0.22		$	0.36		$	0.35
Weighted average shares:
Basic		25,048			23,904			21,731			19,865			19,074
Diluted		26,816			26,249			23,859			22,287			22,275

	As of December 31,
	2008		2007		2006		2005		2004
Balance Sheet Data:
Cash and cash equivalents	$	49,216	$	21,275	$	12,527	$	41,141	$	31,696
Working Capital		70,753		37,110		25,264		52,535		44,147
Total assets		222,513		188,100		157,243		87,601		76,663
Long-term debt		11,025		17,325		23,625		—		—
Shareholders’ equity	$	178,362	$	138,749	$	106,907	$	72,769	$	60,398

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Notes to Selected Consolidated Financial Data

•  Discontinued Operations. In 2005, we sold the business of our former subsidiary, Accordis Inc. (Accordis). As this business was previously presented as a separate reportable segment and represented a separate class of customer and major business, the operating results are presented as discontinued operations for all periods presented. See Note 1(b) of the Notes to Consolidated Financial Statements for additional information about our presentation of discontinued operations.

•  On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (SFAS 123R), which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at fair value. The Company adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards and to awards modified, repurchased, or cancelled after the adoption date. Additionally, compensation cost for the portion of the awards for which the requisite service has not been rendered that are outstanding as of the adoption date is recognized in the consolidated statement of operations over the remaining service period after the adoption date based on the award’s original estimate of fair value. Prior to January 1, 2006, the Company accounted for stock-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations. No compensation expense related to stock option plans was reflected in the Company’s consolidated statements of operations as all options had an exercise price equal to the market value of the underlying common stock on the date of grant. Results for prior periods have not been restated. See Note 12 of the Notes to Consolidated Financial Statements for additional information about our shared-based compensation plans.

•  On September 13, 2006, the Company completed an acquisition of all of the assets used exclusively or primarily by BSPA for $81.2 million in cash, 1,749,800 shares of the Company’s common stock valued at $24.4 million and a contingent cash payment of up to $15.0 million if certain revenue targets were met for the twelve months ending June 30, 2007. As the revenue targets were exceeded, the Company accrued $15.0 million of additional consideration due PCG at June 30, 2007, which increased goodwill resulting from the BSPA acquisition. The $15.0 million was paid to PCG on September 28, 2007. BSPA provided a variety of cost avoidance, insurance verification, recovery audit and related services to state Medicaid agencies, children and family services agencies, the U.S. Department of Veterans Affairs, and the Centers for Medicare and Medicaid Services. See Note 3 of the Notes to Consolidated Financial Statements for additional information about our BSPA acquisition.

•  On October 5, 2007, HMS Holdings Acquisition Corp. purchased the net assets of Peer Review Systems, Inc. doing business as Permedion, an independent healthcare quality review and improvement organization based in Westerville, Ohio. The acquisition of Permedion did not have a material effect on the Company’s fiscal year 2008 and 2007 earnings or liquidity. See Note 3 of the Notes to Consolidated Financial Statements for additional information about our Permedion acquisition.

•  On September 16, 2008, the Company purchased the net assets of Prudent Rx, an independent pharmacy audit and cost containment company based in Culver City, California. With this acquisition, the Company further expanded its portfolio of program integrity service offerings for government healthcare programs and managed care organizations, particularly in the pharmacy arena. The acquisition of Prudent Rx did not have a material effect on the Company’s fiscal year 2008 earnings or liquidity. See Note 3 of the Notes to Consolidated Financial Statements for additional information about our Prudent Rx acquisition.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with a discussion of the critical accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. In the next section, we present a business overview followed by a discussion of our results of operations. We then provide an analysis of our liquidity and capital resources, including discussions of our cash flows, sources of capital and financial commitments.

16

The following discussions and analysis of financial condition and results of operations should be read in conjunction with the other sections of this Report, including the Consolidated Financial Statements and Supplemental Data thereto appearing in Part II, Item 8 of this Report, the Risk Factors appearing in Part I, item 1A of this Report and the disclaimer regarding forward-looking statements appearing at the beginning of Part I, Item 1 of this Report. Historical results set forth in Part II, Item 6 and Item 8 of this Report should not be taken as indicative of our future operations.

Critical Accounting Policies

Revenue Recognition.  We principally recognize revenue for our service offerings when third party payors remit payment to our customers and consequently the contingency is deemed to have been satisfied. Arrangements including both implementation and transaction related revenue are accounted for as a single unit of accounting. Since implementation services do not carry a standalone value, the revenue relating to these services is recognized over the term of the customer contract to which it relates. Due to this revenue recognition policy, our operating results may vary significantly from quarter to quarter because of the timing of such collections by our customers and the fact that a significant portion of our operating expenses are fixed.

Expense Classifications:  The Company’s cost of services in its statement of income is presented in the seven categories noted below. Each category of cost excludes costs relating to selling, general and administrative functions which are presented separately as a component of total operating expenses. All revenue and cost are reported under one operating segment. A description of the primary costs included in each category is provided below:

•  Compensation: Salary, fringe benefit, bonus and stock based compensation costs.

•  Data processing: Hardware, software and data communication cost.

•  Occupancy: Rent, utilities, depreciation, office equipment, repair and maintenance costs.

•  Direct project costs: Variable costs incurred from third party providers that are directly associated with specific revenue generating projects.

•  Other operating costs: Professional fees, temporary staffing, travel and entertainment, insurance and local and property tax costs.

•  Amortization of intangibles: Amortization cost of acquisition-related software and intangible assets.

•  Selling, general and administrative: Consists of costs related to general management, marketing and administration activities.

Accounting for Income Taxes.  The Company and its subsidiaries file income tax returns with the US federal government and various state jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2005. The Company operates in a number of state and local jurisdictions, substantially all of which have never audited the Company. Accordingly, the Company is subject to state and local income tax examinations based upon the various statutes of limitations in each jurisdiction.

The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (FIN 48) on January 1, 2007. As a result of the implementation of FIN 48, the Company did not recognize a change in the liability for unrecognized tax benefits.

At December 31, 2008, the Company had net operating loss carry-forwards (NOLs) of $0.5 million which are subject to the limitation imposed by Section 382 of the Internal Revenue Code of 1984 (the Code), as amended and $1.5 million, which is available to offset future federal, state and local taxable income respectively. The $1.5 million relates to disqualifying dispositions for which the Company recognizes no tax benefit in its financial statements as of December 31, 2008. The impact of this benefit will be recorded by a debit to income tax payable and a credit to capital in excess of par value rather than income when utilized. During 2008, the Company recorded a tax benefit of $10.5 million related to the utilization of disqualifying dispositions by reducing income tax payable and crediting capital. The Company utilized $13.1 million of disqualifying dispositions generated from 2008 stock option

17

exercises and utilized $13.5 million of NOL from stock option carry-forwards from 2007 to recognize this tax benefit.

There was no change in the Company’s valuation allowance in 2008 and 2007. The Company recognized decreases in the valuation allowance related to the Company’s ability to realize its deferred assets of $0.7 million for the year ended December 31, 2006. At December 31, 2008, the Company has a valuation allowance of $2.7 million. The sale of Accordis in 2005 resulted in a capital loss of $6.0 million, which can be carried forward for five years and produced a deferred tax asset of $2.5 million. The Company believes the available objective evidence, principally the capital loss carryforward being utilizable to offset only future capital gains, creates sufficient uncertainty regarding the realizability of its capital loss carryforward that it is more likely than not that substantially all of the capital loss carryforward is not realizable.

The remaining valuation allowance of $0.2 million relates to certain state NOLs where there is sufficient doubt about the Company’s ability to utilize these NOLs, that it is more likely than not that this portion of the state NOLs are not realizable.

The net deferred tax asset is $3.7 million and $3.8 million, net of the valuation allowance of $2.7 million, as of December 31, 2008 and 2007, respectively.

Valuation of long lived and intangible assets and goodwill.  Goodwill, representing the excess of acquisition costs over the fair value of net assets of acquired businesses, is not amortized but is reviewed for impairment at least annually and written down only in the periods in which it is determined that the recorded value is greater than its fair value. Since adoption, no impairment losses have been recorded.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:

•  Significant underperformance relative to expected historical or projected future operating results;

•  Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•  Significant negative industry or economic trends;

•  Significant decline in our stock price for a sustained period; and

•  Our market capitalization relative to net book value.

We determine the recoverability of the carrying value of our long-lived assets based on a projection of the estimated undiscounted future net cash flows expected to result from the use of the asset. When we determine that the carrying value of long-lived assets may not be recoverable, we measure any impairment by comparing the carrying amount of the asset with the fair value of the asset. For identifiable intangibles, we determine fair value based on a projected discounted cash flow method using a discount rate reflective of our cost of funds.

Estimating valuation allowances and accrued liabilities, such as bad debts.  The preparation of financial statements requires our management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. In particular, management must make estimates of the uncollectability of our accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The accounts receivable balance was $45.2 million, net of allowance for doubtful accounts of $0.7 million, as of December 31, 2008.

Share-based Compensation.  We adopted the provisions of, and account for share-based compensation in accordance with, SFAS No. 123(R) during the first quarter of 2006. We elected the modified-prospective method, under which prior periods are not revised for comparative purposes. Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

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We currently use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. All share based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

See Note 12 of our Consolidated Financial Statements for further information regarding the SFAS 123R disclosures.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States of America, with no need for management’s judgment in their application. There are also areas in which the audited consolidated financial statements and notes thereto included in this Form 10-K contain accounting policies and other disclosures required by accounting principles generally accepted in the United States of America.

Business Overview

Beginning in the first quarter of 2007, the Company was managed and operated as one business, with a single management team that reports to the chief executive officer. The Company does not operate separate lines of business with respect to any of its product lines. Accordingly, the Company does not prepare discrete financial information with respect to separate product lines or by location and does not have separately reportable segments as defined by Statement of Financial Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

On September 13, 2006, we acquired BSPA for $81.2 million in cash, 1,749,800 shares of the Company’s common stock valued at $24.4 million and a contingent cash payment of up to $15.0 million if certain revenue targets were met for the twelve months ending June 30, 2007. As the revenue targets were exceeded, the Company accrued $15.0 million of additional consideration due PCG at June 30, 2007, which increased goodwill resulting from the BSPA acquisition. The $15.0 million was paid to PCG on September 28, 2007.

To finance the acquisition of BSPA, we also entered into a credit agreement (the Credit Agreement) with several banks and other financial institutions with JPMorgan Chase Bank, N.A. (JPMCB), as administrative agent. The Credit Agreement provides for a term loan of $40 million (the Term Loan) and revolving credit loans of up to $25 million (the Revolving Loan). Borrowings under the Credit Agreement mature on September 13, 2011. At December 31, 2008, we had $17.3 million of debt outstanding and principal of $6.3 million was repaid during the year ended December 31, 2008. At December 31, 2008, the term loan bore interest at LIBOR plus 100 basis points or 2.5%. We are exposed to changes in interest rates, primarily from this loan. To reduce this exposure, we use an interest rate swap agreement to fix the interest rate on the variable debt and reduce certain exposures to interest rate fluctuations. Our interest rate swaps effectively converted $12.0 million of this variable rate debt to fixed rate debt.

As BSPA exceeded the targeted revenue amount defined in the purchase agreement for the twelve months ended June 30, 2007, $15.0 million of additional cash consideration was due PCG. This amount was recorded in goodwill and was paid to PCG on September 28, 2007 from existing cash balances and funds generated by operations. Please refer to the liquidity section following for further discussion.

On October 5, 2007, HMS Holdings Acquisition Corp purchased the net assets of Peer Review Systems, Inc. doing business as Permedion, an independent healthcare quality review and improvement organization based in Westerville, Ohio. With this acquisition, the Company augments its portfolio of program integrity service offerings for state Medicaid agencies and managed care organizations. Permedion provides independent external medical review on issues of quality of care, medical necessity and experimental/investigational treatment to both state government and private clients across the country. The Company works with government agencies, including

19

Medicaid, Medicare, state insurance departments and corrections departments to help ensure that services are billed appropriately and that the care provided is medically necessary. The purchase price was paid in cash and was accounted for under the asset purchase accounting method. The acquisition of Permedion did not have a material effect on the Company’s fiscal years 2008 and 2007 earnings or liquidity. See Note 3 of the Notes to Consolidated Financial Statements for additional information about our acquisitions.

On September 16, 2008, the Company purchased the net assets of Prudent Rx, an independent pharmacy audit and cost containment company based in Culver City, California. With this acquisition, the Company further expanded its portfolio of program integrity service offerings for government healthcare programs and managed care organizations, particularly in the pharmacy arena. Prudent Rx’s key products and services include audit programs, program design and benefit management, as well as general and pharmacy systems consulting. The purchase price was paid in cash and was accounted for under the asset purchase accounting method. The acquisition of Prudent Rx did not have a material effect on the Company’s fiscal year 2008 earnings or liquidity. See Note 3 of the Notes to Consolidated Financial Statements for additional information about our acquisitions.

Our revenue, most of which is derived from contingent fees, grew at an average compounded rate of approximately 33.9% per year for the last five years. Our growth has been attributable to acquisitions as well as the growth in Medicaid costs, which has historically averaged approximately 8% annually. State governments also have increased their use of vendors for coordination of benefits and other cost containment functions, and we have been able to increase our revenue through these initiatives. Leveraging our work on behalf of state Medicaid fee for service programs, we have begun to penetrate the Medicaid managed care market, into which more Medicaid lives are being shifted. As of December 31, 2008, the Company served 36 state Medicaid agencies and 92 Medicaid health plans (under 37 contracts) — including several of the largest in the nation — as our clients.

It should be noted that the nature of our business sometimes leads to significant variations in revenue flow. For example, since we receive contingency fees for nearly all our services, we recognize revenue only after our clients have received payment from a third party. In addition, much of our work occurs on an annual or project-specific basis, and does not necessarily recur monthly or quarterly, as do our operating expenses.

Years Ended December 31, 2008 and 2007

The following table sets forth, for the periods indicated, certain items in our Consolidated Statements of Income expressed as a percentage of revenue:

	Years Ended
	December 31,
	2008			2007
Revenue		100.0	%		100.0	%
Cost of services
Compensation		32.8	%		31.5	%
Data processing		6.0	%		6.3	%
Occupancy		5.5	%		5.7	%
Direct project costs		15.3	%		15.5	%
Other operating costs		5.9	%		4.5	%
Amortization of intangibles		2.6	%		3.2	%
Total cost of services		68.1	%		66.7	%
Selling general & administrative expenses		12.0	%		14.0	%
Total operating expenses		80.1	%		80.7	%
Operating income		19.9	%		19.3	%
Interest expense		(0.8	)%		(1.5	)%
Net interest income		0.4	%		0.3	%
Income before income taxes		19.5	%		18.1	%
Income taxes		(7.9	)%		(7.9	)%
Net income		11.6	%		10.2	%

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Operating Results

Revenue for the year ended December 31, 2008 was $184.5 million, an increase of $37.8 million or 25.8% compared to revenue of $146.7 million in the prior fiscal year ended December 31, 2007. The revenue increase reflects the organic growth in existing client accounts, the addition of new clients, including those gained through acquisition, changes in the yields and scope of client projects, and differences in the timing of when client projects were completed in the current year compared to the prior year.

Compensation expense as a percentage of revenue was 32.8% in the current year compared to 31.5% in the prior year and for 2008 was $60.6 million, an increase of $14.4 million, or 31.1% from the prior year period expense of $46.2 million. This increase reflected $12.5 million in additional salary expense and $1.9 million of additional expense related to employee benefits. For the year ended December 31, 2008, we averaged 783 employees, a 29.2% increase over the year ended December 31, 2007, during which we averaged 606 employees. The increase reflects the addition of new staff as a result of our acquisition of the business of Peer Review Systems, Inc., doing business as Permedion, during the fourth quarter of 2007, our acquisition of Prudent Rx during the third quarter of 2008, and the addition of staff in the areas of customer support, technical support and operations during 2008.

Data processing expense as a percentage of revenue was 6.0% in the current fiscal year compared to 6.3% in the prior fiscal year and for 2008 was $11.0 million, an increase of $1.7 million or 18.3% compared to the prior year expense of $9.3 million. Revenue growth drove the need for increased capacity in our mainframe environment. Expenses increased by $0.5 million relating to depreciation and amortization of equipment and software, $0.5 million relating to software leases and maintenance, $0.3 million relating to equipment rental and maintenance, and $0.3 million for network communications and $0.1 million for data processing supplies as required by business expansion.

Occupancy expense as a percentage of revenue was 5.5% in the current year compared to 5.7% in the prior year and for 2008 was $10.1 million, an increase of $1.6 million or 19.5% from the prior year expense of $8.4 million. This increase reflected approximately $1.1 million of additional rent and facilities expense, and $0.5 million of additional depreciation of leasehold improvements, furniture and fixtures and telephone systems. Increases totaling $0.3 million for utilities, building services and moving expenses were offset by decreases in fixed assets disposals of $0.3 million.

Direct project expense as a percentage of revenue was 15.3% in the current year compared to 15.5% in the prior year and for 2008 was $28.4 million, an increase of $5.7 million or 24.8% from the prior fiscal year expense of $22.8 million. This increase resulted from revenue growth for the period, and is within our usual 14%-17% direct costs expense rate as a percentage of revenue range.

Other operating expenses as a percentage of revenue were 5.9% in the current year compared to 4.5% in the prior year and for 2008 were $10.8 million, an increase of $4.3 million or 65.6% compared to the prior year expense of $6.5 million. This increase resulted from a $2.4 million increase in temporary help and consulting a $0.8 million increase in travel expenses, and a $0.4 million increase in legal expenses associated with operational departments. Additionally $0.4 million of relocation expense was incurred relating to shifting staff to our Texas service center. Finally, supplies, printing, postage, delivery and training expenditures within our operational departments increased by $0.3 million resulting from office related expenses.

Amortization of acquisition-related software and intangibles as a percentage of revenue was 2.6% for 2008 compared to 3.2% in the prior year, an increase of $0.1 million or 1.6% compared to prior year expense. Amortization of software and intangibles expense of $4.7 million primarily consists of amortization of customer relationships and software in both periods. The increase compared to last year resulted from our acquisitions of Permedion, Inc. in 2007 and Prudent Rx in 2008.

Selling, general, and administrative expenses as a percentage of revenue were 12.0% for 2008 compared to 14.0% in the prior year and for 2008 were $22.1 million, an increase of $1.6 million or 8.0%, compared to the prior year expense of $20.5 million. The $1.6 million increase reflected a $2.3 million increase in compensation cost and a $0.3 million increase in data processing charges which were partially offset by a $1.0 million decrease in the professional fee cost primarily associated with reduced usage of temporary help and consultants.

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Operating income for the year ended December 31, 2008 was $36.7 million or 19.9% of revenue compared to $28.3 million or 19.3% of revenue in the prior year. This increase was primarily the result of increased revenue partially offset by incremental operating cost incurred during the year ended December 31, 2008.

Interest expense was $1.5 million for 2008 compared to $2.2 million in 2007. In both periods, interest expense was attributable to borrowings under the Term Loan and amortization of deferred financing costs. Interest income of $0.7 million in 2008 compared to interest income of $0.5 million in 2007, and resulted from higher cash balances in 2008.

Income tax expense of $14.6 million was recorded in 2008, an increase of approximately $3.0 million compared to 2007. Our effective tax rate decreased to 40.6% in 2008 from the 43.7% for the year ended December 31, 2007 primarily due to a change in state apportionments and utilization of NOL’s from prior periods. The Company’s tax provision in 2008 is principally a current tax provision for which the Company utilized net operating losses from disqualifying dispositions to reduce its current tax payable. The principal difference between the statutory rate and the Company’s effective rate is state taxes.

During 2008, the Company recorded a tax benefit of $10.5 million related to the utilization of disqualifying dispositions by reducing income tax payable and crediting capital. The Company utilized $13.1 million of disqualifying dispositions generated from 2008 stock option exercises and utilized $13.5 million of NOL from stock options carry-forwards from 2007 to recognize this tax benefit.

Net income of $21.4 million in the current year represents a $6.4 million increase over net income in the prior year period of $15.0 million.

Years Ended December 31, 2007 and 2006

The following table sets forth, for the periods indicated, certain items in our Consolidated Statements of Operations expressed as a percentage of revenue:

	Years Ended
	December 31,
	2007			2006
Revenue		100.0	%		100.0	%
Cost of services:
Compensation		31.5	%		34.8	%
Data processing		6.3	%		7.4	%
Occupancy		5.7	%		5.9	%
Direct project costs		15.5	%		15.8	%
Other operating costs		4.5	%		5.1	%
Amortization of intangibles		3.2	%		7.3	%
Total cost of services		66.7	%		76.3	%
Selling general & administrative expenses		14.0	%		14.8	%
Total operating expenses		80.7	%		91.1	%
Operating income		19.3	%		8.9	%
Interest expense		(1.5	)%		(1.1	)%
Net interest income		0.3	%		1.9	%
Income from continuing operations before income taxes		18.1	%		9.7	%
Income taxes		(7.9	)%		(4.1	)%
Income from continuing operations		10.2	%		5.6	%
Income from discontinued operations		—			0.4	%
Net income		10.2	%		6.0	%

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Continuing Operations:

Operating Results

Revenue for the year ended December 31, 2007 was $146.7 million, an increase of $58.7 million or 66.8% compared to revenue of $87.9 million in the prior fiscal year ended December 31, 2006. The revenue increase reflects the full year benefit of the incremental contracts obtained from the BSPA acquisition in September 2006 as well as additional clients, changes in volumes, yields and scope of client projects associated with our base business. Immediately following the BSPA acquisition, we began to convert its projects to our legacy-processing platform as well as integrating BSPA and HMS management teams. As a result, while a particular contract may have been acquired with BSPA, the results achieved reflect combined management and processing technology.

Compensation expense as a percentage of revenue was 31.5% in 2007 compared to 34.8% in the prior year and for 2007 was $46.2 million, an increase of $15.6 million, or 51.0% from the prior year period expense of $30.6 million. For the year ended December 31, 2007, we averaged 606 employees, a 55.0% increase over the year ended December 31, 2006, during which we averaged 391 employees. The increase reflects the addition of new staff required to handle higher transaction processing levels and provide executive level support in the areas of customer support, technical support and operations in 2007. Increases aggregating approximately $1.4 million resulted from variable compensation.

Data processing expense as a percentage of revenue was 6.3% in 2007 compared to 7.4% in the prior fiscal year and for 2007 was $9.3 million, an increase of $2.8 million or 42.0% compared to the prior year expense of $6.5 million. Revenue growth drove the need for increased capacity in our mainframe environment. Expenses increased by $1.6 million relating to the amortization and depreciation of additional purchases of equipment and software, $0.9 million for software leases and maintenance costs, and $0.3 million for network communication expenses resulting from our increased number of field offices.

Occupancy expense as a percentage of revenue was 5.7% in 2007 compared to 5.9% in the prior year and for 2007 was $8.4 million, an increase of $3.2 million or 61.6% from the prior year expense of $5.2 million. This increase principally reflected additional rent and facilities expense of $1.5 million largely resulting from our BSPA acquisition and office expansions, $0.5 million of additional depreciation for leasehold improvements, furniture and fixtures and telephone systems, $0.3 million for telephone and utilities, $0.3 million for fixed assets disposals, and $0.2 million for office equipment maintenance and rental. Fixed assets disposals of $0.3 million were incurred as part of moving our Texas processing facilities to a new location and $0.1 million of related occupancy costs.

Direct project expense as a percentage of revenue was 15.5% in 2007 compared to 15.8% in the prior year and for 2007 was $22.8 million, an increase of $8.9 million or 64.4% from the prior fiscal year expense of $13.8 million. This increase resulted from increased revenue for the period, and is within our usual 14% — 17% direct costs expense rate as a percentage of revenue.

Other operating costs as a percentage of revenue were 4.5% in 2007 compared to 5.1% in the prior year and in 2007 were $6.5 million, an increase of $2.0 or 44.4% compared to prior year costs of $4.5 million. This increase resulted from a $1.7 million increase in temporary help, consulting and professional fees, a $0.2 million increase in supplies expense, and a $0.1 million increase in travel expense.

Amortization of acquisition-related software and intangibles as a percentage of revenue was 3.2% for 2007 compared to 7.3% in the prior year. Amortization of software and intangibles expense of $4.6 million primarily consists of amortization of customer relationships and software resulting from the purchase of BSPA. Amortization of software and intangibles expense of $6.4 million in the prior year period included amortization of work in progress, customer relationships, and software resulting from the purchase of BSPA.

Selling, general, and administrative expenses as a percentage of revenue were 14.0% for 2007 compared to 14.8% in the prior year and for 2007 were $20.5 million, an increase of $7.5 million or 58.0%, compared to the prior year expense of $13.0 million. The $7.5 million increase reflected a $3.0 million increase in compensation cost, a $0.5 million increase in data processing charges, a $2.7 million increase in professional fee cost, a $0.3 million increase in general operating expense, a $0.4 million increase in employee related cost, a $0.4 million increase in insurance and $0.2 million increase in travel and entertainment.

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Operating income for the year ended December 31, 2007 was $28.3 million or 19.3% of revenue compared to $7.8 million or 8.9% of revenue for the prior year. This increase was primarily the result of incremental margin realized from the increased revenue year over year.

Interest expense was $2.2 million for 2007 compared to $1.0 million in 2006. In both periods, interest expense was attributable to borrowings under the Term Loan used to finance a portion of the BSPA acquisition and amortization of deferred financing costs. Interest income was $0.5 million in 2007 compared to interest income of $1.7 million in 2006 principally due to lower cash balances following the BSPA acquisition effective September 1, 2006.

Income tax expense of $11.6 million was recorded in 2007, an increase of approximately $8.0 million compared to 2006. Our effective tax rate increased to 43.7% in 2007 from the 42.2% for the year ended December 31, 2006 primarily due to state allocations and an increase in the statutory rate. The Company’s tax provision in 2007 is principally a deferred provision as federal income taxes payable have been offset by the utilization of NOL carryforwards recorded as deferred tax assets in prior years as well as from the tax benefit of disqualifying dispositions of stock options recognized in additional paid in capital during the current year. Additionally, the amortization of intangible assets has reduced current taxable income. Taxes currently payable principally arise from federal alternative minimum tax requirements and state tax liabilities. The principal difference between the statutory rate and the Company’s effective rate is state taxes.

During the fourth quarter of 2007, we conducted a review of our state tax apportionments and existing entities structure. As a result of this study, we have re-aligned our state apportionments with our current business configuration and reorganized our subsidiary entities to take full advantage of our business services company.

Income from continuing operations was $15.0 million in 2007 compared to income from continuing operations of $4.9 million 2006. Income from discontinued operations in the prior year was $0.4 million resulting from the resolution of a contingent liability issue. Net income of $15.0 million in 2007 represents a $9.6 million increase over net income in the prior year period of $5.3 million.

As more fully discussed in Item 1. Business, and in Note 1(b) and Note 13(b) of the Notes to Consolidated Financial Statements, we reported the results of Accordis as discontinued operations for all periods presented. Income from discontinued operations in 2006 of $0.4 million resulted from the resolution of a contingent liability issue in 2006 and from the Accordis note receivable being paid off early with the remaining unamortized discount on note receivable recorded as income.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, other than the operating leases noted below.

Liquidity and Capital Resources

Historically, our principal source of funds has been operations and we have cash and cash equivalents to support our operating needs. At December 31, 2008, our cash and cash equivalents and net working capital were $49.2 million and $70.8 million, respectively. Although we expect that operating cash flows will continue to be a primary source of liquidity for our operating needs, we also have a $25.0 million Revolving Credit facility available for future cash flow needs. There have been no borrowings under the Revolving Loan, however, we have outstanding a $4.6 million irrevocable standby letter of credit that relates to contingent default payment obligations required by a contractual arrangement with a client.

For the fiscal year ended December 31, 2008, cash provided by operations was $30.9 million compared to $26.6 million in the prior year period. The current year period’s difference between net income of $21.4 million and cash provided by operations of $30.9 million was principally due to non-cash charges. Sources of cash totalling $15.6 million primarily included depreciation and amortization expense of $12.0 million and share-based compensation expense of $3.5 million. Partially offsetting these were uses of cash totaling $6.1 million as follows. Accounts receivable increased by $4.5 million related to a $10.7 million revenue increase in the fourth quarter of the current year compared to the fourth quarter in the prior year. Increases in prepaid and other current assets of $0.5 million primarily resulted from increases in prepaid software licenses and maintenance, consistent with

24

increased processing capacity. Decreases in accounts payable and other liabilities of $1.0 million resulted from a reduction of accrued compensation-related liabilities of $1.9 million partially offset by a $0.9 million net increase in accounts payable and other liabilities consistent with the growth of our business.

During the current year period, cash used in investing activities was $11.4 million, $6.9 million of investments in property, equipment and software development and $4.5 million for the Prudent Rx acquisition. Cash provided by financing activities of $8.5 million consisted of a $10.5 million tax benefit from disqualifying dispositions and $4.2 million received from stock option exercises, partially offset by $6.3 million of principal payments on the Term Loan.

At December 31, 2008, we had $17.3 million of debt outstanding of the $40.0 million Term Loan originally borrowed to fund the BSPA acquisition. The Term Loan requires us to make quarterly payments of $1.575 million.

The number of days sales outstanding (DSO) at December 31, 2008 decreased to 78 days compared to 86 days at December 31, 2007 which approximates our historical experience.

Operating cash flows could be adversely affected by a decrease in demand for our services. Our typical client relationship, however, usually sustains over several years, and as a result we do not expect any decrease in demand in the near term.

Contractual Obligations

At December 31, 2008, our primary contractual obligations, which consist of principal maturities of long-term debt and amounts due under future lease payments, principally of facility lease obligations, are as follows (in thousands):

	Payments Due by Period
			Less than 1						More than 5
Contractual Obligations	Total		Year		2-3 Years		4-5 Years		Years
Operating leases	$	32,991	$	9,299	$	15,096	$	8,596	$	—
Long-term debt		17,325		6,300		6,300		4,725		—
Interest expense(1)		999		720		279		—		—
Total	$	51,315	$	16,319	$	21,675	$	13,321	$	—

(1) Future interest payments are estimates of amounts due on long-term debt at current interest rates and based on scheduled repayments of principal.

We have entered into sublease arrangements for some of our facility obligations and expect to receive the following rental receipts (in thousands):

	Less than						More than
Total	1 Year		2-3 Years		4-5 Years		5 Years
$2,784	$	613	$	1,275	$	896	$	—

On May 28, 1997 the Board of Directors authorized us to repurchase such number of shares of our common stock that have an aggregate purchase price not in excess of $10 million. On February 24, 2006 our Board of Directors increased the authorized aggregate purchase price by $10 million to an amount not to exceed $20 million. During the years ended December 31, 2008, and 2007, no purchases were made. Cumulatively since the inception of the repurchase program, we have repurchased 1,662,846 shares having an aggregate purchase price of $9.4 million.

Inflation

General operating expenses are subject to normal inflationary pressure. Wages and other employee-related expenses increase during periods of inflation and when shortages in the skilled labor market occur. We also have a performance-based bonus plan to foster retention of and to incentivize certain employees.

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Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, with the exception of the application of the statement to the determination of fair value of non-financial assets and liabilities that are recognized or disclosed on a nonrecurring basis, which is effective for fiscal years beginning after November 15, 2008.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Effective January 1, 2008, we adopted SFAS No. 157 and have applied its provisions to financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis (at least annually). We have not yet adopted SFAS 157 for non-financial assets and liabilities, in accordance with FASB staff position 157-2, which is effective for fiscal years beginning after November 15, 2008.

At December 31, 2008, our interest rate swap contract was being carried at fair value and measured on a recurring basis. Fair value is determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy. See Note 9 of the Notes to Consolidated Financial Statements for additional information about our swap agreements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159), which is effective for fiscal years beginning after November 15, 2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We have adopted SFAS 159 and have elected not to measure any additional financial instruments and other items at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business Combinations.” SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is prohibited. Therefore, the impact of the implementation of this pronouncement cannot be determined until the transactions occur.

26

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (SFAS 161). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. Entities will be required to provide enhanced disclosures about how and why an entity uses derivative instruments, how these instruments are accounted for, and how they affect the entity’s financial position, financial performance and cash flows. This new standard is effective for our Company as of January 1, 2009 and we are currently evaluating the impact on disclosures associated with our derivative and hedging activities.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), and other GAAP. This FSP applies prospectively to all intangible assets acquired after the effective date in fiscal 2009, whether acquired in a business combination or otherwise. Early adoption is prohibited. Therefore, the impact of the implementation of this pronouncement cannot be determined until the transactions occur.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risks

We are exposed to changes in interest rates, primarily from our Term Loan. In 2006, we entered into an interest rate swap agreement to fix the interest rate at 5.3% on a portion of the debt to mitigate exposure to interest rate fluctuations. Since that time, market rates have declined and the required payments on the swap exceed those based upon the current market rates. Our risk management objective in entering into such contracts and agreements is only to reduce our exposure to the effects of interest rate fluctuations and not for speculative investment. At December 31, 2008, we had total bank debt of $17.3 million. Our interest rate swap effectively converted $12.0 million of this variable rate debt to fixed rate debt leaving approximately $5.3 million of the total long-term debt exposed to interest rate risk. If the effective interest rate for all of our variable rate debt were to increase by 100 basis points (1%), our annual interest expense would increase by a maximum of $53,000 based on the balances outstanding at December 31, 2008.

Item 8.   Financial Statements and Supplementary Data

The information required by Item 8 is found on pages 31 to 56 of this report.

Item 9.   Changes in and Disagreements with Independent Registered Public Accounting Firm on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e)and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of December 31, 2007. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

27

Our principal executive officer and principal accounting officer also participated in an evaluation by our management of any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2008. That evaluation did not identify any changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our chief executive officer and our chief financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of our annual consolidated financial statements, management has undertaken an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2008.

KPMG LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this report, has issued their report on the effectiveness of internal control over financial reporting as of December 31, 2008, a copy of which is included herein.

Item 9B.   Other Information

None.

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PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the information required by Part III (Items 10, 11, 12, 13 and 14) is being incorporated by reference herein from our definitive proxy statement (or an amendment to our Annual Report on Form 10-K) to be filed with the Securities and Exchange Commission within 120 days of the end of the fiscal year ended December 31, 2008 in connection with our 2009 Annual Meeting of Stockholders.

Item 11.   Executive Compensation

See Item 10.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

See Item 10.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

See Item 10.

Item 14.   Principal Accountant Fees and Services

See Item 10.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

A. Financial Statements, Financial Statement Schedule and Exhibits

1. The financial statements are listed in the Index to Consolidated Financial Statements on page 31.

2. Financial Statement Schedule II — Valuation and Qualifying Accounts is set forth on page 56. All other financial statement schedules have been omitted as they are either not required, not applicable, or the information is otherwise included.

3. The Exhibits are set forth on the Exhibit Index on page 57.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

HMS Holdings Corp.
       (Registrant)

By:  /s/  William C. Lucia

William C. Lucia

Chief Executive Officer, Director

Date: March 10, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/  Robert M. Holster Robert M. Holster	Chairman, Board of Directors	March 10, 2009
/s/  William C. Lucia William C. Lucia	Chief Executive Officer, Director	March 10, 2009
/s/  Walter D. Hosp Walter D. Hosp	Chief Financial Officer (Principal Financial and Accounting Officer)	March 10, 2009
/s/  James T. Kelly James T. Kelly	Director	March 10, 2009
/s/  William F. Miller III William F. Miller III	Director	March 10, 2009
/s/  William S. Mosakowski William S. Mosakowski	Director	March 10, 2009
/s/  William W. Neal William W. Neal	Director	March 10, 2009
/s/  Galen D. Powers Galen D. Powers	Director	March 10, 2009
/s/  Ellen A. Rudnick Ellen A. Rudnick	Director	March 10, 2009
/s/  Michael A. Stocker, M.D. Michael A. Stocker, M.D.	Director	March 10, 2009
/s/  Richard H. Stowe Richard H. Stowe	Director	March 10, 2009

30

HMS HOLDINGS CORP. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Consolidated Financial Statements:	Number
Report of Independent Registered Public Accounting Firm		32
Consolidated Balance Sheets as of December 31, 2008 and 2007		34
Consolidated Statements of Income for the Years Ended December 31, 2008, 2007 and 2006		35
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2008, 2007 and 2006		36
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006		37
Notes to Consolidated Financial Statements		38
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts		56

31

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

HMS Holdings Corp.:

We have audited the accompanying consolidated balance sheets of HMS Holdings Corp. and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HMS Holdings Corp. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/  KPMG LLP

New York, New York
March 10, 2009

32

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

HMS Holdings Corp.:

We have audited HMS Holdings Corp’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). HMS Holdings Corp. management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, HMS Holdings Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of HMS Holdings Corp. as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated March 10, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/  KPMG LLP

New York, New York
March 10, 2009

33

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	December 31,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	49,216		$	21,275
Accounts receivable, net of allowance of $664 and $662 at December 31, 2008 and 2007, respectively		45,155			39,704
Prepaid expenses		3,825			3,266
Other current assets, including net deferred tax assets of $1,697 and $657 at December 31, 2008 and 2007, respectively		1,716			704
Total current assets		99,912			64,949
Property and equipment, net		17,757			16,496
Goodwill, net		82,342			80,242
Deferred income taxes, net		2,040			3,111
Intangible assets, net		19,823			22,495
Other assets		639			807
Total assets	$	222,513		$	188,100
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued expenses and other liabilities	$	22,859		$	21,539
Current portion of long-term debt		6,300			6,300
Total current liabilities		29,159			27,839
Long-term liabilities:
Long-term debt		11,025			17,325
Accrued deferred rent		3,257			3,378
Other liabilities		710			809
Total long-term liabilities		14,992			21,512
Total liabilities		44,151			49,351
Shareholders’ equity:
Preferred stock — $.01 par value; 5,000,000 shares authorized; none issued Common stock — $.01 par value; 45,000,000 shares authorized; 27,174,875 shares issued and 25,512,029 shares outstanding at December 31, 2008; 26,409,035 shares issued and 24,746,189 shares outstanding at December 31, 2007;		272			264
Capital in excess of par value		146,145			127,887
Retained earnings		41,562			20,187
Treasury stock, at cost; 1,662,846 shares at December 31, 2008 and December 31, 2007		(9,397	)		(9,397	)
Accumulated other comprehensive loss		(220	)		(192	)
Total shareholders’ equity		178,362			138,749
Total liabilities and shareholders’ equity	$	222,513		$	188,100

See accompanying notes to consolidated financial statements.

34

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

	Year			Year			Year
	Ended			Ended			Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
Revenue	$	184,495		$	146,651		$	87,940
Cost of services:
Compensation		60,571			46,185			30,577
Data processing		10,999			9,298			6,548
Occupancy		10,079			8,431			5,217
Direct project costs		28,429			22,774			13,849
Other operating costs		10,831			6,540			4,528
Amortization of acquisition related software and intangibles		4,714			4,642			6,420
Total cost of services		125,623			97,870			67,139
Selling, general & administrative expenses		22,142			20,500			12,976
Total operating expenses		147,765			118,370			80,115
Operating income		36,730			28,281			7,825
Interest expense		(1,491	)		(2,207	)		(1,014	)
Interest income		719			475			1,686
Income from continuing operations before income taxes		35,958			26,549			8,497
Income taxes		14,583			11,593			3,588
Income from continuing operations		21,375			14,956			4,909
Income from discontinued operations, net of tax of $302		—			—			416
Net income	$	21,375		$	14,956		$	5,325
Basic income per common share:
Income per share from continuing operations	$	0.85		$	0.63		$	0.23
Income per share from discontinued operations		—			—			0.02
Net income per share — basic	$	0.85		$	0.63		$	0.25
Diluted income per share:
Income per share from continuing operations	$	0.80		$	0.57		$	0.21
Income per share from discontinued operations		—			—			0.01
Net income per share — diluted	$	0.80		$	0.57		$	0.22
Weighted average shares:
Basic		25,048			23,904			21,731
Diluted		26,816			26,249			23,859

See accompanying notes to consolidated financial statements.

35

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In thousands, except share amounts)

							Retained			Accumulated
	Common Stock				Capital In		Earnings/			Other								Total
	# of Shares		Par		Excess of		Accumulated			Comprehensive			Treasury Stock					Shareholders’
	Issued		Value		Par Value		Deficit			Income/(Loss)			# of Shares		Amount			Equity
Balance at December 31, 2005		21,874,579	$	219	$	81,681	$	(94	)	$	—			1,662,846	$	(9,397	)	$	72,409
Comprehensive income:
Net income		—		—		—		5,325			—			—		—			5,325
Unrealized loss on derivative instrument, net of tax of $35		—		—		—		—			(53	)		—		—			(53	)
Total comprehensive income																			5,272
Shares issued-BSPA acquisition		1,749,800		17		24,393		—			—			—		—			24,410
Disqualifying dispositions		—		—		275		—			—			—		—			275
Share-based compensation cost		—		—		1,674		—			—			—		—			1,674
Exercise of stock options		1,403,486		14		2,853		—			—			—		—			2,867
Balance at December 31, 2006		25,027,865	$	250	$	110,876	$	5,231		$	(53	)		1,662,846	$	(9,397	)	$	106,907
Comprehensive income:
Net income		—		—		—		14,956			—			—		—			14,956
Unrealized loss on derivative instrument, net of tax of $83		—		—		—		—			(139	)		—		—			(139	)
Total comprehensive income																			14,817
Share-based compensation cost		—		—		2,173		—			—			—		—			2,173
Exercise of stock options		1,381,170		14		6,563		—			—			—		—			6,577
Disqualifying dispositions		—		—		8,275		—			—			—		—			8,275
Balance at December 31, 2007		26,409,035	$	264	$	127,887	$	20,187		$	(192	)		1,662,846	$	(9,397	)	$	138,749
Comprehensive income:
Net income		—		—		—		21,375			—			—		—			21,375
Unrealized loss on derivative instrument, net of tax of $147		—		—		—		—			(28	)		—		—			(28	)
Total comprehensive income																			21,347
Share-based compensation cost		—		—		3,498		—			—			—		—			3,498
Exercise of stock options		765,840		8		4,218		—			—			—		—			4,226
Disqualifying dispositions		—		—		10,542		—			—			—		—			10,542
Balance at December 31, 2008		27,174,875	$	272	$	146,145	$	41,562		$	(220	)		1,662,846	$	(9,397	)	$	178,362

See accompanying notes to consolidated financial statements.

36

HMS HOLDINGS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year			Year			Year
	Ended			Ended			Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
Operating activities:
Net income	$	21,375		$	14,956		$	5,325
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations		—			—			(416	)
Loss on disposal of fixed assets		90			370			29
Depreciation and amortization		11,967			10,558			9,713
Share-based compensation expense		3,498			2,173			1,674
Decrease in deferred tax asset		32			3,445			3,163
Changes in assets and liabilities:
Increase in accounts receivable		(4,531	)		(8,197	)		(2,105	)
Increase in prepaid expenses and other current assets					(1,185	)		(213	)
(Increase) decrease in other assets		(21	)		(171	)		12
Increase (decrease) in accounts payable, accrued expenses and other liabilities		(1,037	)		4,649			337
Net cash provided by operating activities		30,869			26,598			17,519
Investing activities:
Purchases of short term investments		—			—			(59,450	)
Sales of short term investments		—			—			96,950
Accordis note receivable		—			—			5,360
Purchases of property and equipment		(5,988	)		(8,594	)		(3,334	)
Acquisition of Prudent Rx		(4,496	)		—			—
Acquisition of Permedion		—			(627	)		—
Acquisition of BSPA		—			(15,000	)		(81,150	)
Investment in capitalized software		(912	)		(606	)		(1,131	)
Net cash used in investing activities		(11,396	)		(24,827	)		(42,755	)
Financing activities:
Proceeds from exercise of stock options		4,226			6,577			2,867
Proceeds from long-term debt		—			—			40,000
Repayment of long-term debt		(6,300	)		(7,875	)		(8,500	)
Tax benefit of disqualifying dispositions		10,542			8,275			275
Deferred financing costs		—			—			(936	)
Net cash provided by financing activities		8,468			6,977			33,706
Net increase in cash and cash equivalents		27,941			8,748			8,470
Net cash provided by discontinued operations		—			—			416
Cash and cash equivalents at beginning of year		21,275			12,527			3,641
Cash and cash equivalents at end of year	$	49,216		$	21,275		$	12,527
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	3,823		$	56		$	404
Cash paid for interest	$	1,299		$	1,945		$	831
Supplemental disclosure of noncash investing activities:
Common stock issued in connection with BSPA acquisition		—		$	—		$	24,410
Tenant improvement allowance	$	208		$	1,635		$	—
Accrued property and equipment purchases	$	1,898		$	—		$	—

See accompanying notes to consolidated financial statements.

37

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Summary of Significant Accounting Policies

(a)  Organization and Business

HMS Holdings Corp. (HMS or the Company) provides a variety of cost containment and payment accuracy services relating to government healthcare programs. These services are in general designed to help clients increase revenue and reduce operating and administrative costs.

(b)  Basis of Presentation and Principles of Consolidation

(i)  Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(ii)  Discontinued Operations of Business Segment

During 2005, the Company sold its Accordis Inc. (Accordis) subsidiary, which in prior periods had been a separate reportable segment. The historical operating results of Accordis for 2006 have been reported as discontinued operations in the accompanying consolidated statements of income.

(c)  Cash and Cash Equivalents

For purposes of financial reporting, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

(d)  Depreciation and Amortization of Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the assets utilizing the straight-line method. Amortization of leasehold improvements is provided over the estimated useful lives of the assets using the straight-line method. The estimated useful lives are as follows:

Equipment	2-3 years
Leasehold improvements	5 years
Furniture and fixtures	5 years

(e)  Software Development Cost

The Company capitalizes certain software development costs related to software developed for internal use while in the application development stage. All other costs to develop software for internal use, either in the preliminary project stage or post implementation stage are expensed as incurred. Amortization of software development costs is calculated on a straight-line basis over the expected economic life of the product, generally estimated to 3-5 years.

(f)  Goodwill

Goodwill, representing the excess of acquisition costs over the fair value of net assets of acquired businesses, is not amortized but is reviewed for impairment at least annually. Fair value is based on a projection of the estimated discounted future net cash flows expected to be achieved from a reporting unit using a discount rate reflective of our cost of funds. The fair value of the reporting unit is compared with the asset’s recorded value. If the recorded value is less than the fair value of the reporting unit, no impairment is indicated. If the fair value of the reporting unit is less than the recorded value, an impairment charge is recognized for the difference between the carrying value and the fair value. The Company performs its annual goodwill impairment testing in the second quarter of each year. No impairment losses have been recorded in any of the periods presented.

38

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(g)  Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of its asset group to the estimated undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the asset group exceeds the fair value of the assets and would be charged to earnings. Fair value is based on a projection of the estimated discounted future net cash flows expected to result from the asset group, using a discount rate reflective of the Company’s cost of funds. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell.

(h)  Purchase Accounting

The purchase method of accounting requires companies to assign values to assets and liabilities acquired based upon their fair value. In most instances there is not a readily defined or listed market price for individual assets and liabilities acquired in connection with a business, including intangible assets. The determination of fair value for individual assets and liabilities in many instances requires a high degree of estimation. The valuation of intangible assets, in particular is very subjective. The use of different valuation techniques and assumptions could change the amounts and useful lives assigned to the assets and liabilities acquired, including goodwill and other intangible assets and related amortization expense.

(i)  Income Taxes

Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits for net operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets to the extent their realization is not more likely than not.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted FIN No. 48 as of January 1, 2007. As a result of the implementation of FIN No. 48 the Company did not recognize a change in the liability for unrecognized tax benefits.

(j)  Earnings Per Share

Basic income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per share is calculated by dividing net income by the weighted average number of common shares and common stock equivalents outstanding during the period.

The following table reconciles the basic to diluted weighted average shares outstanding:

	Years Ending December 31,
	2008		2007		2006
	(Shares in thousands)
Weighted average shares outstanding — basic		25,048		23,904		21,731
Potential shares exercisable under stock option plans		1,768		2,345		2,128
Weighted average shares outstanding — diluted		26,816		26,249		23,859

39

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the periods ended December 31, 2008, 2007 and 2006; 758,190, 234,195 and 553,296 stock options, respectively, were not included in the diluted earnings per share calculation because the effect would have been antidilutive.

(k)  Revenue Recognition

The Company recognizes revenue for its contingency fee based services when third party payors remit payments to the Company’s customers and consequently the contingency is deemed to have been satisfied. This revenue recognition policy is specifically addressed in the Securities and Exchange Commission’s “Frequently Asked Questions and Answers” bulletin pertaining to Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (SAB 104). Transaction-related revenue is recognized based upon the completion of those transactions or services rendered during a given period.

Emerging Issues Task Force (EITF) No. 00-21, “Revenue Arrangements with Multiple Deliverables,” requires contracts with multiple deliverables to be divided into separate units of accounting if certain criteria are met. Arrangements including both implementation and transaction related revenue are accounted for as a single unit of accounting. Since implementation services do not carry a standalone value, the revenue relating to these services is recognized over the term of the customer contract to which it relates.

(l)  Stock-Based Compensation

On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards 123 (revised 2004), “Share-Based Payment” (SFAS 123R), which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at fair value. The Company adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards and to awards modified, repurchased, or cancelled after the adoption date. Additionally, compensation cost for the portion of the awards for which the requisite service has not been rendered that are outstanding as of the adoption date is recognized in the consolidated statement of operations over the remaining service period after the adoption date based on the award’s original estimate of fair value. SFAS 123R requires the cash flows resulting from tax benefits recognized for those options (excess tax benefits) to be classified as financing cash flows.

Total share-based compensation expense recorded in the consolidated statements of income was $3.5 million, $2.2 million, and $1.7 million for the years ended December 31, 2008, 2007, and 2006, respectively.

(m)  Fair Value of Financial Instruments

The carrying amounts for the Company’s cash equivalents, accounts receivable, accounts payable and accrued expense approximate fair value due to their short-term nature. The carrying amount of the Company’s long-term debt approximates fair value as the debt is variable rate and resets quarterly.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instrument and Hedging Activities, as amended, all derivative instruments are recorded at fair value on the Company’s balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based on the exposure being hedged, as either a fair value hedge or a cash flow hedge. Currently, the Company only has a cash flow hedge.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk, such as interest rate risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present

40

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

value of the future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.

(n)  Comprehensive Income

Other comprehensive income recorded by the Company includes all changes in derivative instruments which are carried at fair value and included as a component of equity.

(o)  Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. The actual results could differ from those estimates.

(p)  Leases

The Company accounts for its lease agreements pursuant to Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases, which categorizes leases at their inception as either operating or capital leases depending on certain defined criteria. We recognize lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays that defer the commencement date of required payments. Additionally, incentives the Company receives, such as tenant improvement allowances, are capitalized and are treated as a reduction of its rental expense over the term of the agreement.

(q)  Recent Accounting Pronouncement

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, with the exception of the application of the statement to the determination of fair value of non-financial assets and liabilities that are recognized or disclosed on a nonrecurring basis, which is effective for fiscal years beginning after November 15, 2008.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Effective January 1, 2008, we adopted SFAS No. 157 and have applied its provisions to financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis (at least annually). We have not yet adopted SFAS 157 for non-financial assets and liabilities, in accordance with FASB staff position 157-2, which is effective for fiscal years beginning after November 15, 2008.

At December 31, 2008, our interest rate swap contract (see note 9 of the Notes to Consolidated Financial Statements) was being carried at fair value and measured on a recurring basis. Fair value is determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy.

41

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159), which is effective for fiscal years beginning after November 15, 2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We have adopted SFAS 159 and have elected not to measure any additional financial instruments and other items at fair value.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business Combinations.” SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is prohibited. Therefore, the impact of the implementation of this pronouncement cannot be determined until the transactions occur.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. Entities will be required to provide enhanced disclosures about how and why an entity uses derivative instruments, how these instruments are accounted for, and how they affect the entity’s financial position, financial performance and cash flows. This new standard is effective for our Company as of January 1, 2009 and we are currently evaluating the impact on disclosures associated with our derivative and hedging activities.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The objective of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), and other GAAP. This FSP applies prospectively to all intangible assets acquired after the effective date in fiscal 2009, whether acquired in a business combination or otherwise. Early adoption is prohibited. Therefore, the impact of the implementation of this pronouncement cannot be determined until the transactions occur.

2.   Reclassification and Immaterial Adjustments

Certain reclassifications were made to prior year amounts to conform to the current year presentation. Non-material reclassifications were made between other operating costs and direct project costs to reclassify temporary staffing-related expenses. In conjunction with these reclassifications, there was no impact on total cost of services, operating income, and net income for the periods adjusted.

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HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Additionally, in 2008, the Company modified its presentation of operating expenses to separately present selling, general and administrative expenses for each of the years presented to conform to US Securities and Exchange Commission regulations. These immaterial modifications had no impact on total operating expenses, operating income, net income and cash flows for the years adjusted. The following table presents the previously reported and the revised balances:

	2007				2006
	Previously				Previously
	Reported		Revised		Reported		Revised
Operating expenses:
Cost of services
Compensation	$	57,137	$	46,185	$	38,547	$	30,577
Data processing		10,026		9,298		6,812		6,548
Occupancy		9,411		8,431		6,322		5,217
Direct project cost		21,866		22,774		13,849		13,849
Other operating cost		15,288		6,540		8,165		4,528
Amortization of intangibles		4,642		4,642		6,420		6,420
Total cost of services		118,370		97,870		80,115		67,139
Selling general & administrative expenses		—		20,500		—		12,976
Total operating expenses	$	118,370	$	118,370	$	80,115	$	80,115

3.   Acquisitions

On September 13, 2006, the Company completed an acquisition of all of the assets of Public Consulting Group, Inc. (PCG) used exclusively or primarily by Benefits Solutions Practice Area (BSPA) for $81.2 million in cash, 1,749,800 shares of the Company’s common stock valued at $24.4 million and a contingent cash payment of up to $15.0 million if certain revenue targets were met for the twelve months ending June 30, 2007. As the revenue targets were exceeded, the Company accrued $15.0 million of additional consideration due PCG at June 30, 2007, which increased goodwill resulting from the BSPA acquisition. The $15.0 million was paid to PCG on September 28, 2007. BSPA provides a variety of cost avoidance, insurance verification, recovery audit and related services to state Medicaid agencies, children and family services agencies, the U.S. Department of Veterans Affairs, and the Centers for Medicare and Medicaid Services.

On October 5, 2007, the Company purchased the net assets of Peer Review Systems, Inc. doing business as Permedion, an independent healthcare quality review and improvement organization. Permedion provides independent external medical review on issues of quality of care, medical necessity and experimental/investigational treatment to both state government and private clients across the country. The purchase price of $0.6 million was paid in cash and was accounted for under the asset purchase accounting method. The acquisition of Permedion did not have a material effect on the Company’s fourth quarter or fiscal year 2007 earnings or liquidity.

On September 16, 2008, the Company purchased the net assets of Prudent Rx, Inc., an independent pharmacy audit and cost containment company. With this acquisition, the Company further expanded its portfolio of program integrity service offerings for government healthcare programs and managed care organizations, particularly in the pharmacy arena. Prudent Rx’s key products and services include audit programs, program design and benefit management, as well as general and pharmacy systems consulting.

The purchase price of Prudent Rx’s net assets, inclusive of acquisition cost, was approximately $4.5 million and was accounted for under the asset purchase accounting model. Additional future payments of $2.3 million ($1.150 million for each of the years ending December 31, 2009 and 2010) will be made contingent upon Prudent

43

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Rx meeting certain financial performance milestones and will be recorded as additional goodwill upon meeting the milestones.

The acquisition of Prudent Rx did not have a material effect on the Company’s fourth quarter or fiscal year 2008 earnings or liquidity.

The allocation of the purchase price was based upon estimates of the fair value of assets and liabilities acquired in accordance with SFAS No. 141 “Business Combinations.” The acquisition of Prudent Rx was based on management’s consideration of past and expected future performance as well as the potential strategic fit with the long-term goals of the Company. The expected long-term growth, market position and expected synergies to be generated by Prudent Rx were the primary factors which gave rise to an acquisition price which resulted in the recognition of goodwill.

The allocation of the aggregate purchase price of this acquisition is as follows:

Goodwill	$	2,100
Identifiable intangible assets		1,432
Net assets acquired		964
Total purchase price	$	4,496

Identifiable intangible assets principally include customer relationships and Prudent Rx’s trade name (See Note 5).

4.   Property and Equipment

Property and equipment as of December 31, 2008 and 2007 consisted of the following (in thousands):

	December 31,			December 31,
	2008			2007
Equipment	$	26,045		$	20,095
Leasehold improvements		6,204			5,895
Furniture and fixtures		6,127			5,511
Capitalized software		6,783			5,871
		45,159			37,372
Less accumulated depreciation and amortization		(27,402	)		(20,876	)
Property and equipment, net	$	17,757		$	16,496

Depreciation and amortization expense related to property and equipment charged to operations for the years ended December 31, 2008, 2007, and 2006 was $7.1 million, $5.6 million, and $3.2 million, respectively. In connection with our operating lease for the Irving, Texas facility, we received a $1.6 million tenant improvement allowance that is included above in the December 31, 2008 and 2007 leasehold improvements and furniture and fixtures balances. In connection with our operating lease for the Westerville, Ohio facility, we received a $0.2 million tenant improvement allowance that is included above in the December 31, 2008 leasehold improvements and furniture and fixtures balances.

44

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.   Intangible Assets

Intangible assets as of December 31, 2008 and 2007 are as follows (in thousands):

			Accumulated
	Asset		Amortization		Net		Useful Life
Customer relationships	$	28,580	$	9,227	$	19,353		7 years
Other		726		256		470		1-5 years
Balance at December 31, 2008	$	29,306	$	9,483	$	19,823
Customer relationships	$	27,631	$	5,224	$	22,407		7 years
Other		243		155		88		1-5 years
Balance at December 31, 2007	$	27,874	$	5,379	$	22,495

Amortization of intangibles over the next five years is as follows (in thousands):

Year Ending December 31,
2009	$	4,226
2010		4,159
2011		4,159
2012		4,145
2013		2,800

The changes in the carrying amount of goodwill for the years ended December 31, 2008, 2007 and 2006 are as follows:

Balance at December 31, 2005	$	2,382
BSPA acquisition		62,860
Balance at December 31, 2006		65,242
BSPA acquisition/contingent payment		15,000
Balance at December 31, 2007		80,242
Prudent Rx, Inc. acquisition		2,100
Balance at December 31, 2008	$	82,342

6.   Accounts Payable, Accrued Expenses and Other Liabilities

Accounts payable, accrued expenses and other liabilities as of December 31, 2008 and 2007 consisted of the following (in thousands):

	December 31,		December 31,
	2008		2007
Accounts payable, trade	$	9,654	$	7,599
Accrued compensation		7,880		9,999
Accrued direct project costs		2,038		927
Accrued other expenses		3,287		3,014
	$	22,859	$	21,539

45

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2008 and 2007, $3.3 million and $3.4 million, respectively, were included in other liabilities (long-term) related to the Company’s recognizing of rental expenses and tenant improvement allowances on the Company’s facility leases on a straight-line basis (See Note 14).

7.   Income Taxes

The income tax expense for the years is as follows (in thousands):

	Year Ended			Year Ended		Year Ended
	December 31,			December 31,		December 31,
	2008			2007		2006
Current tax expense:
Federal	$	11,242		$	7,546	$	147
State		3,309			1,874		70
		14,551			9,420		217
Deferred tax expense:
Federal		(255	)		100		2,243
State		287			2,073		1,128
		32			2,173		3,371
Total income tax expense	$	14,583		$	11,593	$	3,588

The federal tax expense in 2006 principally arises from Alternative Minimum Tax requirements and some state income tax provisions.

A reconciliation of the income tax expense calculated using the applicable federal statutory rates to the actual income tax expense from continuing operations follows (in thousands):

	Years Ended December 31,
	2008			%			2007			%			2006			%
Income tax expense:
Computed at federal statutory rate	$	12,585			35.0		$	9,279			35.0		$	2,889			34.0
State and local tax expense, net of federal benefit		2,337			6.5			2,566			9.7			790			9.3
Municipal interest		—			—			(113	)		(0.5	)		(135	)		(1.6	)
Write(up)/down of deferred tax asset		(465	)		(1.3	)		—			—			434			5.1
Decrease in valuation allowance		—			—			—			—			(672	)		(7.9	)
Other, net		126			0.4			(139	)		(0.5	)		282			3.3
Total income tax expense	$	14,583			40.6		$	11,593			43.7		$	3,588			42.2

46

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income taxes are recognized for the future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 were as follows (in thousands):

	December 31,			December 31,
	2008			2007
Deferred tax assets:
Allowance for doubtful accounts and deferred revenue	$	1,729		$	566
Property and equipment		149			844
Restructuring cost		305			461
Goodwill and other intangibles		2,824			2,113
Software		136			241
Minimum tax credit		500			—
Federal and state net operating loss carryforwards		279			93
Capital loss carryforward		2,466			2,466
Deferred stock compensation		2,072			1,150
Deferred rent		992			1,566
Other		244			299
Total deferred tax assets before valuation allowance		11,696			9,799
Less valuation allowance		(2,666	)		(2,666	)
Total deferred tax assets after valuation allowance		9,030			7,133
Deferred tax liabilities:
Goodwill, BSPA		4,517			2,618
Capitalized software cost		776			747
Total deferred tax liabilities		5,293			3,365
Total net deferred tax assets	$	3,737		$	3,768
Net current deferred tax assets	$	1,697		$	657
Net non-current deferred tax assets		2,040			3,111
Total net deferred tax assets	$	3,737		$	3,768

At December 31, 2008, the Company had net operating loss carry-forwards (NOLs) of $0.5 million which are subject to limitation set forth in the Code and is available to offset future federal and state and local taxable income. The Company also has New York State NOLs of $1.5 million which are available to offset future state taxable income. The $1.5 million relates to disqualifying disposition for which the Company recognizes no tax benefit in its financial statements as of December 31, 2008. The impact of this benefit is approximately $0.04 million and will be recorded by a debit to income tax payable and a credit to capital in excess of par value rather than income when utilized. During 2008, the Company recorded a tax benefit of $10.5 million related to the utilization of disqualifying dispositions by reducing income tax payable and crediting capital. The Company utilized $13.1 million of disqualifying dispositions generated from 2008 stock option exercises and utilized $13.5 million of NOLs from stock options carry-forwards from 2007 to recognize this tax benefit.

There was no change in the Company’s valuation allowance in 2008 and 2007. The Company recognized decreases in the valuation allowance related to the Company’s ability to realize its deferred assets of $0.7 million for the year ended December 31, 2006. At December 31, 2008, the Company has a valuation allowance of $2.7 million.

47

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The sale of Accordis in 2005 resulted in a capital loss of $6.0 million, which can be carried forward for five years and produced a deferred tax asset of $2.5 million. The Company believes the available objective evidence, principally the capital loss carryforward being utilizable to offset only future capital gains, creates sufficient uncertainty regarding the realizability of its capital loss carryforward, that it is more likely than not, that substantially all of the capital loss carryforward is not realizable.

The remaining valuation allowance of $0.2 million relates to certain state NOLs where the company doesn’t currently operate and there is sufficient doubt about the Company’s ability to utilize these NOLs, that it is more likely than not that this portion of the state NOLs are not realizable.

At December 31, 2008, the Company had approximately $0.2 million of tax positions for which there is uncertainty about the allocation and apportionment of state tax deductions. If recognized, all of this balance would impact the effective tax rate; however the Company does not expect any significant change in unrecognized tax benefits during the next twelve months. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. At December 31, 2008, the Company had accrued liabilities related to uncertain tax positions of approximately $92,000.

8.   Debt

The Company has a credit agreement among the Company, the several banks and other financial institutions or entities from time to time parties thereto, and JPMorgan Chase Bank, N.A. (JPMCB), as administrative agent (the Credit Agreement), which was utilized to fund a portion of the purchase price for the Company’s acquisition of BSPA described in Note 3. The Credit Agreement provides for a term loan of $40 million (the Term Loan) and revolving credit loans of up to $25 million (the Revolving Loan). Borrowings under the Credit Agreement mature on September 13, 2011. The loans are secured by a security interest in favor of the lenders covering the assets of the Company. Interest on borrowings under the Credit Agreement is calculated, at the Company’s option, at either (i) LIBOR, including statutory reserves, plus a variable margin based on the Company’s leverage ratio, or (ii) the higher of (a) the prime lending rate of JPMCB, and (b) the Federal Funds Effective Rate plus 0.50%, in each case plus a variable margin based on the Company’s leverage ratio. In connection with the Revolving Loan, the Company agreed to pay a commitment fee, payable quarterly in arrears, at a variable rate based on the Company’s leverage ratio, on the unused portion of the Revolving Loan.

Commitments under the Credit Agreement will be reduced and borrowings are required to be repaid with the net proceeds of, among other things, sales or issuances of equity (excluding equity issued under employee benefit plans and equity issued to sellers as consideration in acquisitions), sales of assets by the Company and any incurrence of indebtedness by the Company, subject, in each case, to limited exceptions. The obligations of the Company under the Credit Agreement may be accelerated upon the occurrence of an event of default under the Credit Agreement, which includes customary events of default including, without limitation, payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, defaults relating to such matters as Employee Retirement Income Security Act, uninsured judgments and the failure to pay certain indebtedness, and a change of control default.

In addition, the Credit Agreement contains affirmative, negative and financial covenants customary for financings of this type. The negative covenants include restrictions on indebtedness, liens, fundamental changes, dispositions of property, investments, dividends and other restricted payments. The financial covenants include a consolidated fixed charge coverage ratio, as defined, of not less than 1.75 to 1.0 through December 31, 2008 and a consolidated leverage ratio, as defined not to exceed 3.0 to 1.0. The Company is in full compliance with all of these covenants at December 31, 2008.

The Term Loan requires quarterly repayments of $1.575 million. There have been no borrowings under the Revolving Loan. However, we had outstanding a $4.6 million irrevocable standby letter of credit related to contingent, default payment obligations required by a contractual arrangement with a client. As a result of the letter

48

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of credit issued, the amount available under the Revolving Loan was reduced by $4.6 million at December 31, 2008. Fees and expenses incurred in 2006 related to the Credit Agreement of $0.9 million have been recorded as Deferred Financing Costs (included in other assets, non-current) and are amortized to interest expense over the five-year life of the credit facilities using the effective interest method.

Long-term debt consists of the following at December 31, 2008 (in thousands, except percentages):

	December 31,
	2008
Borrowings under the Credit Agreement:
$40.0 million Term Loan, interest at 2.5%	$	17,325
$25.0 million Revolving Credit		—
Total long-term debt	$	17,325
Less current portion of long-term debt		6,300
Long-term debt, net of current portion	$	11,025

Aggregate maturities of long-term debt over the next five years are as follows (in thousands):

Year Ending December 31,
2009	$	6,300
2010		6,300
2011		4,725

9.   Derivative Contract

The Company has an interest rate swap agreement to hedge the fluctuations in variable interest rates and does not use derivative instruments for speculative purposes.

In December 2006, the Company entered into an interest rate swap agreement maturing on September 30, 2009, which is accounted for as a cash flow hedge. This agreement effectively converted $12.0 million of the Company’s variable rate debt to fixed-rate debt, reducing the Company’s exposure to changes in interest rates. Under this swap agreement, the Company received an average LIBOR variable rate of 3.533% and paid a LIBOR fixed rate of 5.295% for the year ended December 31, 2008. The LIBOR interest rates exclude the Company’s applicable interest rate spread under the Company’s Credit Agreement. The Company has recognized, net of tax, an unrealized loss $28,000 for the year ended December 31, 2008 and a cumulative unrealized loss of $220,000 related to the change in the instrument’s fair value as of December 31, 2008. This amount has been included in accumulated other comprehensive income.

The fair value of this swap, a liability of $0.4 million and $0.3 million for the years ended December 31, 2008 and 2007, respectively, is recorded in the consolidated balance sheets as other current liability, with changes in its fair value included in other comprehensive income.

10.   Equity

(a)  Treasury Stock

On May 28, 1997, the Board of Directors authorized the Company to repurchase such number of shares of its common stock that have an aggregate purchase price not to exceed $10 million. On February 24, 2006, the Board of Directors increased the authorized aggregate purchase price by $10 million to an amount not to exceed $20 million. The Company is authorized to repurchase these shares from time-to-time on the open market or in negotiated transactions at prices deemed appropriate by the Company. Repurchased shares are deposited in the Company’s treasury and used for general corporate purposes. During the years ended December 31, 2008, 2007, and 2006, the

49

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company did not repurchase any shares of common stock. Since the inception of the repurchase program in June 1997, the Company has repurchased 1,662,846 shares of common stock at an average price of $5.65 per share having an aggregate purchase price of $9.4 million.

(b)  Preferred Stock

The Company’s certificate of incorporation, as amended, authorizes the issuance of up to 5,000,000 shares of “blank check” preferred stock with such designations, rights and preferences as may be determined by the Company’s Board of Directors. As of December 31, 2008, no preferred stock had been issued.

11.   Employee Benefit Plan

The Company sponsors a benefit plan to provide retirement benefits for its employees known as the HMS Holdings Corp. 401(k) Plan (the 401(k) Plan). Participants may make voluntary contributions to the 401(k) Plan of up to 60% of their annual base pre-tax compensation not to exceed the federally determined maximum allowable contribution. The 401(k) Plan permits discretionary Company contributions. The Company contributions are not in the form of the Company’s common stock.

Participants are permitted to invest their contributions in the Company’s stock. For the years ended December 31, 2008, 2007, and 2006, the Company’s contributions to the 401(k) Plan were $1,268,000, $950,000, and $473,000, respectively.

12.   Stock-Based Compensation Plans

(a)  2006 Stock Plan

The Company’s 2006 Stock Plan (2006 Plan) was approved by the Company’s shareholders at the Annual Meeting of Shareholders held on June 6, 2006 and amendments to the 2006 Plan was approved by the Company’s shareholders at the 2007 and 2008 annual meetings of shareholders. The purpose of the 2006 Plan is to furnish a material incentive to employees and non-employee Directors of the Company and its subsidiaries by making available to them the benefits of a larger common stock ownership in the Company through stock options and awards. It is believed that these increased incentives stimulate the efforts of employees and non-employee Directors towards the continued success of the Company and its affiliates, as well as assist in the recruitment of new employees and non-employee Directors. A total of 2,150,000 Shares has been previously authorized for issuance pursuant to awards granted under the Plan. Any Shares issued in connection with awards other than Stock Options and Stock Appreciation Rights are counted against the 2,150,000 limit described above as one and eight-tenths (1.8) Shares for every one Share issued in connection with such award or by which the award is valued by reference. Any Employee or non-employee Director shall be eligible to be selected as a Participant; if, that Incentive Stock Options shall only be awarded to employees of the Company, or a parent or subsidiary, within the meaning of Section 422 of the Code of 1984, as amended (the Code). The option price per Share shall be not less than the fair market value of the shares on the date the option is granted.

During the fourth quarter of 2008, the Compensation Committee of the Board of Directors approved a stock option grant under the 2006 Plan of 609,950 stock option awards to officers, executives, and management at an exercise price of $23.99 per share, the average of the high and low trading prices for the Company’s common stock on the date of the grant. A portion of this stock option grant will vest ratably over a three-year period, while the remaining portion will vest at the end of the three year period, upon the Company’s achievement of certain predefined performance-based criteria.

During the year ended December 31, 2008, 638,950 options were issued under the 2006 Plan with 374,299 options remaining available for grant under the 2006 Plan. As of December 31, 2008, 1,653,717 options were outstanding.

50

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On February 19, 2009 the Company issued 127,920 shares of restricted stock units fair valued at $4.0 million to several of its senior executives. These shares will vest equally over a five year period on each annual anniversary of the grant date.

(b)  1999 Long-Term Incentive Plan

The Company’s 1999 Long-Term Incentive Stock Plan (Plan) was approved by the Company’s shareholders at the Annual Meeting of Shareholders held on March 9, 1999. At the June 4, 2003 Annual Meeting of Shareholders, the shareholders approved an increase in the number of shares of common stock available for issuance under the Plan to 6,251,356 from 4,751,356. The Plan was terminated upon approval of the 2006 Plan by our shareholders at the June 6, 2006 Annual Meeting of Shareholders. There are no remaining options available for grant under this Plan. As of December 31, 2008, 1,711,472 options were outstanding.

(c)  Options Issued Outside the Plans

As of December 31, 2008, 701,250 options were outstanding that included 300,000 options granted in March 2001 to our Chairman and Chief Executive Officer, 341,250 options remaining from those granted in September 2006 to ten former senior executives of BSPA, and 60,000 inducement options granted to a new hire in 2007.

(d)  Summary of Options

Presented below is a summary of the Company’s options for the years ended December 31, 2008:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Shares	Shares			Price		Terms		Value
	(In thousands)
Outstanding at January 1, 2008		4,246		$	9.23
Granted		639			24.08
Exercised		(766	)		5.52
Forfeitures		(19	)		16.21
Expired		(34	)		5.78
Outstanding at December 31, 2008		4,066		$	12.26		5.40	$	77,787
Vested or expected to vest at December 31, 2008		3,922		$	11.91		0.68	$	76,394
Exercisable at December 31, 2008		2,319		$	6.25		4.64	$	58,300

The fair value of each option grant was estimated using the Black-Scholes option pricing model. Expected volatilities are calculated based on the historical volatility of the Company’s stock. Management monitors share option exercise and employee termination patterns to estimate forfeiture rates within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected holding period of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the interest rate of a 4-year U.S. Treasury note in effect on the date of the grant. The weighted average fair value of options granted was $8.47, $8.76, and $5.10 for the years ended December 31, 2008, 2007, and 2006 respectively.

As of December 31, 2008, there was approximately $11.3 million of total unrecognized compensation cost related to stock options outstanding at December 31, 2008. That cost is expected to be recognized over a weighted-average period of 1.7 years. No compensation cost related to stock options was capitalized for the year ended December 31, 2008.

51

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006 was $14.9 million, $26.3 million and $9.9 million, respectively.

Total compensation cost for shared-based payments arrangements charged against income was $3.5 million, $2.2 million and $1.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. The total income tax benefit recognized in the income statement for shared-based arrangements was $1.4 million for the year ended December 31, 2008 and $1.0 million for the years ended December 31, 2007, and 2006 respectively.

The following table summarizes the weighted average assumptions utilized in developing the Black-Scholes pricing model:

	Year Ended December 31,
	2008			2007			2006
Expected dividend yield		0	%		0	%		0	%
Risk-free interest rate		2.96	%		4.36	%		4.9	%
Expected volatility		40.08	%		38.1	%		38.7	%
Expected life		4.0 years			4.1 years			5.0 years

The following table summarizes information for stock options outstanding at December 31, 2008 (in thousands, except per share data):

									Weighted
Range of	Number Outstanding		Weighted Average		Weighted				Average
Exercise	as of December 31,		Remaining		Average		Number		Exercise
Prices	2008		Contractual Life		Exercise Price		Exercisable		Price
$ 1.07 — 1.19		361		2.19	$	1.17		361	$	1.17
2.48 — 2.48		410		3.22		2.48		410		2.48
2.92 — 3.41		589		4.34		3.21		589		3.21
4.51 — 6.95		422		6.03		6.61		422		6.61
7.34 — 10.98		553		7.41		10.29		277		10.25
14.04 — 19.12		466		7.83		14.87		96		15.07
21.86 — 22.29		75		8.30		22.15		19		22.15
23.99 — 23.99		607		6.75		23.99		12		23.99
24.79 — 24.79		5		6.69		24.79		0		0.00
25.45 — 28.46		578		3.89		25.53		133		25.49
1.07 — 28.46		4,066		5.40	$	12.26		2,319	$	6.25

13.   Transactions with Officers, Related Parties, and Others

(a)  Public Consulting Group, Inc.

As part of the acquisition of BSPA in 2006, the Company entered into four subleases with PCG (a significant shareholder as a result of the acquisition of BSPA) where BSPA was located in an office where the lease liability was not assumed by the Company. For the year ended December 31, 2008, amounts recognized as expense by the Company under subleases to PCG was approximately $114,000 and there were no amounts recognized as a reduction to expense where PCG subleases from the Company. For the year ended December 31, 2007, amounts recognized as expense by the Company under subleases to PCG were approximately $129,000 and amounts recognized as a reduction to expense where PCG subleases from the Company were approximately $42,000.

As part of the acquisition of BSPA, the Company and PCG entered into an Intercompany Services Agreement (the ISA) to allow each party to perform services such as IT support and contractual transition services. Services performed under the ISA are billed at pre-determined rates as specified in the ISA. For the year ended December 31,

52

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2008, services rendered by PCG to the Company under the ISA approximated $33,000 and services rendered by HMS for PCG approximated $58,000. For the year ended December 31, 2007, services rendered by PCG to the Company under the ISA approximated $74,000 and services rendered by HMS for PCG approximated $131,000.

Since the acquisition, amounts have been collected by or paid on behalf of the Company by PCG and are reimbursed to PCG at cost. As of December 31, 2008 and 2007, $72,000 and $4,000, respectively was owed to PCG and was classified as a current liability.

(b)  Accordis

On August 31, 2005, the Company sold the stock of its wholly-owned subsidiary Accordis, to Accordis Holding Corp. (AHC), an unrelated New York based private company. Concurrent with the sale of Accordis, the Company entered into a three year Data Services Agreement (DSA) to provide data processing services to AHC, which is reported as revenue in the Company’s financial statements. The DSA has since been extended for a fourth year for revenue of approximately $1.6 million in 2009. The DSA contains specific service levels consistent with prior history and provides for revenue increases in the event AHC exceeds certain transaction levels. For the years ended December 31, 2008, 2007, and 2006, the Company recorded $2.0 million, $2.4 million, and $2.7 million of revenue from the DSA.

(c)  Employment Agreements

The Company is obligated under two employment agreements with executive officers that provide for salary and benefit continuation in the event of termination without cause that expire in February 2011 (as amended March 1, 2009). Additionally, the Company is obligated under separation agreements with two executive officers that provides for salary and benefit continuation in the event of termination without cause.

14.   Commitments and Contingencies

Lease commitments

The Company leases office space, data processing equipment and software licenses under operating leases that expire at various dates through 2013. The lease agreements provide for rent escalations. Lease expense, exclusive of sublease income, for the years ended December 31, 2008, 2007, and 2006, was $9.2 million, $8.2 million, and $6.2 million, respectively. Sublease income was $40,000, $161,000, and $542,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

Minimum annual lease payments to be made and sublease payments to be received for each of the next five years ending December 31 and thereafter are as follows (in thousands):

Year	Payments		Sublease Receipts
2009	$	9,299	$	613
2010		7,747		631
2011		7,349		644
2012		6,201		634
2013		2,395		262
Thereafter		—		—
Total	$	32,991	$	2,784

53

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15.   Segments and Geographical Information

(a)  Segment Information

Beginning in the first quarter of 2007, the Company was managed and operated as one business with a single management team that reports to the chief executive officer. The Company does not operate separate lines of business with respect to any of its product lines. Accordingly, the Company does not prepare discrete financial information with respect to separate product lines or by location and does not have separately reportable segments as defined by Statement of Financial Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information”.

(b)  Geographic Information

The Company operates within the continental United States.

(c)  Major Customers

The Company’s largest client in 2008 was the New York State Office of Medicaid. This client accounted for 7.9%, 8.9% and 3.6% of the Company’s total revenue in the years ended December 31, 2008, 2007 and 2006, respectively. The New York State Office of Medicaid became a client of the Company in September 2006 as part of the BSPA acquisition. The Company provides services to this client pursuant to a contract awarded in October 2001 and subsequently extended through January 6, 2015. The Company’s second largest client in 2008 was the New Jersey Department of Human Services. This client accounted for 6.6%, 7.1%, and 10.9% of the Company’s total revenue in the years ended December 31, 2008, 2007, and 2006, respectively. The Company provides services to this client pursuant to a contract awarded in January 2008 for an initial three year contract term with two additional one-year renewals through December 2012. This customer has been a client of the Company since 1985.

(d)  Concentration of Revenue

The clients constituting the Company’s ten largest clients change periodically. The concentration of revenue with such clients was 43.5%, 42.5% and 50.5% of the Company’s revenue in each of the years ended December 31, 2008, 2007 and 2006, respectively. Our three largest clients accounted for approximately 20%, 22% and 27% of our revenue in each of the years ended December 31, 2008, 2007 and 2006, respectively. In many instances, the Company provides its services pursuant to agreements subject to competitive re-procurement. All of these agreements expire prior to 2015. The Company cannot provide assurance that any of these agreements will be renewed and, if renewed, that the fee rates will be equal to those currently in effect.

54

HMS HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16.   Quarterly Financial Data (unaudited)

The table below summarizes the Company’s unaudited quarterly operating results for its last two fiscal years.

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In thousands, except per share amounts)
Year Ended December 31, 2008
Revenue	$	38,943	$	44,183	$	48,965	$	52,404
Operating income		5,689		8,842		10,771		11,428
Net income		3,173		5,001		6,143		7,058
Basic net income per share		0.13		0.20		0.24		0.28
Diluted net income per share		0.12		0.19		0.23		0.26
Year ended December 31, 2007
Revenue	$	32,238	$	35,061	$	37,684	$	41,668
Operating income		5,874		7,181		7,669		7,557
Net income		2,972		3,807		4,141		4,036
Basic net income per share		0.13		0.16		0.17		0.17
Diluted net income per share		0.11		0.15		0.16		0.15

55

HMS HOLDINGS CORP. AND SUBSIDIARIES

Schedule II — Valuation and Qualifying Accounts

	(In thousands)
Allowance for doubtful accounts:
Balance, December 31, 2005	$	675
Provision		—
Recoveries		—
Charge-offs		(163	)
Balance, December 31, 2006		512
Provision		169
Recoveries		—
Charge-offs		(19	)
Balance, December 31, 2007		662
Provision		—
Recoveries		2
Charge-offs		—
Balance, December 31, 2008	$	664

56

HMS Holdings Corp. and Subsidiaries

Exhibit Index

Exhibit
Number			Description
	2		Agreement and Plan of Merger, dated as of December 16, 2002, among Health Management Systems, Inc., HMS Holdings Corp. and HMS Acquisition Corp. (Incorporated by reference to Exhibit 2.1 to Amendment No. 1 (“Amendment No. 1”) to HMS Holdings Corp.’s Registration Statement on Form S-4, File No. 333-100521 (the “Form S-4”))
	3	.1(i)	Restated Certificate of Incorporation of HMS Holdings Corp. (Incorporated by reference to Exhibit 3.1 to Amendment No. 1)
	3	.1(ii)	Certificate of Amendment to the Certificate of Incorporation of HMS Holdings Corp. (Incorporated by reference to Exhibit 3.1(a) to HMS Holdings Corp.’s Registration Statement on Form S-8, File No. 333-108436 (the “1999 Plan Form S-8”)
	3	.2	By-laws of HMS Holdings Corp. (Incorporated by reference to Exhibit 3.2 to the Form S-4)
	10	.1†	Health Management Systems, Inc. Employee Stock Purchase Plan, as amended (Incorporated by reference to Exhibit 10.2 to the January 1994 Form 10-Q and to Exhibit 10.1 to Health Management Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 1995 (the “January 1995 Form 10-Q”))
	10	.2†	Health Management Systems, Inc. 1995 Non-Employee Director Stock Option Plan (Incorporated by reference to Exhibit 10.2 to the January 1995 Form 10-Q)
	10	.3†	HMS Holdings Corp. 1999 Long-Term Incentive Stock Plan (Incorporated by reference to Exhibit 4 to the 1999 Plan Form S-8)
	10	.3(i)†	Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.1 to HMS Holdings Corp.’s Current Report on Form 8-K dated December 14, 2004 (the “December 2004 Form 8-K”))
	10	.3(ii)†	Form of Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to the December 2004 Form 8-K)
	10	.4(i)†	HMS Holdings Corp. 2006 Stock Plan (Incorporated by reference to Exhibit 4.6 to HMS Holdings Corp.’s Registration Statement on Form S-8, File No. 333-139025 (the “2006 Plan Form S-8”))
	10	.4(ii)†	HMS Holdings Corp. Amended and Restated 2006 Stock Plan (Incorporated by reference to Exhibit 4.7 to HMS Holdings Corp.’s Registration Statement on Form S-8, File No. 333-149836 (the “2008 Plan Form S-8”)
	10	.4(iii)†	HMS Holdings Corp. Amended and Restated 2006 Stock Plan, as further amended and restated (Incorporated by reference to Annex 1 to HMS Holdings Corp.’s Proxy Statement dated April 29, 2008)
	10	.4(iv)†	Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 4.6(i) to the 2006 Plan Form S-8)
	10	.4(v)†	Form of Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 4.6(ii) to the 2006 Plan Form S-8)
	10	.5(i)†	Employment Agreement dated as of March 30, 2001 by and between Health Management Systems, Inc. and Robert M. Holster (Incorporated by reference to Exhibit 10.2(i) to Health Management Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2001 (the “April 2001 Form 10-Q”))
	10	.5(ii)†	Amendment dated as of February 11, 2004 to Employment Agreement between HMS Holdings Corp. and Robert M. Holster (Incorporated by reference to Exhibit 10 to HMS Holdings Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004)
	10	.5(iii)†	Second Amendment, dated as of July 16, 2007, to Employment Agreement between HMS Holdings Corp. and Robert M. Holster (Incorporated by reference to Exhibit 10.1 to HMS Holdings Corp.’s Current Report on Form 8-K dated August 7, 2007)
	10	.5(iv)†	Amended and restated Employment Agreement between HMS Holdings Corp. and Robert M. Holster dated as of March 1, 2009 (Incorporated by reference to Exhibit 10.1 to HMS Holdings Corp.’s Current Report on Form 8-K dated March 5, 2009)

57

Exhibit
Number			Description
	10	.6†	Stock Option Agreement dated as of March 30, 2001 by and between Health Management Systems, Inc. and Robert M. Holster (Incorporated by reference to Exhibit 10.2(ii) to the April 2001 Form 10-Q)
	10	.7†	Employment Agreement dated as of January 1, 2003 by and between Health Management Systems, Inc. and William C. Lucia (Incorporated by reference to Exhibit 10.13 to HMS Holdings Corp.’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”))
	10	.7(i)†	Amendment, dated as of December 31, 2005, to Employment Agreement between William C. Lucia and HMS Holdings Corp. (Incorporated by reference to Exhibit 99.2 to HMS Holdings Corp.’s Current Report on Form 8-K dated January 18, 2006)
	10	.7(ii)†	Amended and restated Employment Agreement between William C. Lucia and HMS Holdings Corp. dated as of March 1, 2009 (Incorporated by reference to Exhibit 10.2 to HMS Holdings Corp.’s Current Report on Form 8-K dated March 5, 2009)
	*10	.8	Lease, dated July 31, 2007, between Equastone High Point, LP, as Landlord, and Health Management Systems, Inc., as Tenant
	10	.9(i)	Leases, dated September 24, 1981, September 24, 1982, and January 6, 1986, as amended, between 401 Park Avenue South Associates and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.13 to Health Management Systems, Inc.’s Registration Statement on Form S-1, File No. 33-46446, dated June 9, 1992 and to Exhibit 10.5 to Health Management Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 1994)
	10	.9(ii)	Lease, dated as of March 15, 1996, by and between 387 PAS Enterprises, as Landlord, and Health Management Systems, Inc., as Tenant (Incorporated by reference to Exhibit 10.2 to Health Management Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 31, 1996 (the “July 1996 Form 10-Q”))
	10	.9(iii)	Fifth Amendment, dated May 30, 2000 to the lease for the entire eighth, ninth, and tenth floors and part of the eleventh and twelfth floor between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.1 to Health Management Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2000 (the “July 2000 Form 10-Q”))
	10	.9(iv)	Sixth Amendment, dated May 1, 2000 to the lease for the entire eighth, ninth, and tenth floors and part of the eleventh and twelfth floor between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. Tenant (Incorporated by reference to Exhibit 10.2 to the July 2000 Form 10-Q)
	10	.9(v)	Seventh Amendment, dated April 1, 2001 to the lease for the entire eighth, ninth, and tenth floors and part of the eleventh floor between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. Tenant (Incorporated by reference to Exhibit 10.1(v) to the April 2001 Form 10-Q)
	10	.9(vi)	Third Amendment, dated May 30, 2000 to the lease for a portion of the eleventh floor between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.3 to the July 2000 Form 10-Q)
	10	.9(vii)	Fourth Amendment, dated May 1, 2000 to the lease for a portion of the eleventh floor between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.4 to the July 2000 Form 10-Q)
	10	.9(viii)	Fifth Amendment, dated May 1, 2003 to the lease for a portion of the eleventh floor between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.1(vi) to the April 2001 Form 10-Q)
	10	.9(ix)	Fifth Amendment, dated May 30, 2000 to the lease for the fourth floor and the penthouse between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.7 to the July 2000 Form 10-Q)
	10	.9(x)	Sixth Amendment, dated May 1, 2000 to the lease for the fourth floor and the penthouse between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.8 to the July 2000 Form 10-Q)

58

Exhibit
Number			Description
	10	.9(xi)	Seventh Amendment, dated March 1, 2001 to the lease for the fourth floor and the penthouse between 401 Park Avenue South Associates, LLC and Health Management Systems, Inc. (Incorporated by reference to Exhibit 10.1(iv) to the April 2001 Form 10-Q)
	10	.10(i)	Sublease Agreement, dated December 23, 1997, between Health Management Systems, Inc. and Shandwick USA, Inc. (Incorporated by reference to Exhibit 10.1 to Health Management Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended January 31, 1998 (the “January 1998 Form 10-Q”))
	10	.10(ii)	Consent to Sublease, dated December 23, 1997, by 387 P.A.S. Enterprises to the subletting by Health Management Systems, Inc. to Shandwick USA, Inc. (Incorporated by reference to Exhibit 10.2 to the January 1998 Form 10-Q)
	10	.11	Sublease Agreement, dated as of January 2003, between Health Management Systems, Inc. and Vitech Systems Group, Inc. (Incorporated by reference to Exhibit 10.17 to the 2002 Form 10-K)
	*10	.12	Data Services Agreement, dated June 4, 2007, between HMS Business Services, Inc. and Zavata, Inc.
	10	.13	Data Services Agreement, dated August 31, 2005, between HMS Business Services, Inc. and Accordis Holding Corp. (Incorporated by reference to Exhibit 99.3 to HMS Holdings Corp.’s Current Report on Form 8-K dated August 31, 2005 (the “August 2005 Form 8-K”))
	*10	.13(i)	Data Services Agreement, dated July 31, 2007, between HMS Business Services, Inc. and Accordis Holding Corp.
	*10	.13(ii)	Amendment, dated October 16, 2008 to Data Services Agreement to provide Zavata certain processing, data storage and other services between HMS Business Services, Inc. and Apollo Health Street, Inc.
	10	.14	Accordis Holding Corp. Subordinated Promissory Note dated August 31, 2005 (Incorporated by reference to Exhibit 99.4 to the August 2005 Form 8-K)
	10	.15	Non-Compete Agreement, dated as of August 31, 2005, among HMS Holdings Corp., Health Management Systems, Inc., HMS Business Services, Inc., Accordis Holding Corp., and Accordis Inc. (Incorporated by reference to Exhibit 99.5 to the August 2005 Form 8-K)
	10	.16	Sublease Agreement made as of the 31st day of August, 2005 between Health Management Systems, Inc. and Accordis, Inc. (Incorporated by reference to Exhibit 99.6 to the August 2005 Form 8-K)
	10	.17	Transition Services Agreement, dated August 31, 2005, between HMS Business Services, Inc. and Accordis Inc (Incorporated by reference to Exhibit 99.7 to the August 2005 Form 8-K)
	10	.18	Subcontracting Agreement, made the 31st day of August 2005, by and between Accordis Inc. and Reimbursement Services Group Inc. (Incorporated by reference to Exhibit 99.8 to the August 2005 Form 8-K)
	10	.19	Software License Agreement, dated as of August 31, 2005 between Accordis, Inc. and Health Management Systems, Inc. (Incorporated by reference to Exhibit 99.9 to the August 2005 Form 8-K)
	10	.20	Stock Purchase Agreement, dated August 31, 2005, between HMS Holdings Corp. and Accordis Holding Corp. (Incorporated by reference to Exhibit 99.2 to HMS Holdings Corp.’s Current Report on Form 8-K/A dated August 31, 2005)
	10	.21	Asset Purchase Agreement, dated as of June 22, 2006, by and among HMS Holdings Corp., Health Management Systems, Inc., and Public Consulting Group, Inc. (Incorporated by reference to Exhibit 99.1 to HMS Holdings Corp.’s Current Report on Form 8-K dated June 26, 2006)
	10	.21(i)	Amendment No. 1 to Asset Purchase Agreement, dated as of September 13, 2006, by and among HMS Holdings Corp., Health Management Systems, Inc., and Public Consulting Group, Inc. (Incorporated by reference to Exhibit 99.1 to HMS Holdings Corp.’s Current Report on Form 8-K dated September 14, 2006 (the “September 2006 Form 8-K))
	10	.22	Master Teaming Agreement, dated as of September 13, 2006, by and between Health Management Systems, Inc. and Public Consulting Group, Inc. (Incorporated by reference to Exhibit 99.2 to the September 2006 Form 8-K)

59

Exhibit
Number			Description
	10	.23	Credit Agreement, dated as of September 13, 2006, among HMS Holdings Corp., the Guarantors named therein, the Lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities, Inc., as sole lead arranger and sole bookrunner, Bank of America, N.A., as syndication agent and Citizens Bank of Massachusetts, as documentation agent (Incorporated by reference to Exhibit 99.3 to the September 2006 Form 8-K)
	*21		List of Subsidiaries of HMS Holdings Corp.
	*23		Consent of Independent Registered Public Accounting Firm
	*31	.1	Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer of HMS Holdings Corp.
	*31	.2	Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer of HMS Holdings Corp.
	*32	.1	Section 1350 Certification of the Principal Executive Officer of HMS Holdings Corp. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission not incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended
	*32	.2	Section 1350 Certification of the Principal Financial Officer of HMS Holdings Corp. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended

†	Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.
*	Filed herewith

60

EX-10.8

OFFICE LEASE

[CORPORATE POINT]

by and between

EQUASTONE HIGH POINT, LP,
a Delaware limited partnership

as Landlord,

and

HEALTH MANAGEMENT SYSTEMS, INC.,
a New York corporation,

as Tenant.

Health Management Systems

Corporate Point

[CORPORATE POINT]

SUMMARY OF BASIC LEASE INFORMATION

     The parties hereto agree to the following terms of this Summary of Basic Lease Information (the “Summary”). This Summary is hereby incorporated into and made a part of the attached Office Lease (this Summary and the Office Lease to be known collectively as the “Lease”) which pertains to the office building located at 5615 High Point Drive, Irving, Texas. Each reference in the Office Lease to any term of this Summary shall have the meaning as set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Office Lease.

	TERMS OF LEASE	DESCRIPTION
	(References are to the Office Lease)
1.	Date:	July 31, 2007.
2.	Landlord:	EQUASTONE HIGH POINT, LP,
		a Delaware limited partnership
3.	Address of Landlord	8910 University Center Lane, Suite 500
	(Section 30.11):	San Diego, California 92122
		Attn: Senior Counsel
		with a copy to:
		11757 Katy Freeway, Suite 490
		Houston, Texas 77079
		Attn: Clint Harrington
4.	Tenant:	HEALTH MANAGEMENT SYSTEMS, INC.,
		a New York corporation
5.	Address of Tenant	401 Park Avenue South
	(Section 30.11):	New York, New York 10016
		Attention: Walter Hosp, Senior Vice President and Chief Financial Officer
		With a copy to:
		Herrick Feinstein, LLP
		2 Park Avenue
		New York, New York, 10016
		Attention: John Goldman, Esq.
		(Prior to Lease Commencement Date)
		and
		5615 High Point Drive, Suite 100
		Irving, Texas 75038
		Attention: Joseph Joy, Senior Vice President and CIO
		With a copy to:
		Herrick Feinstein, LLP
		2 Park Avenue
		New York, New York, 10016
		Attention: John Goldman, Esq.
		(After Lease Commencement Date)
6.	Premises (Article 1):	Approximately 47,250 rentable square feet of space located in
		Suites 100, 400 and 500 on the first (1st), fourth (4th) and fifth
		(5th) floors of the Building located and addressed at 5615
		High Point Drive, Irving, Texas, as set forth in Exhibit A
		attached hereto, which shall be increased to approximately

Health Management Systems

Corporate Point

(i)

			59,426 rentable square feet on the Must Take Commencement
			Date (as defined in Section 1.4 below).
7.	Term (Article 2).
	7.1	Lease Term:	Sixty Eight (68) months. If the Lease Commencement Date
			occurs on a day other than the first day of the month, then the
			foregoing time period shall be measured from the first day of
			the following month.
	7.2	Lease Commencement	November 1, 2007 (Subject to extension for Landlord Delays
		Date:	as described in Section 5.2 of the Tenant Work Letter).
	7.3	Option(s) to Extend:	Two, Five (5) year Options to Extend.
8.	Base Rent (Article 3):

			Annual
	Monthly		Rental Rate
Lease Month	Installment of Base Rent		per Rentable Square Foot
*11/1/07 – 10/31/08	$	61,031.25	$	15.50
11/1/08 – 10/31/09	$	79,234.67	$	16.00
11/1/09 – 10/31/10	$	81,710.75	$	16.50
11/1/10 – 10/31/11	$	84,186.83	$	17.00
11/1/11 – 6/30/13	$	86,662.92	$	17.50

* Subject to abatement as provided in Article 3 below. Additionally, the Monthly Base Rent through the first Lease Year is calculated based upon 47,250 rentable square feet, and thereafter is calculated on the full 59,426 rentable square feet of the Premises.

9.	Additional Rent (Article 4).
	9.1	Base Year:	Calendar year 2008.
	9.2	Tenant’s Share:	Approximately 21.14% as of the Lease Commencement Date, increased to approximately 26.59% as of the Must Take Commencement Date. Tenant’s Share was calculated by multiplying the number of rentable square feet of the Premises by 100 and dividing the product by the total rentable square feet in the Building, which is 223,498 (subject to adjustment pursuant to Section 1.3 of the Lease).
10.	Prepaid Base Rent		$61,031.25 for the first (1st) full month of the Lease Term.
	(Article 3)
11.	Security Deposit		$81,710.75
	(Article 22):
12.	Parking Pass Ratio		5.7 parking passes for every 1,000 square feet of the Premises.
	(Article 28):
13.	Broker		PM Realty Group (for Landlord)
	(Section 30.21):		Transwestern (for Tenant)

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(ii)

TABLE OF CONTENTS

		Page
1.	REAL PROPERTY, BUILDING AND PREMISES		1
2.	LEASE TERM		3
3.	BASE RENT		4
4.	ADDITIONAL RENT		5
5.	USE OF PREMISES		8
6.	SERVICES AND UTILITIES		9
7.	REPAIRS		11
8.	ADDITIONS AND ALTERATIONS		12
9.	COVENANT AGAINST LIENS		13
10.	INDEMNITY AND INSURANCE		13
11.	DAMAGE AND DESTRUCTION		15
12.	NONWAIVER		16
13.	CONDEMNATION		16
14.	ASSIGNMENT AND SUBLETTING		16
15.	SURRENDER OF PREMISES AND REMOVAL OF TENANT’S PROPERTY		18
16.	HOLDING OVER		19
17.	ESTOPPEL CERTIFICATES		19
18.	SUBORDINATION		19
19.	DEFAULTS; REMEDIES		19
20.	LANDLORD REMEDIES		20
21.	COVENANT OF QUIET ENJOYMENT		22
22.	SECURITY DEPOSIT		22
23.	INTENTIONALLY OMITTED		22
24.	SIGNS		22
25.	LATE CHARGES		23
26.	LANDLORD’S RIGHT TO CURE DEFAULT		24
27.	ENTRY BY LANDLORD		24
28.	TENANT PARKING		24
29.	HAZARDOUS MATERIALS		25
30.	MISCELLANEOUS PROVISIONS		25
31.	METHOD OF CALCULATION		29
32.	EXCLUSIVITY		29

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EXHIBITS		Page
EXHIBIT A	OUTLINE OF FLOOR PLAN OF PREMISES AND MUST TAKE SPACE
EXHIBIT B	TENANT WORK LETTER
EXHIBIT C	RULES AND REGULATIONS
EXHIBIT D	FORM OF SNDA

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INDEX

Page(s)

Abatement Event	10
Abatement Notice	10
Additional Rent	5
Affiliate	18
Affiliated Assignee	18
Affiliated Parties	28
Alterations	12
Approved Working Drawings	Exhibit B
Architect	Exhibit B
Bank	11
Base Rent	4
Base Year	5
Base, Shell and Core	Exhibit B
Blocked Parties	28
BOMA	1
Brokers	27
Building	1
Calendar Year	5
Change Order	Exhibit B
Code	Exhibit B
Common Areas	1
Construction Drawings	Exhibit B
Contamination	25
Contractor	Exhibit D
Control	18
Controllable Operating Expenses	6
Cosmetic Alterations	12
Cost Proposal	Exhibit B
Cost Proposal Delivery Date	Exhibit B
Damage Repair Estimate	16
Election Date	2
Eligibility Period	10
Engineers	Exhibit B
Estimate	7
Estimate Statement	7
Estimated Excess	7
Excess	5
Executive Order	28
Expense Year	5
Exterior Signage	23
Final Space Plan	Exhibit B
Final Working Drawings	Exhibit B
First Refusal Notice	2
First Refusal Space	2
Force Majeure	26
Hazardous Material	25
Holidays	9
HVAC	9
Improvement Allowance	Exhibit B
Improvement Allowance Items	Exhibit B
Improvements	Exhibit B
Indemnified Claims	13
Insurance Expenses	5
Interest Notice	3
Landlord	1
Landlord Delays	Exhibit B
Landlord Indemnified Parties	13
Landlord Supervision Fee	Exhibit B
Lease	1
Lease Commencement Date	3
Lease Term	3

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Page(s)

Lease Year	3
Must Take Commencement Date	1
Must Take Space	1
Net Effective Rent	2
Notices	26
OFAC	28
Operating Expenses	5
Option Notice	3
Option Rent	3
Option Rent Notice	3
Option Term	3
Original Tenant	2
Outside Agreement Date	4
Over-Allowance Amount	Exhibit B
Package Units	11
Parking Facilities	1
Patriot Act Related Laws	28
Permits	Exhibit B
Premises	1
Ready for Occupancy	Exhibit B
Real Property	1
Renovations	28
Rent	5
Review Period	7
Rules and Regulations	8
Second Chance Notice	2
Security Deposit	22
Signage	23
Signage Specifications	23
Specifications	Exhibit B
Standard Improvement Package	Exhibit B
Statement	7
Subject Space	17
Subleasing Costs	17
Summary	1
Superior Leases	2
Superior Rights	2
Systems and Equipment	6
Tax Expenses	6
Tenant	1
Tenant Improvements	1
Tenant Indemnified Parties	15
Tenant Parties	13
Tenant’s Agents	Exhibit B
Tenant’s Election Notice	2
Tenant’s Share	7
Termination Notice	10
Terms	2
Time Deadlines	Exhibit B
Transfer Notice	17
Transfer Premium	17
Transferee	17
Transfers	17
Utility Expenses	7

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[CORPORATE POINT]

OFFICE LEASE

     This Office Lease, which includes the preceding Summary of Basic Lease Information (the “Summary”) attached hereto and incorporated herein by this reference (the Office Lease and Summary to be known sometimes collectively hereafter as the “Lease”), dated as of the date set forth in Section 1 of the Summary, is made by and between EQUASTONE HIGH POINT, LP, a Delaware limited partnership (“Landlord”), and HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation (“Tenant”).

1. REAL PROPERTY, BUILDING AND PREMISES

     1.1 Real Property, Building and Premises. Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 6 of the Summary (the “Premises”), which Premises are located in the “Building,” as that term is defined in this Section 1.1. The outline of the floor plan of the Premises is set forth in Exhibit A attached hereto. The Premises are a part of the building known as Corporate Point located and addressed at 5615 High Point Drive, Irving, Texas (the “Building”). The Building, the parking facilities serving the Building from time to time (“Parking Facilities”), the outside plaza areas, land and other improvements surrounding the Building which are designated from time to time by Landlord as common areas appurtenant to or servicing the Building, and the land upon which any of the foregoing are situated, are herein sometimes collectively referred to as the “Real Property.” Tenant is hereby granted the right to the nonexclusive use of the common corridors and hallways, stairwells, elevators, restrooms and other public or common areas located on the Real Property (“Common Areas”). Landlord reserves the right to make alterations or additions to or to change the location of elements of the Real Property.

     1.2 Condition of the Premises. Except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B, if applicable, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that Landlord has made no representation or warranty (express or implied) regarding (i) the condition of the Premises or the Real Property except as specifically set forth in this Lease and the Tenant Work Letter, if applicable or (ii) the suitability or fitness of the Premises or the Real Property for the conduct of Tenant’s business. The preceding sentence notwithstanding, Landlord hereby represents that the certificate of occupancy applicable to the Premises permits general office use. Any existing leasehold improvements in the Premises as of the date of this Lease, together with the Improvements (as defined in the Tenant Work Letter) to be constructed pursuant to the Tenant Work Letter, if any, may be collectively referred to herein as the “Tenant Improvements.” There are currently no tenants with rights of expansion, first refusal or similar rights encumbering the Premises which would impact Landlord’s ability to lease the Premises to Tenant or deliver the Premises to Tenant in accordance with the terms of this Lease.

     1.3 Verification of Rentable Square Feet of Premises and Building. For purposes of this Lease, “rentable square feet” shall mean “rentable area” calculated pursuant to the Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1 — 1996 (“BOMA”). The parties hereby stipulate to the square footage set forth in Section 6 of the Summary for the Premises and Section 9.2 for the Building.

     1.4 Must Take Space. Tenant hereby agrees to add to the Premises, approximately 12,176 additional rentable square feet of space located on the fifth (5^th) floor of the Building, as such space is further described on Exhibit “A” attached hereto (“Must Take Space”). So long as Landlord delivers the Must Take Space in accordance with the terms of this Lease, the effective date of Tenant’s lease of the Must Take Space shall be November 1, 2008 (“Must Take Commencement Date”). Tenant’s lease of the Must Take Space shall be on the same terms and conditions as affect the original Premises throughout the Lease Term, including, without limitation, the same Base Rent (per rentable square foot) as then applies to the Premises; provided, however, that (i) as set forth in Section 9.2 of the Summary, Tenant’s Share shall be increased to take into account the additional number of rentable square feet of the Must Take Space, (ii) Tenant shall be entitled to a one-time Improvement Allowance for the Must Take Space in the amount of $25.00 per usable square foot of the Must Take Space, which allowance shall be distributed at the same time as the Improvement Allowance for the entire Premises) and (iii) the number of parking passes to which Tenant is entitled shall be increased in accordance with the ratio set forth in Section 12 of the Summary. Anything herein to the contrary notwithstanding, (i) the Lease Term for the Must Take Space and Tenant’s obligation to pay rent with respect to the Must Take Space shall commence upon the Must Take Commencement Date and shall expire co-terminously with the Lease Term, and (ii) Landlord shall deliver the Must Take Space to Tenant at the same time Landlord delivers the Original Premises to Tenant and Tenant, at Tenant’s option, shall have full use and occupancy of the Must Take Space prior to the Must Take Commencement Date. In the event Tenant occupies the Must Take Space prior to

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the Must Take Commencement Date Tenant shall be required to make applicable payments of Additional Rent. The Options to extend set forth in Section 2.3 below shall apply to the Must Take Space and the original Premises as a single space (i.e., Tenant may elect to extend the Term as to both the original Premises and the Must Take Space and not as to either space independently).

     1.5 Right of First Refusal. Landlord hereby grants to the original Tenant named in this Lease (the “Original Tenant”), during the Lease Term, a continuing right of first refusal with respect to the any and all space located on the second (2^nd), third (3^rd) and sixth (6^th) floors of the Building and made a part hereof (collectively, the “First Refusal Space”). Notwithstanding the foregoing, (i) such first refusal right shall commence only following the expiration or earlier termination of any existing lease pertaining to the First Refusal Space (the “Superior Leases”) and (ii) such first refusal right shall be subordinate and secondary to all rights of expansion, first refusal, first offer or similar rights granted to the tenant(s) of the Superior Leases or any other leases in existence as of the date of this Lease (the rights described in items (i) and (ii), above to be known collectively, for purposes of this Section 1.5 only, as “Superior Rights”). Tenant’s right of first refusal shall be on the terms and conditions set forth in this Section 1.5.

          1.5.1 Procedure. Landlord shall notify Tenant in writing (the “First Refusal Notice”) from time to time when Landlord receives a proposal that Landlord would consider for all or any portion of the First Refusal Space, where the holder of a Superior Right for that particular space does not desire to lease such space. The First Refusal Notice shall describe the space which is the subject of the proposal (which may include space outside of the First Refusal Space) and shall set forth the terms and conditions (including the proposed lease term) set forth in the proposal (collectively, the “Terms”); provided, however, that in the event the First Refusal Notice for any particular First Refusal Space is delivered in the first eighteen (18) months of the Lease term, the terms and conditions applicable to the First Refusal Space shall be the same as the terms and conditions applicable to the initial Premises (on a per square foot basis). Notwithstanding the foregoing, Landlord’s obligation to deliver the First Refusal Notice shall not apply during the last six (6) months of the Lease Term unless Tenant has delivered an Interest Notice pursuant to Section 2.3.2 of this Lease, nor during the period following Landlord’s delivery of the Option Rent Notice to Tenant pursuant to Section 2.3.2 unless and until Tenant has delivered to Landlord the Option Notice pursuant to Section 2.3 of this Lease.

          1.5.2 Procedure for Acceptance. If Tenant wishes to exercise Tenant’s right of first refusal with respect to the space described in the First Refusal Notice, then within ten (10) business days after receipt of the First Refusal Notice by Tenant (the “Election Date”), Tenant shall deliver written notice to Landlord (“Tenant’s Election Notice”) pursuant to which Tenant shall elect either to (i) lease the entire space described in the First Refusal Notice upon the Terms set forth in the First Refusal Notice or (ii) refuse to lease such space identified in the First Refusal Notice, in which event Landlord may lease such space to any person or entity during the six (6) month period after the Election Date on any terms Landlord desires (provided that if the Net Effective Rent (as defined below) is changed so as to make it more than five percent (5%) more favorable to the third party than the original Terms or if a material change is made to the non-economic Terms set forth in the First Refusal Notice (e.g., the deal is restructured to be a 5 year deal instead of 3 years), Landlord must again deliver a First Refusal Notice (such revised notice shall be referred to as the “Second Chance Notice”) to Tenant and Tenant shall have five (5) business days after receipt of the Second Chance Notice to deliver an Election Notice pursuant to this Section 1.5) and Tenant’s right of first refusal with respect to the First Refusal Space specified in Landlord’s First Refusal Notice shall thereupon terminate and be of no further force or effect, but shall remain in effect for all other portions of the First Refusal Space not contained in the First Refusal Notice. The term “Net Effective Rent” shall mean the rental rate, as adjusted to reflect the value of any free rent, tenant improvement allowance or similar monetary concessions contained in the First Refusal Notice. If Landlord does not receive a response from Tenant in writing to Landlord’s First Refusal Notice by the Election Date, Tenant shall be deemed to have elected the option described in clause (ii) above. Notwithstanding anything herein to the contrary, Tenant may only exercise its right of first refusal with respect to all of the space described in the First Refusal Notice, and not a portion thereof.

          1.5.3 Lease of First Refusal Space. If Tenant timely exercises Tenant’s right to lease the First Refusal Space as set forth herein, Landlord and Tenant shall execute an amendment to this Lease incorporating into this Lease the Terms applicable to such First Refusal Space.

          1.5.4 Termination of Right of First Refusal. The right of first refusal granted herein shall terminate as to any particular First Refusal Notice (either all of the First Refusal Space if included in the First Refusal Notice or the portion of the First Refusal Space included in the First Refusal Notice, as the case may be) upon the failure by Tenant to exercise its right of first refusal with respect to such First Refusal Space as offered by Landlord in the First Refusal Notice but shall remain in effect for any subsequent availability of any portion of the remaining First Refusal Space not included in the First Refusal Notice. Landlord shall not have any obligation to deliver the First Refusal Notice if, as of the date Landlord would otherwise deliver the First

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Refusal Notice to Tenant, Tenant is in default under the Lease after any applicable notice and cure periods, if any portion of the Premises is subject to a sublease, if the Lease has been assigned, or if any portion of the Premises has been recaptured pursuant to Section 14.4 of this Lease. In addition, at Landlord’s option, if Tenant has previously delivered Tenant’s Election Notice in accordance with Section 1.5.2 and, at any time thereafter, (i) Tenant is in default under the Lease after the expiration of any applicable notice and cure period, (ii) more than fifty percent (50%) of the Premises is subject to a sublease, (iii) the Lease has been assigned to a party other than an Affiliate (as defined in Article 14), or (iv) any portion of the Premises has been recaptured pursuant to Section 14.4 of the Lease, then Tenant shall not have the right to lease the First Refusal Space and Landlord will be free to lease such space to third parties.

2. LEASE TERM

     2.1 Initial Term. The terms and provisions of this Lease shall be effective as of the date of this Lease except for the provisions of this Lease relating to the payment of Rent or maintenance of the Premises. The term of this Lease (the “Lease Term”) shall be for the period of time set forth in Section 7.1 of the Summary and shall commence on the date (the “Lease Commencement Date”) set forth in Section 7.2 of the Summary (subject, however, to the terms of the Tenant Work Letter attached hereto as Exhibit “B”, if applicable), and shall terminate upon the expiration of the Lease Term, unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “Lease Year” shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, that if the Lease Commencement Date is not the first day of the month, then the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the twelfth month thereafter and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the last day of the Lease Term (for example, if the Lease Commencement Date is April 15, the first Lease Year will be April 15 through April 30 of the following year, and each succeeding Lease Year will be May 1 through April 30).

     2.2 Delays and Notice of Lease Term Dates. If Landlord is unable to deliver possession of the Premises to Tenant on or before the anticipated Lease Commencement Date as set forth in Section 7.2 of the Summary, Landlord shall not be subject to any liability for its failure to do so and such failure shall not affect the validity of this Lease nor the obligations of Tenant hereunder, except as set forth in Section 5.2 of the Tenant Work Letter. At any time during the Lease Term, Landlord may deliver to Tenant a notice of Lease Term dates, confirming, among other things, the Lease Commencement Date, which notice Tenant shall execute and return to Landlord within five (5) days of receipt thereof; if Tenant fails to execute and return such notice within such time period, the information contained in such notice shall be deemed correct and binding upon Tenant.

     2.3 Option Term. Landlord hereby grants to Tenant, two (2) options to extend the Lease Term for a period of five (5) years each (each, an “Option Term”), which options shall be exercisable only by written notice delivered by Tenant to Landlord as provided in Section 2.3.2 below. Tenant shall not have the rights contained in this Section 2.3 if, as of the date of the Option Notice or, at Landlord’s option, at any time between the delivery of the Option Notice and the commencement of the Option Term, Tenant is in default under this Lease after any applicable notice and cure period, more than fifty percent (50%) of the Premises is subject to a sublease, this Lease has been assigned to a party other than an Affiliate, or any portion of the Premises has been recaptured pursuant to Section 14.4 below). Tenant shall have the second Option only in the event Tenant exercises the first option in accordance with this Section 2.3.

          2.3.1 Option Rent. The Rent payable by Tenant during an Option Term (the “Option Rent”) shall be equal to the then fair market rent for the Premises. The fair market rent shall be the rental rate, including all escalations, at which tenants, as of the commencement of the applicable Option Term, are leasing non-sublease, non-encumbered space comparable in size, location and quality to the Premises (taking into account such factors as any free rent period, brokers’ commissions, tenant improvements and other concessions offered in connection with other leases) for a term of five (5) years, which comparable space is located in other comparable office buildings in the Las Colinas submarket of Dallas, Texas.

          2.3.2 Exercise of Option. Each option contained in this Section 2.3 shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice (“Interest Notice”) to Landlord no sooner than twelve (12) months and no later than six (6) months prior to the expiration of the then current Lease Term, stating that Tenant is interested in exercising its option; (ii) Landlord, after receipt of the Interest Notice, shall deliver written notice (the “Option Rent Notice”) to Tenant setting forth Landlord’s determination of the Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall, within thirty (30) days after Tenant’s receipt of the Option Rent Notice, exercise the option by delivering written notice (the “Option Notice”) to Landlord and upon, and concurrent with, such exercise, Tenant may, at its option, object to the Option Rent determined by Landlord. If Tenant exercises the option to extend but objects to the

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Option Rent contained in the Option Rent Notice, then the Option Rent shall be determined as set forth in Section 2.3.3 below. Failure of Tenant to deliver the Interest Notice to Landlord on or before the date specified in (i) above or to deliver the Option Notice to Landlord on or before the date specified in (iii) above shall be deemed to constitute Tenant’s failure to exercise its option to extend. If Tenant timely and properly exercises its option to extend, the Lease Term, subject to Section 2.3.3 below, shall be extended for the Option Term upon all of the terms and conditions set forth in this Lease, except that the Rent shall be as indicated in the Option Rent Notice or as determined in accordance with Section 2.3.3, as applicable, and all references herein to the Lease Term shall include the Option Term.

          2.3.3 Determination of Option Rent. In the event Tenant exercises its option to extend but objects to Landlord’s determination of the Option Rent concurrently with its exercise of the option to extend, Landlord and Tenant shall attempt to agree in good faith upon the Option Rent. If Landlord and Tenant fail to reach agreement within twenty (20) days following Landlord’s receipt of the Option Notice (the “Outside Agreement Date”), then each party shall make a separate determination of the Option Rent, within fifteen (15) business days after the Outside Agreement Date, concurrently exchange such determinations and such determinations shall be submitted to arbitration in accordance with Sections 2.3.3.1 through 2.3.3.7 below.

               2.3.3.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of comparable office properties in the Las Colinas submarket of Dallas. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Option Rent is the closest to the actual fair market rent, as determined by the arbitrators, taking into account the requirements of Section 2.3.1 of this Lease. Each such arbitrator shall be appointed within twenty (20) business days after the applicable Outside Agreement Date.

               2.3.3.2 The two (2) arbitrators so appointed shall within five (5) business days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators.

               2.3.3.3 The three (3) arbitrators shall within five (5) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Option Rent and shall notify Landlord and Tenant thereof.

               2.3.3.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant.

               2.3.3.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) business days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

               2.3.3.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the Option Rent to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 2.2.3.

               2.3.3.7 The cost of arbitration shall be paid by Landlord and Tenant equally.

3. BASE RENT

     Tenant shall pay, without notice or demand, to Landlord or Landlord’s agent at the management office of the Building, or at such other place as Landlord may from time to time designate in writing, monthly installments of base rent (“Base Rent”) as set forth in Section 8 of the Summary, in advance on or before the first day of each and every month during the Lease Term, without any setoff or deduction whatsoever. Notwithstanding anything to the contrary contained herein, and provided that Tenant is not in monetary or material default beyond any applicable notice, grace or cure period, Landlord hereby agrees to abate Tenant’s obligation to pay monthly Base Rent for the first six (6) full months of the initial Lease Term. During such abatement periods, Tenant shall still be responsible for the payment of all of its other monetary obligations under this Lease. In the event of a default by Tenant under the terms of this Lease that results in early termination pursuant to the provisions of Section 19.1 of this Lease, then as a part of the recovery set forth in Section 20 of this Lease, Landlord shall be entitled to the recovery of the monthly Base Rent abated under the provisions of this Article 3 pro-rated to take into account that portion of time the Lease was in effect. The Base Rent for the first full month of the Lease Term (or if the first full month of the Lease Term is within a free rent period, then the Base Rent for the first full month which occurs after the expiration of any free rent period) shall

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be paid at the time of Tenant’s execution of this Lease. If any rental or other payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any rental or other payment is for a period which is shorter than one month, then the rental or other payment for any such fractional month shall be a proportionate amount of a full calendar month’s rental or other payment based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs.

4. ADDITIONAL RENT

     4.1 Additional Rent. In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay as additional rent Tenant’s Share of the annual Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses (as such terms are all hereinafter defined) that are in excess of the amount of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses, respectively applicable to the Base Year (the “Excess”). Such additional rent, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, shall be hereinafter collectively referred to as the “Additional Rent.” The Base Rent and Additional Rent are herein collectively referred to as the “Rent.” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner, time and place as the Base Rent. In the event the Building is part of a multi-building project, Landlord may allocate Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses applicable to the project as a whole among the buildings within such project on an equitable basis, consistently applied, as reasonably determined by Landlord. Without limitation on other obligations of Tenant which shall survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term. Notwithstanding anything to the contrary contained herein, the aggregate Controllable Operating Expenses, as that term is defined below, shall not increase more than five percent (5%) in any calendar year over the maximum amount of Controllable Operating Expenses chargeable for the immediately preceding calendar year, with no limit on the Controllable Operating Expenses during the Base Year (i.e., the actual Controllable Operating Expenses for the Base Year shall be the actual amount for the Base Year for purposes of this provision).

     4.2 Definitions. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

          4.2.1 “Base Year” shall mean the year set forth in Section 9.1 of the Summary.

          4.2.2 “Calendar Year” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.

          4.2.3 “Expense Year” shall mean each Calendar Year, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive-month period, and, in the event of any such change, Tenant’s Share of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses shall be equitably adjusted for any Expense Year involved in any such change provided any such change will not increase Tenant’s monetary obligations under the Lease to an amount greater than what said obligation would have been but for the change in said Expense Year.

          4.2.4 “Insurance Expenses” shall mean the cost of insurance carried by Landlord, in such amounts and for such coverages as Landlord may reasonably determine or as may be reasonably required by any mortgagees or the lessor of any underlying or ground lease affecting the Real Property, including any deductibles thereunder.

          4.2.5 “Operating Expenses” shall mean all expenses, costs and amounts of every kind and nature which Landlord incurs or which accrue during any Expense Year because of or in connection with the ownership, management, maintenance, repair, restoration or operation of the Real Property (other than Insurance Expenses, Tax Expenses and Utility Expenses), excluding the cost of any capital improvements or other costs except to the extent such Capital Improvements (A) are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Real Property and actually result in an economic savings to Landlord for the refurbishment, (B) are made to the Real Property after the Lease Commencement Date that are required under any governmental law or regulation or (C) are for the purpose of improvement or enhancement of security at the Real Property; provided, however, that if any such cost described in (A), (B) or (C) above is a capital expenditure, such cost shall be amortized (including interest on the unamortized cost) over its useful life as shall be reasonably determined using industry standard accounting principles, consistently applied. If the Building is not fully occupied during any portion of the Base Year or any Expense Year, Landlord shall make a reasonably appropriate adjustment to the variable components of Operating Expenses or Utility Expenses (as defined below) for such year, employing sound accounting and management principles, to determine the amount of Operating Expenses or Utility Expenses that would have been paid had the Building

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been fully occupied. “Controllable Operating Expenses” shall mean all Operating Expenses except Tax Expenses, Utility Expenses, Insurance Expenses, or payments made to the Las Colinas Association.

     Notwithstanding anything above to the contrary, Operating Expenses shall not include (1) the cost of providing any service directly to and paid directly by any tenant (outside of such tenant’s Operating Expenses payments); (2) the cost of any items for which Landlord is reimbursed by insurance proceeds, condemnation awards, a tenant of the Building, or otherwise to the extent so reimbursed; (3) any real estate brokerage commissions or other costs incurred in procuring tenants, or any fee in lieu of commissions; (4) ground lease payments (if any); (5) costs of items considered capital improvements under generally accepted accounting principles consistently applied except as expressly included in Operating Expenses pursuant to the definition above; (6) costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Building that would not have been incurred but for such violation; (7) Landlord’s general corporate overhead (as opposed to overhead expenses related to the Building or Real Property); (8) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord (other than in the parking facility for the Building); (9) bad debt expenses and interest, principal, points and fees on debts (except in connection with the financing of items which may be included in Operating Expenses) or amortization on any ground lease, mortgage or mortgages or any other debt instrument encumbering the Building (including the Real Property on which the Building is situated); (10) marketing costs, including leasing commissions and attorneys’ fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building; (11) costs, including permit, license and inspection costs, incurred with respect to the installation of other tenants’ or occupants’ improvements made for tenants or other occupants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants in the Building; (12) any costs expressly excluded from Operating Expenses elsewhere in this Lease; (13) costs of any items (including, but not limited to, costs incurred by Landlord for the repair of damage to the Building) to the extent Landlord receives reimbursement from insurance proceeds or from a third party (except that any deductible amount under any insurance policy shall be included within Operating Expenses); (14) rentals and other related expenses for leasing an HVAC system, elevators, or other items (except when needed in connection with normal repairs and maintenance of the Building) which if purchased, rather than rented, would constitute a capital improvement not included in Operating Expenses pursuant to this Lease; (15) depreciation, amortization and interest payments, except as specifically included in Operating Expenses pursuant to the terms of this Lease and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party, where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party’s services, all as determined in accordance with generally accepted accounting principles, consistently applied, and when depreciation or amortization is permitted or required, the item shall be amortized over its reasonably anticipated useful life; (16) expenses in connection with services or other benefits which are not offered to Tenant or for which Tenant is charged for directly but which are provided to another tenant or occupant of the Building, without charge; (17) electric power costs or other utility costs for which any tenant directly contracts with the local public service company (but Landlord shall have the right to “gross up” as if such space was vacant); (18) costs (including in connection therewith all attorneys’ fees and costs of settlement, judgments and/or payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation or arbitrations pertaining to another tenant of the Building; and (19) costs incurred in connection with the original construction of the Building; (20) advertising, entertainment and promotional activities; (21) expenses for repairs and maintenance paid for by warranties or service contracts; (22) fines, penalties and other costs resulting from the violation by Landlord of any laws; (23) cost incurred in connection with expanding the Building, or building additional stories on the Building or any plaza adjacent thereto; (24) any costs associated with works of art (other than maintenance and cleaning of such items); and (25) any fees, costs or salaries for Building Personnel to the extent such persons are not working in connection with the Building.

          4.2.6 “Systems and Equipment” shall mean any plant, machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Real Property in whole or in part.

          4.2.7 “Tax Expenses” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts, transaction privilege or any

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sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, Systems and Equipment, appurtenances, furniture and other personal property used in connection with the Real Property), which Landlord shall pay during any Expense Year because of or in connection with the ownership, leasing and operation of the Real Property or Landlord’s interest therein (including, without limitation all taxes attributable to taxable margin levied pursuant to Chapter 171 of the Texas Tax Code or any amendment, adjustment or replacement thereof).

          4.2.8 “Utility Expenses” shall mean the cost of supplying all utilities to the Real Property (other than utilities for which tenants of the Building are separately metered, are otherwise paid separately by tenants of the Building or are provided exclusively to a specific tenant in the Building), including utilities for the heating, ventilation and air conditioning system for the Building (excluding any individual tenant’s space) and Common Areas.

          4.2.9 “Tenant’s Share” shall mean the percentage set forth in Section 9.2 of the Summary.

     4.3 Payment of Additional Rent.

          4.3.1 Statement of Actual Expenses and Payment by Tenant. Landlord shall give to Tenant following the end of each Expense Year, a statement (the “Statement”) which shall state the Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount, if any, of any Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, within thirty (30) days of receipt of the Statement (or within thirty (30) days of receipt if the Lease Term has expired prior to Tenant’s receipt of the Statement), the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess. In the event an overpayment is made, such overpayment will be credited against the next installments of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses due, or in the event the Lease Term has expired, then any overpayment will be refunded to Tenant within thirty (30) days after the issuance of the Statement. The failure of Landlord to timely furnish the Statement or the Estimated Statement for any Expense Year shall not prejudice Landlord from enforcing its rights under this Article 4. The provisions of this Section 4.3.1 shall survive the expiration or earlier termination of the Lease Term. If requested by Tenant, Landlord will provide Tenant a copy of the tax bill for any applicable Expense Year; provided that such tax bill will be provided for informational purposes only and Tenant will not be given any right to protest such bill.

          4.3.2 Statement of Estimated Expenses. In addition, Landlord shall give Tenant a yearly expense estimate statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable estimate (the “Estimate”) of what the total amount of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses for the then-current Expense Year shall be and the estimated Excess (the “Estimated Excess”). If pursuant to the Estimate Statement an Estimated Excess is calculated for the then-current Expense Year (taking into account the cap set forth in Section 4.1), Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.3.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year to the month of such payment, both months inclusive, and shall have twelve (12) as its denominator. Until a new Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant.

          4.3.3 Audit Right. Within one hundred eighty (180) days after receipt of a Statement by Tenant (“Review Period”), if Tenant disputes the amount set forth in the Statement, Tenant’s employees or an independent certified public accountant (which accountant is a member of a regionally recognized accounting firm), designated by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records (pertaining to Landlord’s calculation of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses) at Landlord’s offices, provided that Tenant is not then in default after expiration of all applicable notice, grace or cure periods and provided further that Tenant and such accountant or representative (if any) shall, and each of them shall cause their respective agents and employees to, maintain all information contained in Landlord’s records in strict confidence. Notwithstanding the foregoing, Tenant shall only have the right to review Landlord’s records one (1) time during any twelve (12) month period. Tenant’s failure to dispute the amounts set forth in any Statement within the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, but within sixty (60) days after the Review Period, Tenant notifies Landlord in writing that Tenant still disputes such amounts, a certification as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant selected by Landlord and who is a member of a nationally or regionally recognized accounting firm. Landlord shall cooperate in good faith with

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Tenant and the accountant to provide Tenant and the accountant with the information upon which the certification is to be based. However, if such certification by the accountant proves that the total amount of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses set forth in the Statement were overstated by more than three percent (3%), then the actual, documented and reasonable cost of the accountant and such certification shall be paid for by Landlord. Promptly following the parties receipt of such certification, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such certification. In no event shall Landlord or its property manager be required to (i) photocopy any accounting records or other items or contracts, (ii) create any ledgers or schedules not already in existence, (iii) except as set forth herein, incur any costs or expenses relative to such inspection, or (iv) perform any other tasks other than making available such accounting records as are described in this paragraph. Landlord shall not be liable for the payment of any contingency fee payments to any auditor or consultant of Tenant. The provisions of this Section shall be the sole method to be used by Tenant to dispute the amount of Operating Expenses, Insurance Expenses, Utility Expenses and Tax Expenses payable by Tenant under this Lease, and Tenant waives any other rights or remedies relating thereto.

     4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible. Tenant shall reimburse Landlord upon demand for any and all taxes or assessments required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, but only in the event: (i) said taxes are measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises; (ii) said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Real Property (including the Parking Facilities); or (iii) said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

     4.5 Tax Protest. For property tax purposes, Tenant waives all rights to protest or appeal the appraised value of the Premises, as well as the Parcel, and all rights to receive notices of reappraisement as set forth in Sections 41.413 and 42.015 of the Texas Tax Code.

5. USE OF PREMISES

     5.1 Permitted Use. Tenant shall use the Premises solely for general office purposes, call center, copying and information technology purposes (for Tenant’s own use and not as a commercial printing operation), all consistent with the character of the Building, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever.

     5.2 Prohibited Uses. Tenant further covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises, the Parking Facilities or any other Common Areas or any part thereof for any use or purpose contrary to the rules and regulations reasonably established by Landlord for the Real Property (the “Rules and Regulations”), attached hereto as Exhibit C and made a part hereof, or in violation of any federal, state or local laws, or any recorded covenants, conditions and restrictions or ground or underlying leases affecting the Real Property. Tenant shall not use or allow Tenant Parties (as defined in this Lease) to use any part of the Premises or the Real Property for the storage, use, treatment, manufacture or sale of any hazardous or toxic material.

     5.3 Compliance With Laws. Tenant shall not do anything or suffer anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated. If such required change is a result of Tenant’s specific use of the Premises, then at its sole cost and expense, Tenant shall promptly comply with all such governmental measures, other than the making of structural changes or changes to the Systems and Equipment or Common Areas, such changes will be made by Landlord at its expense, but subject to reimbursement as an Operating Expense to the extent permitted by Article 4 (unless such changes are triggered by or due to Alterations or Improvements made by or at the request of Tenant, in which case Tenant shall, as Additional Rent, reimburse Landlord for the cost thereof within thirty (30) days after invoicing). Tenant shall comply with the Rules and Regulations of the Building and such other reasonable rules and regulations (or modifications thereto) adopted by Landlord from time to time so long as Tenant has received written notice of same. The Rules and Regulations will be applied in an equitable manner as determined by Landlord. Tenant shall also cause its agents, contractors, subcontractors, employees, customers, and subtenants to comply with all rules and regulations.

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     5.4 Tenant’s Security Responsibilities. Tenant shall (1) lock the doors to the Premises and take other reasonable steps to secure the Premises and the personal property of Tenant and any of Tenant’s transferees, contractors or licensees in the Common Areas and parking facilities of the Building and Real Property, from unlawful intrusion, theft, fire and other hazards; (2) keep and maintain in good working order all security and safety devices installed in the Premises by or for the benefit of Tenant (such as locks, smoke detectors and burglar alarms); and (3) reasonably cooperate with Landlord and other tenants in the Building on Building safety matters. Tenant acknowledges that (i) any security or safety measures reasonably employed by Landlord are for the protection of Landlord’s own interests; (ii) Landlord is not a guarantor of the security or safety of the Tenant Parties or their property; (iii) such security and safety matters are the responsibility of Tenant and local law enforcement authorities; and (iv) in no event shall Landlord be liable for damages, losses, claims, injury to persons or property or causes of action arising out of any theft, burglary, trespass or other entry into the Premises or the Real Property, except to the extent of Landlord’s gross negligence or misconduct.

6. SERVICES AND UTILITIES

     6.1 Standard Tenant Services. Landlord shall provide the following services on all days during the Lease Term, unless otherwise stated below.

          6.1.1 Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning (“HVAC”) when necessary for normal comfort for normal office use in the Premises, from Monday through Friday, during the period from 7:00 a.m. to 7:00 p.m., and on Saturday during the period from 8:00 a.m. to 1:00 p.m., provided that HVAC during such Saturday hours will be supplied only in the event Tenant notifies Landlord’s building manager by the end of business on Friday that such HVAC service is required. Notwithstanding the foregoing, HVAC service will not be supplied on the date of observation of New Year’s Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day (and the Friday following Thanksgiving Day), Christmas Day and other locally or nationally recognized holidays (collectively, the “Holidays”).

          6.1.2 Landlord shall provide adequate electrical wiring and facilities for normal general office use, and electricity at levels consistent with normal general office use, as determined by Landlord (but not less than 6 watts of electrical capacity). All such electricity (including electricity for the HVAC) shall be measured by a general meter and Tenant shall pay separately for its pro rata portion of such metered charges, as Additional Rent, based upon Tenant’s Share.

          6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory, kitchen and toilet purposes.

          6.1.4 Landlord shall provide janitorial services five (5) days per week, except the date of observation of the Holidays, in and about the Premises in a manner consistent with other comparable buildings in the vicinity of the Building.

          6.1.5 Landlord shall provide nonexclusive automatic passenger elevator service at all times.

          6.1.6 Landlord shall provide window washing services for the exterior and interior surfaces of the Building’s perimeter windows only, at intervals which Landlord deems reasonable. Tenant shall be responsible for the cleaning of all other glass surfaces within the Premises except the windows.

          6.1.7 Landlord shall provide nonexclusive freight elevator service (at no additional cost to Tenant) subject to scheduling by Landlord.

          6.1.8 Tenant shall, subject to Landlord’s reasonable security requirements, Force Majeure and de minimus interruptions, have access to the Premises twenty-four (24) hours per day, seven (7) days per week.

     6.2 Overstandard Tenant Use. Tenant shall not, without Landlord’s prior written consent which shall not be unreasonably withheld, delayed or conditioned, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or materially increase the electricity or water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If Tenant uses water or heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption, and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, on demand, including the cost of such

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additional metering devices. If Tenant desires to use HVAC during hours other than those for which Landlord is obligated to supply such utilities pursuant to the terms of Section 6.1 of this Lease, Tenant shall give Landlord such prior notice, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use and Landlord shall supply such utilities to Tenant at such hourly cost to Tenant as Landlord shall from time to time reasonably establish, which after hours charge is currently $55.00 per hour, based on Landlord’s out of pocket costs plus a reasonable administrative fee not to exceed 5%. Amounts payable by Tenant to Landlord for such use of additional utilities shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. Notwithstanding anything herein to the contrary, any HVAC or other service necessary to accommodate a computer server room will be deemed to constitute an overstandard use and will be subject to the provisions of this Section 6.2.

     6.3 Interruption of Use. Subject to Section 6.5 below, Tenant agrees that Landlord shall not be liable for any damages incurred by Tenant, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any utility or service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease.

     6.4 Additional Services. Landlord shall also have the exclusive right, but not the obligation, to provide any additional services which may be required by Tenant, including, without limitation, locksmithing, lamp replacement and additional janitorial service, provided that Tenant, as Additional Rent, shall pay to Landlord upon billing, the sum of all costs to Landlord of such additional services plus an administration fee and further provided that Landlord’s services are (i) reasonably adequate for Tenant’s requirements and (ii) competitively priced.

     6.5 Abatement. An “Abatement Event” shall be defined as an event that prevents Tenant from using the Premises or any portion thereof, as a result of any failure to provide utilities or services to the Premises, where (i) Tenant does not actually use the Premises or such portion thereof, and (ii) such event is caused by the negligence or willful misconduct of Landlord, its agents, employees or contractors. Tenant shall give Landlord and any mortgagee of Landlord (of whom Tenant is notified) notice (“Abatement Notice”) of any such Abatement Event, and if such Abatement Event continues beyond the “Eligibility Period” (as that term is defined below), then the Base Rent and Tenant’s Share of Operating Expenses, Insurance Expenses, Utility Expenses and/or Tax Expenses shall be abated entirely or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided, however, in the event that Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant’s Share of Operating Expenses, Insurance Expenses, Utility Expenses and/or Tax Expenses for the entire Premises shall be abated entirely for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Base Rent and Tenant’s Share of Operating Expenses, Insurance Expenses, Utility Expenses and/or Tax Expenses allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. Notwithstanding anything to the contrary contained herein, if Landlord is diligently pursuing the repair of such utilities or services and Landlord provides substitute services reasonably suitable for Tenant’s purposes, for example bringing in portable air conditioning or heating equipment, then there shall be no abatement of Base Rent or Tenant’s Share of Operating Expenses, Insurance Expenses, Utility Expenses and/or Tax Expenses. The term “Eligibility Period” shall mean a period of five (5) consecutive days after Landlord’s and Landlord’s mortgagee’s (if applicable), receipt of the applicable Abatement Notice (provided that Landlord will be provided additional time as required to remedy such event so long as Landlord is diligently attempting to remedy such Abatement Event and pursues such remedy to completion). Such right to abate Base Rent and Tenant’s Share of Operating Expenses, Insurance Expenses, Utility Expenses and/or Tax Expenses shall be Tenant’s sole remedy for an Abatement Event. This Section 6.5 shall not apply in case of damage to, or destruction of, the Premises or the Building, or any eminent domain proceedings which shall be governed by separate provisions of this Lease. Notwithstanding the foregoing, if Landlord has not cured an Abatement Event within ninety (90) days after receipt of notice thereof from Tenant and such Abatement Event renders a material portion of the Premises unusable, Tenant shall have the right to terminate this Lease by giving Landlord written notice thereof (the “Termination Notice”) at any time following the end of such 90-day period and prior to such time as Landlord has cured the Abatement Event; provided, however the Termination Notice shall be null and void, and this Lease shall not be terminated, if Landlord cures such Abatement Event

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within thirty (30) days following receipt of the Termination Notice. Further, Tenant shall not have the right to terminate this Lease pursuant to the terms of this Section 6.5, if, as of the date of delivery by Tenant of the Termination Notice, (A) the first trust deed holder of the Building (the “Bank”) has recorded a notice of default on the Building or filed a notice evidencing a legal action by the Bank against Landlord on the Building, and (B) the Bank diligently proceeds to gain possession of the Premises and, to the extent Bank does gain possession of the Premises, the Bank diligently proceeds to cure such Abatement Event.

     6.6 Package HVAC Units. Tenant shall be entitled to install, as an initial Tenant Improvement or as an Alteration, dedicated heating, ventilation and air conditioning units (“Package Units”) within the Premises at Tenant’s sole cost and expense. The plans and specifications for any Package Units shall, as indicated in Article 8 below and the Tenant Work Letter (as applicable), be subject to Landlord’s reasonable approval. If Tenant elects to install Package Units within the Premises, Tenant shall also install, at Tenant’s sole cost and expense, separate meters or at Landlord’s option, submeters, in order to measure the amount of electricity furnished to such units and Tenant shall be responsible for Landlord’s actual cost of supplying electricity to such units as reflected by such meters or submeters, which amounts shall be payable on a monthly basis as Additional Rent. Tenant shall be solely responsible for maintenance and repair of the Package Units and such units shall be considered to be a fixture within the Premises and shall remain upon the Premises upon the expiration or earlier termination of the Lease Term or any applicable Option Term.

7. REPAIRS

     7.1 Landlord’s Repairs. Landlord will be responsible for compliance with the requirements of the Americans with Disabilities Act in effect as of the Lease Commencement Date in the Common Areas of the Building and within the restrooms on the floor(s) on which the Premises are located (even if such restrooms are within Tenant’s Premises); provided that in the event there (i) are requirements which are triggered as a result solely of Tenant’s particular and unique use of the Premises (as opposed to office use generally) or (ii) Alterations constructed by or on behalf of Tenant in the Premises after the Lease Commencement Date, then (with regard solely to such requirements listed in subsections (i) and (ii) above) the same will be Tenant’s responsibility.

     7.2 Tenant’s Repairs. Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord’s reasonable costs or expenses (including an administrative fee not to exceed 5%) after fifteen (15) days written notice from Landlord to Tenant. Except as provided in Section 7.3 below, Tenant hereby waives and releases its right to make repairs at Landlord’s expense and/or terminate this Lease or vacate the Premises under any Texas law, statute, or ordinance now or hereafter in effect.

     7.3 Self-Help Rights. Notwithstanding any provision set forth in this Article 7 to the contrary, if Tenant provides written notice to Landlord and any mortgagee of Landlord (of whom Tenant is notified), of an event or circumstance which requires the action of Landlord and which if not performed will materially and adversely prevent Tenant from operating its permitted business from the Premises and Landlord fails to provide such action within a reasonable period of time, given the circumstances, after the receipt of such notice (but in any event not later than thirty (30) days after receipt of such notice, except in cases where there is an immediate threat of material and substantial property damage or immediate threat of bodily injury, in which case such shorter period of time as is reasonable under the circumstances, unless such repair would normally take longer (and Landlord has commenced said repair work within said thirty (30) day period)), then provided that Tenant’s performance of such repair or maintenance will not void any applicable warranties covering such repair or maintenance, Tenant may proceed to take the required action upon delivery of an additional five (5) business days notice (except in the case of an emergency in which such additional notice will not be required) to Landlord and any mortgagee of Landlord (of whom Tenant is notified) (which additional notice must clearly specify that Tenant is taking such required action), and if such action was required under the terms of the Lease to be taken by Landlord and was not taken or commenced by Landlord within such five (5) business day period, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant’s actual reasonable costs in taking such action. In the event Tenant takes such action, and such work will affect the Systems and Equipment or the structural integrity of the Building, Tenant shall use only those contractors used by Landlord in the Building for work on such Systems and Equipment or structural components unless such contractors are unwilling or unable to perform, or timely perform, such work or the fees charged by such contractors materially exceed the rates of similarly qualified contractors in the vicinity of the Building, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in comparable buildings and who are reasonably approved by Landlord in writing. Within thirty (30) days after receipt of a reasonably particularized invoice from Tenant of its costs of taking action which Tenant claims should have been taken by

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Landlord, Landlord shall reimburse Tenant the amount set forth in such invoice. If, however, Landlord delivers to Tenant within thirty (30) days after receipt of Tenant’s invoice, a written objection to the payment of such invoice, setting forth with reasonable particularity Landlord’s reasons for its claim that such action did not have to be taken by Landlord pursuant to the terms of this Lease or that the charges are excessive (in which case Landlord shall pay the amount it contends would not have been excessive), then Tenant shall not be entitled to such reimbursement, but as Tenant’s sole remedy, Tenant may proceed to claim a default by Landlord under this Lease. Tenant agrees to indemnify and hold Landlord harmless from any injury, damage, claim or cause of action which results from Tenant’s gross negligence or willful misconduct in the performance of such repairs or maintenance.

8. ADDITIONS AND ALTERATIONS

     8.1 Landlord’s Consent to Alterations. Tenant may not make any improvements, alterations, additions or changes to the Premises (collectively, the “Alterations”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than twenty (20) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord. The construction of the initial improvements to the Premises, if any, shall be governed by the terms of the Tenant Work Letter attached hereto as Exhibit “B” and not the terms of this Article 8. Notwithstanding anything to the contrary contained herein, Tenant may make strictly cosmetic changes to the finish work in the Premises (the “Cosmetic Alterations”), without Landlord’s consent (and without incurring an administrative fee), provided that the aggregate cost of any such alterations does not exceed $50,000 in any twelve (12) month period, and further provided that such alterations do not (i) require any structural or other substantial modifications to the Premises, (ii) require any changes to, or adversely affect, the Systems and Equipment of the Building, (iii) affect the exterior appearance of the Building or (iv) trigger any legal requirement which would require Landlord to make any alteration or improvement to the Premises, the Building or the Real Property. Tenant shall give Landlord at least fifteen (15) days prior notice of such Cosmetic Alterations, which notice shall be accompanied by reasonably adequate evidence that such changes meet the criteria contained in this Article 8. Except as otherwise provided, the term “Alterations” shall include Cosmetic Alterations.

     8.2 Manner of Construction. Tenant shall have obtained Landlord’s approval of all plans, specifications, drawings, contractors and subcontractors prior to the commencement of Tenant’s construction of the Alterations; provided, however, a contractor of Landlord’s reasonable selection shall perform all mechanical, electrical, plumbing, structural, and heating, ventilation and air conditioning work, and, so long as such work is competitively priced, such work shall be performed at Tenant’s cost. Tenant agrees to carry “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as is then customary for similar type alterations in the area. In addition, Landlord may, in its reasonable discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. Further, Tenant shall pay to Landlord or its agent a supervision fee based on Landlord’s actual cost of supervision, not to exceed five percent (5%) of the cost of such work (which fee shall not apply to any Cosmetic Alterations, as defined above). The supervision fee applicable to the initial Tenant Improvements constructed in accordance with the Tenant Work Letter will be governed by the terms of the Tenant Work Letter and not this Section 8.2. Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable laws and pursuant to a valid building permit, issued by the appropriate governmental authorities, in conformance with Landlord’s construction rules and regulations and in a diligent, good and workmanlike manner. If such Alterations trigger a legal requirement upon Landlord to make any Alterations or improvements to the Building or Common Areas, Tenant shall, as Additional Rent, reimburse Landlord for the cost thereof within thirty (30) days following receipt of an invoice therefor. Landlord’s approval of the plans, specifications and working drawings for Tenant’s Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. Upon completion of any Alterations, Tenant agrees to cause a Notice of Completion (or equivalent) to be posted (if applicable) and recorded in the office of the Recorder of the County in which the Building is located in accordance with all applicable state statutes, and Tenant shall deliver to the Building management office a reproducible copy of the “as built” drawings of the Alterations.

     8.3 Landlord’s Property. All Alterations and fixtures which may be made, installed or placed in or about the Premises from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord; however, Landlord may, by written notice to Tenant at the time of Landlord’s consent to such Alteration or Improvements, require Tenant at Tenant’s expense to remove any such Alterations or fixtures and/or the Improvements constructed pursuant to Exhibit B if applicable. Any Alterations or Improvements which Landlord does not notify Tenant it must remove at the time of Landlord’s consent to such Alterations or Improvements, shall remain on the Premises upon the expiration or earlier termination of this Lease and shall be

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surrendered in good condition, reasonable wear and tear excepted. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations, Improvements or fixtures, Landlord may do so and may charge the cost thereof to Tenant. This Section 8.3 shall survive the expiration or earlier termination of this Lease.

     8.4 Landlord’s Liability for Alterations. Landlord’s approval of an Alteration shall not be a representation by Landlord that the Alteration complies with applicable laws or will be adequate for Tenant’s use. Tenant acknowledges that Landlord is not an architect or engineer, and that the Alterations will be designed and/or constructed using independent architects, engineers, and contractors. Accordingly, Landlord does not guarantee or warrant that the applicable construction documents will comply with laws or be free from errors or omissions, or that the Alterations will be free from defects, and Landlord will have no liability therefor.

9. COVENANT AGAINST LIENS

     Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Real Property, the Building or the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be promptly released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed within thirty (30) days after the date notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys’ fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall immediately be due and payable by Tenant.

10. INDEMNITY AND INSURANCE

     10.1 Indemnification and Waiver. Subject to Section 10.6 below, Tenant shall be liable for, and shall indemnify, defend, protect and hold Landlord and Landlord’s partners, officers, directors, employees, agents, successors and assigns (collectively, “Landlord Indemnified Parties”) harmless from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities and expenses, including reasonable attorneys’ fees and court costs (collectively, “Indemnified Claims”), arising or resulting from (a) any negligent or willful act or omission of Tenant or any of Tenant’s agents, employees, contractors, subtenants, assignees, invitees or licensees in or about the Premises, the Building or the Real Property (collectively, “Tenant Parties”); (b) any occurrence within the Premises unless solely caused by the gross negligence or willful misconduct of Landlord; and/or (c) any default by Tenant of any obligations on Tenant’s part to be performed under the terms of this Lease. Tenant hereby assumes all risk of damage to property or injury to persons in or about the Premises from any cause, and Tenant hereby waives all claims in respect thereof against Landlord unless solely caused by the gross negligence or willful misconduct of Landlord. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination.

     10.2 Tenant’s Insurance. Tenant shall maintain the following coverages in the following amounts.

          10.2.1 Commercial general liability (CGL) and, if necessary, commercial umbrella insurance, on an occurrence basis, with a limit of not less than $3,000,000 each occurrence. If such CGL insurance contains a general aggregate limit, it shall apply separately to this location. CGL insurance shall be written on ISO occurrence form CG 00 01 01 96 (or a substitute form providing equivalent coverage) and shall cover liability arising from premises, operations, independent contractors, products-completed operations, personal injury and advertising injury, liability assumed under an insured contract and the performance by Tenant of the indemnity agreements set forth in Sections 10.1 and 29.2 of this Lease. Landlord shall be included as an insured under the CGL policy, using ISO additional insured endorsement CG 20 11 or a substitute providing equivalent coverage, and under the commercial umbrella, if any. This insurance shall apply as primary insurance with respect to any other insurance or self-insurance programs afforded to Landlord. There shall be no endorsement or modification of the CGL to make it excess over other available insurance; alternatively, if the CGL states that it is excess or pro rata, the policy shall be endorsed to be primary with respect to the additional insured. Tenant waives all rights against Landlord and its agents, officers, directors and employees for recovery of damages to the extent these damages are covered by the commercial general liability or commercial umbrella liability insurance maintained pursuant to this agreement.

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          10.2.2 Commercial property insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, and (ii) the Tenant Improvements and Alterations. Such insurance shall cover the perils insured under the ISO special causes of loss form (CP 10 30) and shall include coverage for vandalism and malicious mischief, terrorism coverage for both certified and non-certified acts of terrorism, water damage, sprinkler leakage coverage, boiler and machinery (systems breakdown) and earthquake sprinkler leakage coverage. The amount insured shall equal the full replacement cost value new without deduction for depreciation of the covered items. Any coinsurance requirement in the policy shall be eliminated through the attachment of an agreed amount endorsement, the activation of an agreed value option, or as is otherwise appropriate under the particular policy form. In no event shall Landlord be liable for any damage to or loss of personal property sustained by Tenant, whether or not it is insured, even if such loss is caused by the negligence of Landlord, its employees, officers, directors or agents. Landlord and Tenant hereby waive any recovery of damages against each other (including their employees, officers, directors, agents, or representatives) for loss or damage to the Building, tenant improvements and betterments, fixtures, equipment, and any other personal property to the extent covered by the commercial property insurance required above. If the commercial property insurance purchased by Tenant as required above does not allow the insured to waive rights of recovery against others prior to loss, Tenant shall cause them to be endorsed with a waiver of subrogation as required above.

          10.2.3 Business income, Business interruption and extra expense insurance in such amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Building as a result of such perils. In no event shall Landlord be liable for any business interruption or consequential loss sustained by Tenant, whether or not it is insured, even if such loss is caused by the negligence of Landlord, its agents, employees, directors officers or contractors.

          10.2.4 Worker’s compensation insurance providing statutory benefits to Tenant’s employees, employers liability insurance with limits not less than $1,000,000 each accident for bodily injury by accident or $1,000,000 each employee for bodily injury by disease. Tenant waives all rights against Landlord and its agents, officers, directors, and employees for recovery of damages to the extent these damages are covered by the workers compensation and employers liability obtained by Tenant. Tenant shall obtain an endorsement to effect this waiver.

     10.3 Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease and Landlord makes no representation or guaranty that the insurance required under this Lease shall be sufficient or adequate to protect Tenant. All insurance shall (i) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of Texas; and (ii) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and the other additional insureds thereunder designated by Landlord. In addition, the insurance described in Section 10.2.1 above shall (a) name Landlord, any mortgage holder and Landlord’s property manager, as an additional insured; (b) specifically cover the liability assumed by Tenant under this Lease including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (c) be primary insurance as to all claims thereunder and provide that any insurance required by Landlord is excess and is non-contributing with any insurance requirement of Tenant; and (d) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. The insurance described in Section 10.2.2 shall name Landlord and any named mortgage holder as loss-payee as to all items referred to in clause (ii) of Section 10.2.2 and the insurance described in Sections 10.2.2 and 10.2.3 shall have deductibles reasonably acceptable to Landlord. Tenant shall deliver all policies or certificates thereof to Landlord on or before Landlord’s delivery of the Premises to Tenant or the Lease Commencement Date, whichever first occurs, and at least thirty (30) days before the expiration dates thereof. All certificates shall provide that such insurance will not be cancelled (or materially changed) without at least thirty (30) days’ prior written notice (ten (10) days for nonpayment of premiums) to Landlord. The words “endeavor to” and “but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives” shall be deleted from the certificate form’s cancellation provision. Failure of Landlord to demand such certificate or other evidence of full compliance with these insurance requirements or failure of Landlord to identify a deficiency from evidence that is provided shall not be construed as a waiver of Tenant’s obligation to maintain such insurance. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may deny Tenant the right to occupy the Premises until such time as Tenant makes such deliveries (which denial shall have no effect upon the Lease Commencement Date) and/or procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within five (5) days after delivery to Tenant of the bills therefor.

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     10.4 Tenant’s Compliance with Landlord’s Fire and Casualty Insurance. Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase.

     10.5 Subrogation. Landlord and Tenant agree to have their respective insurance companies issuing property damage, worker’s compensation insurance and loss of income and extra expense insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage if such loss or damage is insurable under the property damage or loss of income and extra expense insurance required to be maintained hereunder (this waiver extends to deductibles under such insurance).

     10.6 Landlord’s Indemnification of Tenant. Notwithstanding anything herein to the contrary, except for injury or damage (i) of a type that is covered by the waivers described in Section 10.5 or (ii) arising from the negligence or willful misconduct of Tenant or any of the Tenant Parties, Landlord shall indemnify, protect, defend and hold harmless Tenant and Tenant’s partners, officers, directors, employees, agents, successors and assigns (collectively, “Tenant Indemnified Parties”), from and against any Indemnified Claims (but excluding claims for consequential damages or lost profits) that arise or result solely from (a) any occurrence in the Common Areas, but only to the extent covered by the liability insurance maintained or required to be maintained by Landlord pursuant to this Lease or (b) any negligent or willful misconduct of Landlord, Landlord’s agents, employees or contractors acting within the scope of their employment.

     10.7 Landlord’s Insurance. Landlord shall, as a cost to be included in Operating Expenses, procure and maintain during the Lease Term hereof, a special form policy or policies of insurance covering loss or damage to the Building including vandalism coverage and malicious mischief, sprinkler leakage, water damage and commercial general liability insurance. Such insurance shall be in such amounts, from such companies, and on such terms and conditions as Landlord or its lender may deem appropriate from time to time, but shall have limits not less than those required of Tenant hereunder.

11. DAMAGE AND DESTRUCTION

     11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty. If the Premises or any Common Areas of the Building serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the base, shell and core of such Common Areas and the Premises (collectively, the “Base, Shell and Core”) to substantially the same condition as existed prior to the casualty, except for modifications required by law, the holder of a mortgage on the Real Property, the lessor of a ground or underlying lease, or any other modifications to the Common Areas deemed reasonably desirable by Landlord. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises resulting from fire or other casualty, Tenant shall assign to Landlord all insurance proceeds payable to Tenant as to items of property described in clause (ii) of Section 10.2.2, and Landlord shall return the Tenant Improvements and Alterations to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s repair of the damage. In the event any damage to the Building or Common Area occurs as a result of the gross negligence or willful misconduct of Tenant and/or its agents, contractors, employees and/or invitees, Tenant shall reimburse Landlord, promptly on demand, for the costs incurred by Landlord in repairing such damage and the provisions of Section 10.5 regarding Landlord’s deductible shall not apply to such reimbursement obligation. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from damage resulting from fire or other casualty or Landlord’s repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, there shall be a proportionate abatement of Rent, during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and that portion of the Premises is not occupied by Tenant as a result thereof.

     11.2 Landlord’s Option to Repair. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises and/or Building and instead terminate this Lease by notifying Tenant in writing of such termination within forty-five (45) days after the date Landlord learns of the necessity for repairs as the result of damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is

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present: (i) repairs cannot reasonably be completed within one hundred twenty (120) days after the date Landlord learns of the necessity for repairs as the result of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Real Property or ground or underlying lessor with respect to the Real Property shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; (iii) the damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies; or (iv) such damage occurs during the last twenty-four (24) months of the Lease Term. Within sixty (60) days after the date Landlord learns of the necessity for repairs as a result of damage, Landlord shall notify Tenant (“Damage Repair Estimate”) of Landlord’s estimated assessment of the period of time in which the repairs will be completed, which assessment shall be based upon the opinion of a contractor reasonably selected by Landlord and experienced in comparable repairs of comparable office buildings. If Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, and the Damage Repair Estimate indicates that repairs cannot be completed within one hundred eighty (180) days after being commenced, Tenant may elect, not later than thirty (30) days after Tenant’s receipt of the Damage Repair Estimate, to terminate this Lease by written notice to Landlord effective as of the date specified in Tenant’s notice. In the event there is substantial damage to the Premises during the last twelve (12) months of the Lease Term and Tenant is unable to use the Premises as a result of such damage, Tenant shall have the right to terminate this Lease by providing written notice to Landlord.

     11.3 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Real Property, and any statute, regulation or case law of the State of Texas with respect to termination rights arising from damage or destruction shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Real Property.

12. NONWAIVER

     No waiver of any provision of this Lease shall be implied by any failure of Landlord to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently. Any waiver by Landlord of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and then only for the time and in the manner specifically stated in such waiver. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term.

13. CONDEMNATION

     If the whole or any part of the Premises, Building or Real Property shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Real Property, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon sixty (60) days’ notice, provided such notice is given no later than sixty (60) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, Tenant shall have the option to terminate this Lease upon sixty (60) days’ notice, provided such notice is given no later than sixty (60) days after the date of such taking. Landlord shall be entitled to receive the entire award or payment in connection with such taking, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for goodwill and moving expenses, so long as such claim does not diminish the award available to Landlord, its ground lessor (if applicable) with respect to the Real Property or its mortgagee, and such claim is payable separately to Tenant. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to any Texas law, statute or ordinance now or hereafter in effect, to seek termination of this Lease in the event of a taking.

14. ASSIGNMENT AND SUBLETTING

     14.1 Transfers. Tenant shall not, without the prior written consent of Landlord, which shall not be unreasonably withheld if Landlord does not elect to proceed under Section 14.4 below, assign or otherwise transfer this Lease or any interest hereunder, permit any assignment or other such foregoing transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of

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the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant shall desire Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “Transfer Notice”) shall include (i) the proposed effective date of the Transfer, which shall not be less than twenty-five (25) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “Subject Space”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including a calculation of the “Transfer Premium,” as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee and a copy of all operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, and (iv) current financial statements of the proposed Transferee and such other information as Landlord may reasonably require. If there are any material changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.1, or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease). Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Whether or not Landlord shall grant consent, Tenant shall pay Landlord’s review and processing fees, as well as any reasonable legal fees incurred by Landlord, within thirty (30) days after written request by Landlord. Such fees shall not be greater than $1,500.00 per request for Landlord consent. Notwithstanding any contrary provision of this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent to a proposed Transfer or otherwise has breached its obligations under this Article 14, Tenant’s and such Transferee’s only remedy shall be to seek a declaratory judgment and/or injunctive relief, and Tenant, on behalf of itself and, to the extent permitted by law, such proposed Transferee waives all other remedies against Landlord, including without limitation, the right to seek monetary damages or to terminate this Lease.

     14.2 Landlord’s Consent. Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. The parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply, without limitation as to other reasonable grounds for withholding consent: (i) the Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building; (ii) the Transferee intends to use the Subject Space for purposes which are not permitted under this Lease; (iii) the Transferee is either a governmental agency or instrumentality thereof; (iv) the Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space; (v) the Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the Lease on the date consent is requested; (vi) the proposed Transfer would cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give an occupant of the Building a right to cancel its lease; (vii) either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (A) occupies space in the Building at the time of the request for consent, (B) is negotiating with Landlord to lease space in the Building at such time, or (C) has negotiated with Landlord during the twelve (12)-month period immediately preceding the Transfer Notice; (viii) in the case of a proposed sublease by Tenant, the rent to be paid Tenant by the proposed Transferee is less than the prevailing fair market rent (as determined by Landlord) for the Subject Space on a non-sublease basis; or (ix) Landlord has not received assurances acceptable to Landlord that all past due amounts owing by Tenant to Landlord, if any, will be paid and all defaults on the part of Tenant, if any, will be cured prior to the effective date of the proposed Transfer.

     14.3 Transfer Premium. If Landlord consents to a Transfer, Tenant shall pay to Landlord within thirty (30) days of Tenant’s receipt from Transferee, fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3, received by Tenant from such Transferee. "Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in excess of the Rent and Additional Rent payable by Tenant under this Lease on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any brokerage commissions in connection with the Transfer (collectively, the “Subleasing Costs”), and (iii) legal fees and other fees paid in connection thereto. “Transfer Premium” shall also include, but not be limited to any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any

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Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and Landlord’s costs of such audit (if such understatement is greater than three percent (3%)).

     14.4 Landlord’s Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, Landlord shall have the option, by giving written notice to Tenant within twenty-five (25) days after receipt of any Transfer Notice, to recapture the Subject Space from Tenant. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee.

     14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease.

     14.6 Additional Transfers. For purposes of this Lease, the term “Transfer” shall also include a change in the ownership of twenty-five percent (25%) or more of the ownership interests of Tenant or of any entity controlling Tenant (a “Parent Entity”) within a twelve (12)-month period, unless Tenant or such Parent Entity is a publicly-held company whose stock trades on a nationally-recognized exchange. For purposes of this Section “controlling” shall mean the ability, directly or indirectly, to direct or cause the direction of the management of Tenant, whether through ownership of an equity interest, by contract, or otherwise.

     14.7 Affiliate Transfers. Notwithstanding anything to the contrary contained in this Article 14, an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (“Affiliate”) is hereby defined as an entity which is controlled by, controls, or is under common control with, Tenant, or that becomes a parent, successor or affiliate of Tenant, or is a successor of Tenant by reason of merger, consolidation, public offering, reorganization, dissolution, or sale of stock, membership or partnership interests or assets) shall not be deemed a transfer under this Article 14 and Landlord’s consent shall not be required, nor shall the provisions of Section 14.3 apply, provided that (i) Tenant notifies Landlord of any such assignment or sublease prior to the effective date thereof and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such assignment or sublease to such Affiliate (including, in the event of an assignment, evidence of the assignee’s assumption of Tenant’s obligations under this Lease or, in the event of a sublease, evidence of the sublessee’s assumption, in full, of the obligations of Tenant with respect to the portion of the Premises so subleased, other than the payment of rent), (ii) such assignment or sublease is not a subterfuge by Tenant solely to avoid its obligations under this Lease, (iii) such assignment or sublease does not cause Landlord to be in default under any existing lease at the Building, and (iv) the net worth of such Affiliate is not less than reasonably required to fulfill the terms of this Lease as determined by Landlord exercising its commercially reasonable business judgment. An assignee of Tenant’s entire interest in this Lease pursuant to the immediately preceding sentence may be referred to herein as an “Affiliated Assignee.” “Control,” as used in this Article 14 shall mean the ownership, directly or indirectly, of greater than fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of greater than fifty-one percent (51%) of the voting interest in, an entity. Nothing contained in this Section 14.7 shall be deemed to release Tenant from its obligations under this Lease.

15. SURRENDER OF PREMISES AND REMOVAL OF TENANT’S PROPERTY

     No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall remove from the Premises all debris and rubbish,

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such items of furniture, equipment, and other articles of personal property owned by Tenant and any property Landlord requires Tenant to remove pursuant to Section 8.3. Tenant shall be required to remove the existing telephone and data cabling in the Premises prior to the installation of Tenant’s cabling in the Premises; provided that upon the expiration or earlier termination of this Lease, Tenant will not be required to remove the cabling installed by or upon the request of Tenant in the Premises, provided that Tenant shall leave such cabling in a manner which complies with any applicable laws or fire codes. Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal. To the fullest extent permitted by applicable law, any unused portion of Tenant’s Security Deposit may be applied to offset Landlord’s costs set forth in the preceding sentence. In addition, if Tenant fails to remove Tenant’s personal property from the Premises upon the expiration of the Lease Term or within 30 days after written notice if the Lease is otherwise terminated early, Landlord may (but shall not be obligated to) deem all or any part of Tenant’s personal property to be abandoned, and title to Tenant’s personal property (except with respect to any Hazardous Material (defined in Paragraph 29)) shall be deemed to be immediately vested in Landlord with no obligation on the part of Landlord to compensate Tenant for such property.

16. HOLDING OVER

     If Tenant holds over after the expiration of the Lease Term hereof, with or without the consent of Landlord, such tenancy shall be from month-to-month only, and Base Rent shall be payable at a monthly rate equal to 150% of the Base Rent and Tenant’s Share of Operating Expenses due for the period immediately preceding the holdover. Provided, however, that in the event Landlord notifies Tenant that they have a bona fide third party tenant with whom a lease has been executed, then thirty (30) days after such notice, the holdover percentage set forth above shall be increased to 200%. Such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein. Such holdover shall not constitute a renewal or extension of the Lease Term and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law.

17. ESTOPPEL CERTIFICATES

     Within ten (10) business days following a request in writing by either party, the other party shall execute and deliver to the requesting party an estoppel certificate, in such form as may be reasonably required by such party or any prospective mortgagee or purchaser of the Real Property, indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested.

18. SUBORDINATION

     Landlord agrees to provide Tenant with a subordination, non-disturbance and attornment agreement from the current lender on the Building in the form attached hereto as Exhibit “D.” This Lease is further subject and subordinate to all present and future ground or underlying leases of the Real Property and to the lien of any mortgages or trust deeds, now or hereafter in force against the Real Property and the Building, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Tenant covenants and agrees to attorn, without any deductions or set-offs whatsoever, to the lender or holder of any mortgage or trust deed upon any foreclosure, to the purchaser upon any foreclosure sale, or to the lessor of a ground or underlying lease upon the termination thereof, as the case may be, if so requested to do so by such lender, purchaser or lessor, and to recognize such lender, purchaser or lessor as the lessor under this Lease; provided that the foregoing is expressly conditioned upon such lender or successor agreeing not to disturb Tenant’s right to possession under this Lease so long as Tenant is not in default. Tenant shall, within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm such attornment and/or the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases.

19. DEFAULTS; REMEDIES

     19.1 Tenant Default. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

          19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, after five (5) days’ written notice to Tenant; or

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          19.1.2 Any failure by Tenant (other than a failure pursuant to Section 19.1.1 or 19.1.4) to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided however, that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30)-day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default as soon as possible; or

          19.1.3 The entry of an order for relief with respect to Tenant or any guarantor of this Lease under any chapter of the Federal Bankruptcy Code, the dissolution or liquidation of Tenant or any guarantor of this Lease, the insolvency of Tenant or any guarantor of this Lease or the inability of Tenant or any guarantor of this Lease to pay its debts when due, or the appointment of a trustee or receiver to take possession of all or substantially all of Tenant’s or any guarantor’s assets or Tenant’s interest under this Lease that is not discharged within thirty (30) days; or

          19.1.4 The failure of Tenant to execute any documents referenced in Article 17 or 18 within the time periods set forth in those Articles.

     Any notice required under this Section 19.1 shall be in lieu of, and not in addition to, any notice required under current or future Texas statutes.

     19.2 Landlord Default. Landlord shall not be in default in the performance of any obligation required to be performed by Landlord under this Lease unless Landlord has failed to perform such obligation within thirty (30) days after the receipt of written notice to Landlord (and any mortgagee of whom Tenant has been notified) from Tenant specifying in detail Landlord’s failure to perform; provided however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed in default if it commences such performance within such thirty (30) day period and thereafter diligently pursues the same to completion. Tenant agrees that, prior to commencing a legal action against Landlord for failure to cure such default as provided in the preceding sentence, any mortgagee which received notice of such default shall have an additional thirty (30) days to cure such default (unless such cure would take longer and such mortgagee has commenced such cure within said thirty (30) day period). Upon any such uncured default by Landlord and any mortgagee which received notice of such default, Tenant may exercise any of its rights provided in law or at equity; provided, however: (a) Tenant shall have no right to offset or abate rent in the event of any default by Landlord under this Lease, except to the extent offset rights are specifically provided to Tenant in this Lease; (b) Tenant shall have no right to terminate this Lease; (c) Tenant’s rights and remedies hereunder shall be limited to the extent (i) Tenant has expressly waived in this Lease any of such rights or remedies and/or (ii) this Lease otherwise expressly limits Tenant’s rights or remedies; and (d) Landlord will not be liable for any consequential damages.

20. LANDLORD REMEDIES

     20.1 Landlord’s Remedies. Upon any default, Landlord shall have the right without notice or demand (except as provided in Article 19) to pursue any of its rights and remedies at law or in equity, including, without limitation, any one or more of the following remedies:

          20.1.1 Without terminating this Lease, re-enter and take possession of the Premises;

          20.1.2 Without terminating this Lease, Landlord may relet the Premises as Landlord may see fit without thereby voiding or terminating this Lease, and for the purposes of such reletting, Landlord is authorized, at Tenant’s expense, to make such repairs, redecorating, refurbishments or improvements to the Premises as may be necessary in the reasonable opinion of Landlord;

          20.1.3 Terminate this Lease;

          20.1.4 Remove and store, at Tenant’s expense, all the property in the Premises using such lawful force as may be necessary;

          20.1.5 Cure such event of default for Tenant at Tenant’s expense (plus a 5% administrative fee);

          20.1.6 Withhold or suspend payment of sums Landlord would otherwise be obligated to pay to Tenant under this Lease or any other agreement;

          20.1.7 Require all future payments to be made by cashier’s check, money order, or wire transfer after the first time any check is returned for insufficient funds, or the third time any sum due hereunder is more than five days late;

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          20.1.8 Apply any Security Deposit as permitted under this Lease; and/or

          20.1.9 Recover such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable Law.

          20.1.10 Landlord may, in addition to all other rights and remedies afforded Landlord hereunder or by law or equity, without notice, alter locks or other security devices at the Premises to deprive Tenant of access thereto, and Landlord shall not be required to provide a new key or right of access to Tenant.

          20.1.11 The provisions hereof shall override and control any conflicting provisions of Section 93.002 of the Texas Property Code
(as amended).]

     20.2 Measure of Damages.

          20.2.1 Calculation. If Landlord either terminates this Lease or terminates Tenant’s right to possession of the Premises, Tenant shall immediately surrender and vacate the Premises and pay Landlord on demand: (a) all Rent accrued through the end of the month in which the termination becomes effective; (b) interest on all unpaid Rent from the date due at a rate equal to the lesser of 18% per annum or the highest interest rate permitted by applicable law; (c) all expenses reasonably incurred by Landlord in enforcing its rights and remedies under this Lease, including all reasonable legal expenses; (d) Costs of Reletting (defined below); and (e) all Landlord’s Rental Damages (defined below). In the event that Landlord relets the Premises for an amount greater than the Rent due during the Term, Tenant shall not receive a credit for any such excess.

          20.2.2 Definitions. “Costs of Reletting” shall include commercially reasonable costs, losses and expenses incurred by Landlord in reletting all or any portion of the Premises including, without limitation, the cost of removing and storing Tenant’s furniture, trade fixtures, equipment, inventory, or other property and repairing the Premises, removing and/or replacing Tenant’s signage and other fixtures, making the Premises ready for a new tenant, including the reasonable cost of advertising, commissions, architectural fees, legal fees, and leasehold improvements, and any reasonable allowances and/or concessions provided by Landlord. “Landlord’s Rental Damages” shall mean the total Rent which Landlord would have received under this Lease (had Tenant made all such Lease payments as required) for the remainder of the Term minus the amount of such rental loss that would be reasonably avoided pursuant to Section 20.4. below, or, if the Premises are relet, the actual rental value of such replacement lease (provided that if the rent to be received under such replacement lease exceeds the rent that would have been due under this Lease, Tenant will not be given a credit for any such increase in rent), both discounted to present value at the Prime Rate (defined below) in effect upon the date of determination. For purposes hereof, the “Prime Rate” shall be the per annum interest rate publicly announced by a federally insured bank selected by Landlord in the state in which the Building is located as such bank’s prime or base rate.

     20.3 Tenant Not Relieved from Liabilities. Unless expressly provided in this Lease, the repossession or re-entering of all or any part of the Premises shall not relieve Tenant of its liabilities and obligations under this Lease. In addition, Tenant shall not be relieved of its liabilities under this Lease, nor be entitled to any damages hereunder, based upon minor or immaterial errors in the exercise of Landlord’s remedies. No right or remedy of Landlord shall be exclusive of any other right or remedy. Each right and remedy shall be cumulative and in addition to any other right and remedy now or subsequently available to Landlord at law or in equity. If Tenant fails to pay any amount when due hereunder (after the expiration of any applicable cure period), Landlord shall be entitled to receive interest on any unpaid item of Rent from the date initially due (without regard to any applicable grace period) at a rate equal to the rate set forth in Article 25 below. However, in no event shall the charges permitted under this Section 20.3 or elsewhere in this Lease, to the extent they are considered interest under applicable law, exceed the maximum lawful rate of interest. If any payment by Tenant of an amount deemed to be interest results in Tenant having paid any interest in excess of that permitted by law, then it is the express intent of Landlord and Tenant that all the excess amounts collected by Landlord be credited against the other amounts owing by Tenant under this Lease. Receipt by Landlord of Tenant’s keys to the Premises shall not constitute an acceptance or surrender of the Premises. Notwithstanding any other provision of this Lease to the contrary, Tenant shall hold the Landlord Indemnified Parties harmless from and indemnify and defend such parties against, all claims that arise out of or in connection with a breach of this Lease, specifically including any violation of applicable laws or Contamination (defined in Article 29) caused by Tenant.

     20.4 Mitigation of Damages. Upon termination of Tenant’s right to possess the Premises, Landlord shall use commercially reasonable efforts to mitigate damages by reletting the Premises. Landlord shall not be deemed to have failed to do so if Landlord refuses to lease the Premises to a prospective new tenant with respect to whom Landlord would be entitled to withhold its consent pursuant to Article 14, or who (1) is an Affiliate,

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parent, or subsidiary of Tenant; (2) is not reasonably acceptable to any Mortgagee of Landlord; or (3) is unwilling to accept commercially reasonable lease terms then proposed by Landlord, including: (a) leasing for a shorter term than remains under this Lease; (b) re-configuring or combining the Premises with other space, (c) taking all or only a part of the Premises; and/or (d) substantially changing the use of the Premises. Notwithstanding Landlord’s duty to mitigate its damages as provided herein, Landlord shall not be obligated (i) to give any priority to reletting Tenant’s space in connection with its leasing of space in the Building or any complex of which the Building is a part, or (ii) to accept below market rental rates for the Premises or any rate that would negatively impact the market rates for the Building. Listing the Premises with a broker in a manner consistent with the foregoing shall constitute prima facie evidence of reasonable efforts on the part of Landlord to relet the Premises.]

     20.5 Intentionally Omitted.

     20.6 Waiver of Default. No waiver by Landlord or Tenant of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. The acceptance of any Rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the Rent so accepted.

21. COVENANT OF QUIET ENJOYMENT

     Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

22. SECURITY DEPOSIT

     Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “Security Deposit”) in the amount set forth in Section 11 of the Summary. The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Lease Term. If Tenant defaults with respect to any provisions of this Lease beyond any applicable notice, grace or cure period, Landlord may use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, to cure Tenant’s default hereunder, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount, and Tenant’s failure to do so shall be a default under this Lease. Landlord shall return the Security Deposit (less any portion thereof used, applied or retained by Landlord as permitted herein) to Tenant within sixty (60) days a reasonable time period following the expiration of the Lease Term. Tenant shall not be entitled to any interest on the Security Deposit. Tenant hereby waives the provisions of Sections 93.005 and 93.006 Texas Property Code and all other provisions of law, now or hereafter in force, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises.

23. INTENTIONALLY OMITTED

24. SIGNS

     24.1 Premises Identification and Building Directory Signage. Tenant shall be entitled, at Landlord’s sole cost and expense, to (i) Building-standard identification signage outside of Tenant’s Premises on the floor on which Tenant’s Premises are located, and (ii) to one (1) line on the Building directory to display Tenant’s name and location in the Building. The location, quality, design, style, and size of such signage shall be consistent with the Landlord’s Building standard signage program and will comply with all applicable governmental requirements, codes or ordinances (including the receipt of any necessary permits). Any change in Tenant’s signage shall be at Tenant’s sole cost and expense.

     24.2 Prohibited Signage and Other Items. Any other signs, notices, logos, pictures, names or advertisements which are installed in the Common Areas or on the exterior of the Building or are visible from

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outside the Premises and that have not been individually approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant.

     24.3 Exterior Signage. Subject to this Section 24.3, Tenant shall be entitled to install, at its sole cost and expense, a strip on the Building’s existing Multi Tenant monument sign (“Signage”), which shall be the top position on such sign. The graphics, materials, size, color, design, lettering, lighting (if any), specifications and exact location of the Signage (collectively, the “Signage Specifications”) shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld and of the Las Colinas Association. In addition, the Signage and all Signage Specifications therefore shall be subject to Tenant’s receipt of all required governmental permits and approvals, and shall be subject to any covenants, conditions and restrictions affecting the Building. In the event Tenant does not receive the necessary permits and approvals for the Signage, Tenant’s and Landlord’s rights and obligations under the remaining provisions of this Lease shall not be affected. The cost of installation of the Signage, as well as all costs of design and construction of such Signage and all other costs associated with such Signage, including, without limitation, permits, maintenance and repair, shall be the sole responsibility of Tenant. The rights to the Signage and Exterior Signage shall be personal to the originally named Tenant and may not be transferred. Should the Signage require maintenance or repairs as determined in Landlord’s reasonable judgment, Landlord shall have the right to provide written notice thereof to Tenant and Tenant shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such notice from Landlord at Tenant’s sole cost and expense. Should Tenant fail to perform such maintenance and repairs within the period described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant, as Additional Rent, for the cost of such work. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, cause the Signage to be removed from the Building’s monument sign (or the Building, as applicable) and shall cause the monument sign (or the Building, as applicable) to be restored to the condition existing prior to the placement of such Signage reasonable wear and tear accepted. If Tenant fails to remove such Signage and to restore the monument sign (or the Building) as provided in the immediately preceding sentence within thirty (30) days following the expiration or earlier termination of this Lease (or the loss of Tenant’s Exterior Signage right as provided below), then Landlord may perform such work, and all costs and expenses incurred by Landlord in so performing such work shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant’s receipt of invoice therefore. The immediately preceding sentence shall survive the expiration or earlier termination of this Lease.

     Should the name of the original Tenant change, then the Signage may be modified at Tenant’s sole cost and expense to reflect the new name, but only if the new name does not (i) relate to an entity that is of a character, reputation, or associated with a political orientation or a faction, that is inconsistent with the quality of the Building or would otherwise reasonably offend a institutional landlord of a project comparable to the Building, taking into consideration the level and visibility of such signage or (ii) cause Landlord to be in default under any lease or license with another tenant of the Building.

     In the event that at any time during the Lease Term Tenant leases fifty percent (50%) of all leasable space in the Building, Tenant shall have the right to place a sign on the second floor spandrel on the exterior of the Building (“Exterior Signage”), the exact location of which will be subject to Landlord’s reasonable approval, and which Exterior Signage will be subject to all of the terms and conditions of this Section 24.3 above. If at any time Tenant fails to lease fifty percent (50%) of the Building, or is in default under this Lease after the expiration of applicable notice and cure periods, Tenant’s right to the Exterior Signage will terminate and Tenant will remove such Exterior Signage and repair the Building in accordance with the terms of this Section 24.3 above, or Landlord may remove and repair the same and charge Tenant the reasonable cost thereof as Additional Rent.

25. LATE CHARGES

     If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee when said amount is due, then (i) Tenant shall pay to Landlord a late charge equal to six percent (6%) of the amount due (but in no event shall such charge be in excess of the maximum amount permitted by applicable law) plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder, and (ii) such unpaid amounts shall thereafter bear interest until paid at a rate equal to the prime rate established from time to time by the largest federally chartered banking institution in the State where the Building is located plus five percent (5%) per annum, provided that in no case shall such rate be higher than the highest rate permitted by applicable law. The late charge and interest shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner.

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26. LANDLORD’S RIGHT TO CURE DEFAULT

     All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent. If Tenant shall fail to perform any of its obligations under this Lease, within a reasonable time after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after reasonable prior notice to Tenant, make any such payment or perform any such act on Tenant’s part without waiving its right based upon any default of Tenant and without releasing Tenant from any obligations hereunder, in which event Tenant shall reimburse Landlord, upon demand, for the sums reasonably incurred by Landlord in connection therewith. Tenant’s reimbursement obligations under this Article 26 shall survive the expiration or sooner termination of the Lease Term.

27. ENTRY BY LANDLORD

     Landlord reserves the right upon twenty-four (24) hours prior notice to Tenant (except that no notice shall be required in the case of an emergency or regularly scheduled service (such as janitorial)) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees or tenants, or to the ground or underlying lessors; (iii) post or serve notices of nonresponsibility for mechanics’ lien purposes; or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current Building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building pursuant to the terms and conditions of the Lease. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time to (A) perform services required of Landlord; (B) take possession due to any breach of this Lease in the manner provided herein; (C) perform any covenants of Tenant which Tenant fails to perform; or (D) to address an emergency. Any such entries shall be without the abatement of Rent, shall not be deemed an unlawful entry, or an actual or constructive eviction, and shall include the right to take such reasonable steps as required to accomplish the stated purposes. Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. In the event Landlord enters the Premises to perform any work or repair, Landlord shall use commercially reasonable efforts to cause minimal interference with Tenant’s use and shall repair any damage caused by the performance of such work by Landlord.

28. TENANT PARKING

     Subject to compliance with the rules and regulations reasonably prescribed by Landlord, Tenant shall have the right to use the number of parking passes set forth in Section 12 of the Summary of Basic Lease Information, at no charge to Tenant during the initial Lease Term. Landlord has advised Tenant, and Tenant acknowledges, that (i) a portion of the Parking Facilities are derived through an off-site parking easement (the “Parking Easement”) and that although the Parking Easement has been insured under Landlord’s owner policy of title insurance, Landlord does not warrant that the parking rights provided under the Parking Easement will remain in existence or otherwise will not be free from a third party challenge, and (ii) Tenant’s parking rights granted hereunder are granted on a non-exclusive, first-come first-served basis. In no event shall Tenant use more than the number of parking passes allocated to Tenant by Section 12 of the Summary. For purposes of permitting or facilitating any such construction, alteration, improvements or repairs with respect to the Parking Facilities or to accommodate or facilitate renovation, alteration, construction or other modification of other improvements or structures located on the Real Property, Landlord may without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, temporarily close-off or restrict access to the Parking Facilities, so long as Landlord relocates Tenant’s parking to other parking structures and/or surface parking areas with the same number of spaces Tenant is entitled to herein, and further provided Landlord provides a free shuttle service to and from the temporary parking areas (unless the temporary parking is in the parking lot immediately adjacent to the Building).

     Tenant may, as an Alteration subject to the terms of Article 8 of this Lease and approval of the Las Colinas Association, elect to construct, at Tenant’s sole cost, up to forty (40) covered carports in the surface parking lot at locations reasonably approved by Landlord and the Las Colinas Association. Such covered carports shall be exclusive to Tenant during the Term of this Lease; provided, however, that Landlord will not be obligated to police the use of such carports. Upon the expiration or earlier termination of this Lease, the covered carports shall become the property of Landlord and Tenant shall have no obligation to remove same. Subject to approval by the Las Colinas Association and Landlord (provided Landlord’s approval shall not be unreasonably withheld), Tenant may place signage on its carports identifying them as reserved for Tenant and stating that violators will be towed at the car owner’s expense. Tenant will indemnify, defend and hold the

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Landlord Indemnified Parties harmless from any Indemnified Claims arising out of the towing of any cars parked in the carports.

29. HAZARDOUS MATERIALS

     29.1 Restrictions. No Hazardous Material (defined below) (except for de minimis quantities of household cleaning products and office supplies used in the ordinary course of Tenant’s business at the Premises and that are used, kept, and disposed of in compliance with laws) shall be brought upon, used, kept, or disposed of in or about the Premises or the Real Property by any Tenant Parties or any of Tenant’s transferees, contractors, agents or licensees without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole and absolute discretion. Tenant’s request for such consent shall include a representation and warranty by Tenant that the Hazardous Material in question (1) is necessary in the ordinary course of Tenant’s business, and (2) shall be used, kept, and disposed of in compliance with all laws.

     29.2 Remediation. Tenant shall, at its expense, monitor the Premises for the presence of Hazardous Materials or conditions which may reasonably give rise to Contamination (defined below) and promptly notify Landlord if it suspects Contamination in the Premises. Any remediation of Contamination caused by a Tenant Party or its contractors or invitees which is required by law or which is deemed necessary by Landlord, in Landlord’s commercially reasonable business judgment, shall be performed by Landlord and Tenant shall reimburse Landlord for the reasonable cost thereof, plus a 5% administrative fee. Tenant shall be liable for, and shall indemnify, defend, protect and hold Landlord and the Landlord Indemnified Parties harmless from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities and expenses, including testing, remediation and consultant and reasonable attorneys’ fees and court costs, arising or resulting from (a) any Contamination on or about the Premises, Building or Real Property caused by Tenant or any Tenant Parties; or (b) any breach of this Article 29 by Tenant.

     29.3 Definitions. A “Hazardous Material” is any substance the presence of which requires, or may hereafter require, notification, investigation, or remediation under any laws or which is now or hereafter defined, listed, or regulated by any governmental authority as a “hazardous waste”, “extremely hazardous waste”, “solid waste”, “toxic substance”, “hazardous substance”, “hazardous material” or “regulated substance”, or otherwise regulated under any Laws, including but not limited to, asbestos. “Contamination” means the existence or any release or disposal of a Hazardous Material or biological or organic contaminant, including any such contaminant which could adversely impact air quality, such as mold, fungi, or other bacterial agents, in, on, under, at, or from the Premises, the Building, or the Real Property which may result in any liability, fine, use restriction, cost recovery lien, remediation requirement, or other government or private party action, or imposition affecting any Landlord Indemnified Party. For purposes of this Lease, claims arising from Contamination shall include diminution in value, restrictions on use, adverse impact on leasing space, and all costs of site investigation, remediation, removal, and restoration work, including response costs under CERCLA and similar statutes.

     29.4 Landlord represents and warrants that, to the best of the Building manager’s knowledge, as of the date of this Lease there are currently no Hazardous Materials located on the Building or within the Premises in violation of applicable Laws in effect as of the date of this Lease. Landlord shall, at no cost to Tenant (and not as an Operating Expense), remove or remediate any Hazardous Material in the Building to the extent required under applicable Laws, except where such removal or remediation is Tenant’s responsibility pursuant to Section 29.1 above. Landlord indemnifies Tenant for, from and against any breach by Landlord of the obligations stated in this Section 29.4, and agrees to defend and hold Tenant harmless from and against any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses which arise during or after the Lease Term as a result of such breach.

30. MISCELLANEOUS PROVISIONS

     30.1 Binding Effect. Landlord has delivered a copy of this Lease to Tenant for Tenant’s review only, and the delivery of it does not constitute an offer to Tenant or an option. This Lease shall not be effective against any party hereto until an original copy of this Lease has been signed by such party and delivered to the other party. An electronic or facsimile copy of the Lease shall be deemed an original for purposes of this Section 30.1. Each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

     30.2 No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.

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     30.3 Modification of Lease. Should any current or prospective mortgagee or ground lessor for the Building require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are required therefor and deliver the same to Landlord within ten (10) days following the request therefor.

     30.4 Transfer of Landlord’s Interest. In the event Landlord transfers all or any portion of its interest in the Real Property and Building and in this Lease, Landlord shall automatically be released from all remaining liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer.

     30.5 Captions. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

     30.6 Time of Essence. Time is of the essence of this Lease and each of its provisions.

     30.7 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

     30.8 Landlord Exculpation. It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord hereunder (including any successor landlord) and any recourse by Tenant against Landlord shall be limited solely and exclusively to the interest of Landlord in the Building, and the rents and income therefrom, and neither Landlord, nor any of its constituent partners, members, shareholders, officers, directors or employees shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.

     30.9 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. Any deletion of language from this Lease prior to its execution by Landlord and Tenant shall not be construed to raise any presumption, canon of construction or implication, including, without limitation, any implication that the parties intended thereby to state the converse of the deleted language. The parties hereto acknowledge and agree that each has participated in the negotiation and drafting of this Lease; therefore, in the event of an ambiguity in, or dispute regarding the interpretation of, this Lease, the interpretation of this Lease shall not be resolved by any rule of interpretation providing for interpretation against the party who caused the uncertainty to exist or against the draftsman.

     30.10 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, the “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

     30.11 Notices. Any notice, demand or other communication given under the provisions of this Lease (collectively, “Notices”) by either party to the other party shall be effective only if in writing and (a) personally served, (b) mailed by United States registered or certified mail, return receipt requested, postage prepaid, or (c) sent by a nationally recognized courier service (e.g., Federal Express) for next-day delivery. Notices shall be directed to the parties at their respective addresses set forth in the Summary. In the event that a different address is furnished by either party to the other party in accordance with the procedures set forth in this

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Section 30.11, Notices shall thereafter be sent or delivered to the new address. Notices given in the foregoing manner shall be deemed given (a) when actually received or refused by the party to whom sent if delivered by carrier or personally served or (b) if mailed, on the day of actual delivery or refusal as shown by the addressee’s registered or certified mail receipt. For purposes of this Section 30.11, a “business day” is Monday through Friday, excluding holidays observed by the United States Postal Service.

     30.12 Joint and Several Liability. If more than one person or entity executes this Lease as Tenant: (a) each of them is and shall be jointly and severally liable for the covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant; and (b) the act or signature of, or notice from or to, any one or more of them with respect to this Lease shall be binding upon each and all of the persons and entities executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or signed, or given or received such notice.

     30.13 Attorneys’ Fees. If either party commences litigation against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys’ fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment.

     30.14 Governing Law; Jurisdiction and Venue. This Lease and the rights and obligations of the parties shall be interpreted, construed, and enforced in accordance with the laws of the state in which the Building is located. All obligations under this Lease are performable in the County in which the Building is located, which shall be the venue for all legal actions.

     30.15 Jury Trial Waiver. TENANT, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FOREGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS LEASE OR ANY CONDUCT, ACT OR OMISSION OF LANDLORD, TENANT, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LANDLORD OR TENANT, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

     30.16 Paragraph Headings. The headings and titles to the Articles and Sections of this Lease are for convenience only and shall have no effect on the interpretation of any part of this Lease.

     30.17 Recording. Tenant shall not record this Lease or any memorandum of lease.

     30.18 Authority. Tenant covenants, warrants, and represents that each individual executing, attesting, and/or delivering this Lease on behalf of Tenant is authorized to do so on behalf of Tenant; this Lease is binding upon and enforceable against Tenant; and Tenant is duly organized and legally existing in the state of its organization and is qualified to do business in the state in which the Premises are located.

     30.19 Relationship. This Lease shall create only the relationship of landlord and tenant between the parties, and not a partnership, joint venture, or any other relationship.

     30.20 Survival of Obligations. The expiration of the Lease Term, whether by lapse of time or otherwise, shall not relieve Tenant of any obligations which accrued prior to or which may continue to accrue after the expiration or early termination of this Lease. Those terms or provisions of this Lease which this Lease expressly states shall survive, or which by their context are clearly intended to survive, the expiration or earlier termination of this Lease, shall survive the expiration or earlier termination of this Lease.

     30.21 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 13 of the Summary (the “Brokers”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless for, from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. Landlord will compensate the Brokers pursuant to a separate agreement.

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     30.22 Transportation Management. Tenant, at no additional material cost or liability to Tenant, shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Building and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.

     30.23 Confidentiality. Tenant acknowledges that the content of this Lease and any related documents are confidential information. Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants.

     30.24 Landlord Renovations. Tenant acknowledges that Landlord may, but shall not be obligated to (other than as specifically set forth herein or in the Tenant Work Letter, if applicable), during the Lease Term renovate, improve, alter, or modify (collectively, the “Renovations”) the Building, Premises, and/or Real Property, including without limitation the Parking Facilities, Common Areas, Systems and Equipment, roof, and structural portions of the same. So long as Landlord uses commercially reasonable efforts to ensure that (i) interference with Tenant’s use and occupancy of the Premises is minimal, and (ii) access to the Premises is not adversely affected, Tenant hereby agrees that such Renovations and Landlord’s actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, (unless same are caused by Landlord’s negligence or misconduct) nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations or Landlord’s actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord’s actions in connection with such Renovations.

     30.25 Financial Statements. Upon ten (10) days prior written request from Landlord (which Landlord may make at any time during the Term but no more often that one (1) time in any calendar year), Tenant shall deliver to Landlord a current financial statement of Tenant and any guarantor of this Lease. In the event Tenant is publicly traded and its financial statements are available on-line, this Section 30.25 shall not apply.

     30.26 Excepted Rights. Landlord shall also have the right (but not the obligation) to temporarily close the Building if Landlord reasonably determines that there is an imminent danger of significant damage to the Building or of personal injury to Landlord’s employees or the occupants of the Building. The circumstances under which Landlord may temporarily close the Building shall include, without limitation, electrical interruptions, hurricanes, terrorist activities and civil disturbances. So long as such imminent danger is continuing, a closure of the Building under such circumstances shall not constitute a constructive eviction nor entitle Tenant to an abatement or reduction of rent payable hereunder.

     30.27 Interpretation of Lease Terms. Each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. If any provision of this Lease or the application of such provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected by such invalidity or unenforceability, unless such provision or such application of such provision is essential to this Lease.

     30.28 Counterparts. This Lease may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one document.

     30.29 OFAC Compliance. For purposes of this Section 30.29, the term “Affiliated Parties” shall mean Tenant, any Guarantor hereunder, all persons and entities owning (directly or indirectly) an ownership interest in Tenant or Guarantor, and any and all subsidiaries, predecessors, agents and affiliates thereof. “Blocked Parties” mean any person or entity (A) that is itself or an Affiliated Party of an entity listed in the Annex to, or is otherwise subject to the provisions of, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (“Executive Order”), (B) with whom a party is prohibited from dealing or otherwise engaging in any transaction by any Patriot Act Related Law (as defined below), (C) who commits, threatens or conspires to commit or support “terrorism” as defined in the Executive Order, (D) that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Department of the Treasury, Office of Foreign Assets Control at its official website, http://www.ustreas.gov/offices/enforcement/ofac/ or at any replacement website or other replacement official publication of such list. The “Patriot Act Related Laws” are defined as any regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury

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(including, but not limited to, OFAC’s Specially Designated and Blocked Persons list) or any statute or executive order (including, but not limited to, the Executive Order) designed to limit commercial transactions with designated countries or individuals believed to be terrorists, narcotic dealers or otherwise engaged in activities contrary to the interests of the U.S., including, without limitation Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56), and the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, as the same may be amended from time to time, and any other governmental law, rule or regulation implementing such laws or purposes. Tenant hereby represents and warrants that Tenant and all Affiliated Parties (i) have never been a Blocked Party, and (ii) have been and are currently in full compliance with all Patriot Act Related Laws. Tenant covenants that neither Tenant nor any of its Affiliated Parties will do any of the following: (i) conduct any business or engage in any transaction or deal with any Blocked Person, including the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in any Patriot Act Related Law. Tenant shall continue to comply with the Patriot Act Related Laws and use commercially reasonable efforts to avoid business transactions with Blocked Parties. If, at any time, any of the representations set forth above in this Section 30.29 becomes false or Tenant willfully breaches any other provision of this Section 30.29, then it shall be considered a default under this Lease, which shall not be subject to any notice and/or cure period and Landlord shall have the immediate right to exercise its rights and remedies in the event of a default, including, but not limited to, termination of this Lease.

31. METHOD OF CALCULATION

     Tenant is knowledgeable and experienced in commercial transactions and does hereby acknowledge and agree that the provisions of this Lease for determining charges and amounts payable by Tenant are commercially reasonable and valid and constitute satisfactory methods for determining such charges and amounts as required by Section 93.012 (assessment of charges) of the Texas Property Code, as enacted by House Bill 2186, 77^th Legislature. Tenant further voluntarily and knowingly waives (to the fullest extent permitted by applicable Law) all rights and benefits of Tenant under such section, as it now exists or as it may be hereafter amended or succeeded.

32. EXCLUSIVITY

     Landlord hereby agrees that, during the initial Lease Term (or any Option Term, if applicable), Landlord shall not, without Tenant’s prior written consent, enter into any lease for space in the Building to any entity whose primary business is cost containment, recovery and coordination of benefits for government agencies. Landlord’s agreement pursuant to this Article 32 is specifically subject to all existing and subsequently-adopted laws that prohibit or modify such restriction and is not applicable to (i) any leases between Landlord and tenants of the Building that are in existence as of the date of this Lease, (ii) any subleases from existing or future tenants of the Building to a proposed subtenant(s) unless the terms of such leases permit Landlord to withhold its consent to such a sublease (which language will be included in all leases entered into by the original Landlord named in this Lease), or (iii) any operations conducted by Landlord or any entity that controls, is controlled by or is under common control with Landlord or is otherwise affiliated with Landlord. In addition, the foregoing restriction shall be of no further force and effect if at any time during the initial Lease Term (or any Option Term, if applicable), the Premises are not primarily used by Tenant for cost containment, recovery and coordination of benefits for government healthcare systems.

     IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

LANDLORD:
EQUASTONE HIGH POINT, LP
a Delaware limited partnership
By: Equastone High Point GP, LLC
Delaware limited liability company
Its: General Partner
By:	/s/ Clint Harrington
Name:	Clint Harrington
Its:	EVP

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By:	/s/ Kirk Cypel
Name:	Kirk Cypel
Its:	COO
TENANT:
HEALTH MANAGEMENT SYSTEMS, INC.,
a New York corporation
*By:	/s/ Walter D. Hosp
Name:	Walter D. Hosp
Title:	Sr VP, CFO
*By:
Name:
Title:

*NOTE:

Tenant shall deliver to Landlord evidence in a form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Agreement.

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EXHIBIT A

OUTLINE OF FLOOR PLAN OF PREMISES AND MUST TAKE SPACE

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EXHIBIT B

TENANT WORK LETTER

     This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of “this Lease” shall mean the relevant portions of the Lease to which this Tenant Work Letter is attached as Exhibit B, and all references in this Tenant Work Letter to Sections of “this Tenant Work Letter” shall mean the relevant portions of this Tenant Work Letter.

SECTION 1

LANDLORD’S INITIAL CONSTRUCTION IN THE PREMISES

     Landlord has constructed, at its sole cost and expense, the base, shell and core (i) of the Premises and (ii) of the floor of the Building on which the Premises are located (collectively, the “Base, Shell and Core”).

SECTION 2

IMPROVEMENTS

     2.1 Improvement Allowance. Tenant shall be entitled to a one-time tenant improvement allowance (the “Improvement Allowance”) in the amount of $25.00 per square foot of the Premises for the costs relating to the initial design and construction of Tenant’s improvements that are permanently affixed to the Premises (the “Improvements”). In addition, Landlord will provide Tenant with up to One and 50/100 Dollars ($1.50) per square foot of the Premises for space planning, design and engineering fees (“Soft Cost Allowance”) and a lump sum of $10,809.56 for lighting upgrades (“Lighting Allowance”). For the purposes of this Work Letter, the Soft Cost Allowance and the Lighting Allowance shall be deemed to be included in the definition of “Improvement Allowance.” Other than Landlord’s obligation to disburse the Improvement Allowance pursuant to this Tenant Work Letter, Tenant shall be responsible for all costs relating to the design and construction of the Improvements and in no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Improvement Allowance. All Improvements constructed pursuant to this Work Letter shall be deemed Landlord’s property under the terms of Section 8.5 of the Lease. Tenant shall not be entitled to any credit for any unused portion of the Improvement Allowance, except that Tenant may apply any unused Improvement Allowance to (i) cover its costs of moving into the Premises, costs of furniture, fixtures and equipment to be used in the Premises or (ii) (provided that Tenant first satisfies all obligations under this Lease for the first twelve (12) months of the Lease Term) as a credit against Tenant’s Base Rent for the thirteenth (13^th) and/or fourteenth (14^th) full month(s) of the Lease Term. The foregoing credit will be paid to Tenant (or credited against Base Rent) after written notice from Tenant after the substantial completion of the Improvements; provided that Tenant must make a written request for such amounts on or before December 31, 2008 or it will forfeit the right to such credit. Notwithstanding the foregoing, Tenant will complete Improvements in the Premises in substantial accordance with the preliminary plan previously provided to the Architect by Tenant.

     2.2 Disbursement of the Improvement Allowance. Except as otherwise set forth in this Tenant Work Letter, the Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord’s disbursement process, which disbursements will be made directly to the Contractor as the work progresses, subject to a retainage to be paid upon completion of the Improvements), only for the following items and costs (collectively, the “Improvement Allowance Items”):

          2.2.1 Payment of the fees of the “Architect” and the “Engineers,” as those terms are defined in Section 3.1 of this Tenant Work Letter, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Tenant Work Letter;

          2.2.2 The payment of plan check, permit and license fees relating to construction of the Improvements;

          2.2.3 The cost of construction of the Improvements;

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          2.2.4 The cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis) or are otherwise required by law as a result of the construction of the Improvements, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

          2.2.5 The cost of any changes to the Construction Drawings or Improvements required by applicable building code or any other governmental law or regulation (collectively, “Code”);

          2.2.6 Sales and use taxes;

          2.2.7 “Landlord’s Supervision Fee,” as hereinafter defined; and

          2.2.8 All other reasonable costs to be expended by Landlord in connection with the construction of the Improvements.

     2.3 Standard Improvement Package. Landlord may establish reasonable specifications (the “Specifications”) for the Building standard components to be used in the construction of the Improvements in the Premises (collectively, the “Standard Improvement Package”), which shall be delivered to Tenant in connection with the deliveries set forth in Section 3 herein. Tenant shall utilize materials and finishes which are not of lesser quality than the Specifications.

SECTION 3

CONSTRUCTION DRAWINGS

     3.1 Selection of Architect/Construction Drawings. Tenant shall retain an architect/space planner selected by Tenant and reasonably approved by Landlord (the “Architect”), to prepare the “Construction Drawings,” as that term is defined in this Section 3.1. Tenant shall retain any necessary engineering consultants (the “Engineers”), all of which shall be subject to Landlord’s reasonable prior approval, to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, and sprinkler work in the Premises. Tenant agrees to consider Landlord’s suggested architect and/or engineers, so long as such architects and/or engineers are reasonably acceptable to Tenant and competitively priced. The plans and drawings to be prepared by the Architect and the Engineers hereunder shall be known collectively as the “Construction Drawings.” Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.

     3.2 Final Space Plan. Promptly after the full execution and delivery of this Lease, the Architect (with reasonable input by Landlord) shall prepare the final space plan for Improvements in the Premises (collectively, the “Final Space Plan”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan to Tenant for Tenant’s approval or reasonable disapproval, which approval or reasonable disapproval shall be delivered by Tenant to Landlord no later than five (5) days after Tenant’s receipt of such Final Space Plan. Once Tenant has approved the Final Space Plan, it shall be delivered to Landlord for Landlord’s reasonable approval, which such approval or disapproval must be given within three (3) business days. If Landlord reasonably disapproves of any portion of the Final Space Plan, the parties shall meet, within three (3) business days after Landlord’s disapproval, to agree upon revisions to be made to the Final Space Plan to meet the reasonable satisfaction of the parties. The Architect shall then revise the Final Space Plan to the form agreed upon in such meeting and Landlord shall then approve or reasonably disapprove the revised Final Space Plan no later than three (3) business days after Landlord’s receipt of such revised Final Space Plan. If Landlord shall again reasonably disapprove the revised Final Space Plan, the parties will revise and review the Final Space Plan again in accordance with the procedure set forth above until Landlord’s reasonable approval is obtained.

     3.3 Final Working Drawings. Promptly after the Final Space Plan is approved by Landlord in accordance with Section 3.2, the Architect and the Engineers (with reasonable input by Landlord) shall complete the architectural and engineering drawings for the Premises, and the Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “Final Working Drawings”) and shall submit the same to Tenant for Tenant’s approval or reasonable disapproval, which approval or reasonable disapproval shall be delivered by Tenant to Landlord no later than five (5) days after Tenant’s receipt of such Final Working Drawings. Once Tenant has approved the Final Working Drawings, they shall be delivered to Landlord for Landlord’s reasonable approval, which approval or reasonable disapproval shall be delivered by Landlord to Tenant no later than three (3) business days after

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Landlord’s receipt of such Final Working Drawings. If Landlord reasonably disapproves of any portion of the Final Working Drawings, the parties shall meet, within three (3) business days after Landlord’s disapproval, to agree upon revisions to be made to the Final Working Drawings to meet the reasonable satisfaction of Landlord. The Architect shall then revise the Final Working Drawings to the form agreed upon in such meeting. Landlord shall then approve the revised Final Working Drawings no later than three (3) business days after Landlord’s receipt of such revised Final Working Drawings. If Landlord shall again reasonably disapprove the revised Final Working Drawings, the parties will revise and review the Final Working Drawings again in accordance with the procedure set forth above until Landlord’s reasonable approval is obtained.

     3.4 Approved Working Drawings. Landlord shall promptly submit the Final Working Drawings reasonably approved by Landlord and Tenant (the “Approved Working Drawings”) to the appropriate governmental entities for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1 of this Tenant Work Letter, to commence and fully complete the construction of the Improvements (the “Permits”). If Tenant desires any change, modification or alteration in the Approved Working Drawings, Tenant must first obtain the prior written reasonable consent of Landlord, which consent shall be provided or reasonably withheld within three (3) business days. Otherwise, such consent shall not be unreasonably withheld, delayed or conditioned. Prior to commencing any change requested by Tenant to the Approved Working Drawings, Landlord shall prepare and deliver to Tenant, for Tenant’s approval, a change order (“Change Order”) setting forth the additional time required to perform the change and the total cost of such change, which shall include associated architectural, engineering and Contractor’s fees. If Tenant fails to approve such Change Order in writing within two (2) business days after such delivery by Landlord as to any change requested by Tenant, Tenant shall be deemed to have withdrawn the Change Order and Landlord shall not proceed to perform the change.

     3.5 Time Deadlines. The parties shall cooperate with (i) the Architect, and the Engineers to complete all phases of the Construction Drawings and the permitting process, and (ii) the Contractor, for approval of the “Cost Proposal,” as that term is defined in Section 4.2, below, in accordance with the dates set forth herein. Tenant or Tenant’s representatives (including, but not limited to, the Architect) shall meet with Landlord on a weekly basis as reasonably necessary to discuss Tenant’s progress in connection with the same. The applicable dates for approval of items, plans and drawings and selection of a contractor as described in this Tenant Work Letter are referred to herein as the “Time Deadlines.” Tenant agrees to use reasonable efforts to comply with the Time Deadlines.

SECTION 4

CONSTRUCTION OF THE IMPROVEMENTS

     4.1 Contractor. Tenant shall select either PM Realty or Transwestern as the construction manager for the Improvements promptly after the full execution and delivery of this Lease. The contractor which shall construct the Improvements shall be a contractor selected pursuant to the following procedure. The Final Working Drawings shall be submitted by Tenant to at least two (2) general contractors reasonably approved by the construction manager. Each such contractor shall be invited to submit a sealed, fixed price contract bid (on such bid form as Landlord shall designate) to construct the Improvements. Each contractor shall be notified in the bid package of the time schedule for construction of the Improvements. The subcontractors utilized by the Contractor shall be subject to Landlord’s reasonable and prompt approval (any unreasonable delay will be a Landlord Delay) and the bidding instructions shall provide that as to work affecting the structure of the Project and/or the systems and equipment of the Project, Landlord shall be entitled to designate the subcontractors in a prompt manner. The bids shall be submitted promptly and a reconciliation shall be performed by Tenant to adjust inconsistent or incorrect assumptions so that a like-kind comparison can be made. Tenant shall select the contractor who shall construct the Improvements. The contractor selected may be referred to herein as the “Contractor”.

     4.2 Cost Proposal. The winning bid pursuant to Section 4.1 above shall be referred to as the “Cost Proposal”. Landlord does not guaranty the accuracy of the Cost Proposal. Upon selection of a Contractor, Tenant shall be deemed to have approved the Cost Proposal. The date by which Tenant has approved the Cost Proposal shall be known hereafter as the “Cost Proposal Delivery Date.”

     4.3 Construction of Improvements by Landlord’s Contractor under the Supervision of Landlord.

          4.3.1 Over-Allowance Amount. On the Cost Proposal Delivery Date, Landlord shall determine the amount (the “Over-Allowance Amount”) equal to the difference between (i) the amount of the Cost Proposal and (ii) the amount of the Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the Cost Proposal Delivery Date that is

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not otherwise included within the Cost Proposal, including any costs incurred by Landlord and/or Tenant for the preparation of the Construction Drawings). Tenant shall pay the Over-Allowance Amount to Landlord in accordance with the following schedule: (a) one-third (1/3) of the Over-Allowance Amount shall be due and payable by Tenant to Landlord on the Cost Proposal Delivery Date, (b) one-third (1/3) of the Over-Allowance Amount shall be due and payable by Tenant to Landlord within ten (10) days after notice from Landlord to Tenant that the Improvements are at least fifty percent (50%) complete, and (c) the remaining one-third (1/3) of the Over-Allowance Amount shall be due and payable by Tenant to Landlord upon the Commencement Date of this Lease. The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Improvement Allowance. In the event that after the Cost Proposal Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Improvements, any additional costs which arise in connection with such revisions, changes or substitutions shall be paid by Tenant to Landlord immediately upon Landlord’s request as an addition to the Over-Allowance Amount. In addition, upon Landlord’s determination of the actual costs incurred by or on behalf of Landlord for the Improvement Allowance Items, Tenant shall pay Landlord the amount, if any, by which such actual costs exceed the sum of the Improvement Allowance and the Over-Allowance Amount within fifteen (15) days after being billed therefor, or Landlord may, at its election, require that Tenant deposit with Landlord the full amount of such excess prior to Landlord’s delivery of the Premises to Tenant. No portion of the Improvement Allowance shall be used to pay Tenant or Tenant’s agents, contractors or employees, unless and until Landlord’s contractors and any other persons and entities employed by or under contract with Landlord have been paid in full.

          4.3.2 Landlord Supervision. Landlord shall independently retain Contractor to construct the Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the “Landlord Supervision Fee”) to Landlord (or its agent) in an amount equal to the product of (i) three percent (3%) and (ii) the Improvement Allowance Items.

          4.3.3 Contractor’s Warranties and Guaranties. To the extent any of the same run to the Landlord, Landlord hereby assigns to Tenant all warranties and guaranties by Contractor relating to the Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Improvements. Such warranties and guaranties of Contractor shall guarantee that the Improvements shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof.

SECTION 5

COMPLETION OF THE IMPROVEMENTS; LEASE COMMENCEMENT DATE

     5.1 Ready for Occupancy. The Premises shall be deemed “Ready for Occupancy” upon the Substantial Completion of the Premises. For purposes of this Lease, “Substantial Completion” of the Premises shall occur upon completion of construction of the Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punch list items and any Tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or its contractors. Notwithstanding the foregoing, except as set forth in Section 5.2 below, the Lease Commencement Date will occur on the date set forth in Section 7.2 of the Summary, regardless of whether the Improvements are Substantially Complete as of that date. Tenant hereby agrees and acknowledges that, except as set forth in Section 5.2 below, the Improvements may be completed during the Term of this Lease, and the completion of such Improvements will not be deemed a constructive eviction, nor shall Tenant be entitled to any abatement of rent (other than the sums abated per Article 3 of the Lease) in connection with the completion of such Improvements.

          5.2 Delay of Substantial Completion of the Premises. Except as provided in this Section 5, the Lease Commencement Date shall occur as set forth in Section 7.2 of the Summary and Article 2 of the Lease. If there shall be an actual delay in the Substantial Completion of the Premises as a result of Landlord’s failure to consent or approve (or to disapprove with a reasonable statement of the reasons for such disapproval) of any item requiring its consent or approval within three (3) business days after Landlord’s receipt of the request for its consent or approval (collectively, “Landlord Delays”) then, notwithstanding anything to the contrary set forth in this Lease, the Lease Commencement Date set forth in Section 7.2 of the Summary will be extended by the number of days of Landlord Delay.

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SECTION 6

MISCELLANEOUS

     6.1 Tenant’s Entry Into the Premises Prior to Lease Commencement Date. Provided that Tenant and its agents do not unreasonably interfere with, or delay, Contractor’s work in the Building and the Premises, Contractor shall allow Tenant access to the Premises at any time after September 1, 2007 for the purpose of Tenant installing (i) Tenant’s data and telephone equipment and cabling in the Premises, (ii) the construction of cubicles or other furnishings, and (iii) any other work required to be done in connection with the Premises. Such work will be coordinated with the Contractor to cause such work to be performed at the time reasonably designated by the Contractor. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1, Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant’s entry. Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1.

     6.2 Tenant’s Representative. Tenant has designated William Jaeger as its primary representative with respect to the matters set forth in this Tenant Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

     6.3 Landlord’s Representative. Landlord has designated PM Realty Group as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

     6.4 Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of said period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

     6.5 Tenant’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if an event of default as described in Section 19.1 of the Lease or this Tenant Work Letter has occurred at any time on or before the substantial completion of the Premises beyond any applicable notice, grace or cure periods, then (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord shall have the right to withhold payment of all or any portion of the Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of this Lease.

     6.6 Tenant’s Agents. All of Tenant’s agents, contractors, and subcontractors performing work in, or in connection with, the Premises (collectively as “Tenant’s Agents”), shall be subject to Landlord’s reasonable approval and, if deemed necessary by Landlord to maintain harmony among other labor at the Real Property.

     6.7 Insurance Requirements. All of Tenant’s Agents shall carry Workers’ Compensation insurance as required by applicable law and liability and Products and Completed Operation Coverage insurance, each in amounts not less than One Million Dollars ($1,000,000.00) per incident, One Million Dollars ($1,000,000.00) in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in Article 10 of this Lease, and the policies therefor shall insure Landlord and Tenant, as their interests may appear, as well as Landlord’s contractor, and shall name as additional insureds all mortgagees of the Real Property or the Landlord’s construction supervisor. All insurance maintained by Tenant’s Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the Landlord and that any other insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder.

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EXHIBIT C

[CORPORATE POINT]

RULES AND REGULATIONS

     Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Building.

     1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord.

     2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises, unless electrical hold backs have been installed. Landlord may supply access cards for Tenant’s employees, which cards will be furnished at a reasonable cost to be established by Landlord. Tenant will be responsible for returning all access cards upon the expiration or earlier termination of the Lease and will pay a reasonable replacement fee for any lost or stolen cards.

     3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the vicinity of the Building. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register when so doing. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. The Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building during the continuance of same by any means it deems appropriate for the safety and protection of life and property.

     4. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. All damage done to any part of the Real Property, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility of Tenant and any expense of said damage or injury shall be borne by Tenant.

     5. No furniture, freight, packages, supplies, equipment or merchandise will be brought into or removed from the Building or carried up or down in the stairs or elevators, except upon prior notice to Landlord, and in such manner, in such specific stairwell or elevator, and between such hours as shall be designated by Landlord. Tenant shall provide Landlord with not less than 24 hours prior notice of the need to utilize an elevator or stairwell for any such purpose, so as to provide Landlord with a reasonable period to schedule such use and to install such padding or take such other actions or prescribe such procedures as are appropriate to protect against damage to the elevators, stairwells or other parts of the Building. In no event shall Tenant’s use of the elevators or stairwells for any such purpose be permitted during the hours of 7:00 a.m. - 9:00 a.m., 11:30 a.m. - - 1:30 p.m. and 4:30 p.m. - 6:30 p.m.

     6. Landlord shall have the right to control and operate the public portions of the Real Property, the public facilities, the heating and air conditioning, and any other facilities furnished for the common use of tenants, in such manner as is customary for comparable buildings in the vicinity of the Building.

     7. The requirements of Tenant will be attended to only upon application at the Office of the Building or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

     8. Tenant shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate with Landlord or Landlord’s agents to prevent same.

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     9. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it.

     10. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Landlord’s consent first had and obtained.

     11. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines of any description other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

     12. Tenant shall not use or keep in or on the Premises or the Real Property any kerosene, gasoline or other inflammable or combustible fluid or material.

     13. Tenant shall not use any method of heating or air conditioning other than that which may be supplied by Landlord, without the prior written consent of Landlord.

     14. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein.

     15. Tenant shall not bring into or keep within the Building or the Premises any animals, birds, bicycles or other vehicles.

     16. No cooking shall be done or permitted by any tenant on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations, and does not cause odors which are objectionable to Landlord and other Tenants.

     17. Landlord will approve where and how telephone and telegraph wires are to be introduced to the Premises (which approval will be given concurrently with the approval of plans for the Improvements or Alterations if such information is provided on such plans in a reasonably detailed manner). No boring or cutting for wires shall be allowed without the consent of Landlord. The location of telephone, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord.

     18. Landlord reserves the right to exclude or expel from the Real Property any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

     19. Tenant, its employees and agents shall not loiter in the entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or elevators, and shall use the same only as a means of ingress and egress for the Premises.

     20. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s heating and air conditioning system, and shall refrain from attempting to adjust any controls. This includes the closing of exterior blinds, disallowing the sun rays to shine directly into areas adjacent to exterior windows.

     21. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the area in which the Building is located without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways, stairwells and elevators provided for such purposes at such times as Landlord shall designate.

     22. Tenant shall, at no material additional cost or expense, comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

EXHIBIT C

Health Management Systems
Corporate Point

-2-

     23. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed, when the Premises are not occupied.

     24. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Building. However, Landlord will not enforce the Rules and Regulations in a discriminatory manner.

     25. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord.

     26. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

     27. The washing and/or detailing of or, the installation of windshields, radios, telephones in or general work on, automobiles shall not be allowed on the Real Property.

     28. Food vendors shall be allowed in the Building upon receipt of a written request from the Tenant. The food vendor shall service only the tenants that have a written request on file in the Building Management Office. Under no circumstance shall the food vendor display their products in a public or Common Area including corridors and elevator lobbies. Any failure to comply with this rule shall result in immediate permanent withdrawal of the vendor from the Building.

     29. Tenant must reasonably comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

     30. Tenant shall comply with any non-smoking ordinance adopted by any applicable governmental authority.

     31. Tenant and Tenant’s employees, agents, contractors and other invitees shall not be permitted to bring firearms onto the Real Property or surrounding areas at any time.

     32. So long as Tenant has notice of same, Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Real Property, and for the preservation of good order thereof, as well as for the convenience of other occupants and tenants thereof. Landlord shall not be responsible to Tenant or to any other person for the nonobservance of the Rules and Regulations by another tenant or other person. However, Landlord will not enforce the Rules and Regulations in a discriminatory manner. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

EXHIBIT C

Health Management Systems
Corporate Point

-3-

EXHIBIT D

FORM OF SNDA

RECORDING REQUESTED BY AND
AFTER RECORDING, RETURN TO:

Capmark Finance Inc.
200 Witmer Road
Horsham, PA 19044-8015

Attn: Executive Vice President – Servicing Administration

SPACE ABOVE THIS LINE RESERVED FOR RECORDER’S USE

SUBORDINATION, NON-DISTURBANCE

AND ATTORNMENT AGREEMENT

     This Subordination, Non-Disturbance and Attornment Agreement (“Agreement”), is made as of this                      day of                     , 200___ among                     , not individually, but solely as Trustee for the Certificate Holders of                     , Series                     -                     under that certain {Pooling/Trust} and Servicing Agreement dated as of                     -,                      (“Lender”), by and through Capmark Finance Inc., a California corporation, its [Master] Servicer under said {Pooling/Trust} and Servicing Agreement,                     , a                      (“Landlord”), and                     , a                      (“Tenant”).

33. Background

     A. Lender is the owner and holder of a deed of trust or mortgage or other similar security instrument (either, the “Security Instrument”), covering, among other things, the real property commonly known and described as                     , and further described on Exhibit “A” attached hereto and made a part hereof for all purposes, and the building and improvements thereon (collectively, the “Property”).

     B. Tenant is the lessee under that certain lease agreement between Landlord and Tenant dated                      (“Lease”), demising a portion of the Property described more particularly in the Lease (“Leased Space”).

     C. Landlord, Tenant and Lender desire to enter into the following agreements with respect to the priority of the Lease and Security Instrument.

     NOW, THEREFORE, in consideration of the mutual promises of this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows:

     1. Subordination. Tenant agrees that the Lease, and all estates, options and rights created under the Lease, hereby are subordinated and made subject to the lien and effect of the Security Instrument.

     2. Nondisturbance. Lender agrees that no foreclosure (whether judicial or nonjudicial), deed-in-lieu of foreclosure, or other sale of the Property in connection with enforcement of the Security Instrument or otherwise in satisfaction of the underlying loan shall operate to terminate the Lease or Tenant’s rights thereunder to possess and use the leased space provided, however, that (a) the term of the Lease has commenced, (b) Tenant is in possession of the premises demised pursuant to the Lease, and (c) the Lease is in full force and effect and no uncured default exists under the Lease beyond any applicable notice, cure or grace period.

     3. Attornment. So long as the terms and conditions of Section 2 are being complied with by the Successor Owner (as hereinafter defined), Tenant agrees to attorn to and recognize as its landlord under the Lease each party acquiring legal title to the Property by foreclosure (whether judicial or nonjudicial) of the Security Instrument, deed-in-lieu of foreclosure, or other sale in

EXHIBIT D

Health Management Systems
Corporate Point

-1-

connection with enforcement of the Security Instrument or otherwise in satisfaction of the underlying loan (“Successor Owner”). Provided that the conditions set forth in Section 2 above are met at the time Successor Owner becomes owners of the Property, Successor Owner shall perform all obligations of the landlord under the Lease arising from and after the date title to the Property was transferred to Successor Owner. In no event, however, will any Successor Owner be: (a) liable for any default, act or omission of any prior landlord under the Lease, (except that Successor Owner shall not be relieved from the obligation to cure any defaults which are non-monetary and continuing in nature, and such that Successor Owner’s failure to cure would constitute a continuing default under the Lease); (b) subject to any offset or defense which Tenant may have against any prior landlord under the Lease; (c) bound by any payment of rent or additional rent made by Tenant to Landlord more than 30 days in advance; (d) bound by any modification or supplement to the Lease, or waiver of Lease terms, made without Lender’s written consent thereto; (e) liable for the return of any security deposit or other prepaid charge paid by Tenant under the Lease, except to the extent such amounts were actually received by Lender; (f) liable or bound by any right of first refusal or option to purchase all or any portion of the Property; or (g) liable for construction or completion of any improvements to the Property or as required under the Lease for Tenant’s use and occupancy (whenever arising). Although the foregoing provisions of this Agreement are self-operative, Tenant agrees to execute and deliver to Lender or any Successor Owner such further instruments as Lender or a Successor Owner may from time to time reasonably request in order to confirm this Agreement. If any liability of Successor Owner does arise pursuant to this Agreement, such liability shall be limited to Successor Owner’s interest in the Property.

     4. Rent Payments; Notice to Tenant Regarding Rent Payments. Tenant agrees not to pay rent more than one (1) month in advance unless otherwise specified in the Lease. After notice is given to Tenant by Lender that Landlord is in default under the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the assignment of leases and rents granted by Landlord to Lender in connection therewith, Tenant shall thereafter pay to Lender all rent and all other amounts due or to become due to Landlord under the Lease, and Landlord hereby expressly authorizes Tenant to make such payments to Lender upon reliance on Lender’s written notice (without any inquiry into the factual basis for such notice or any prior notice to or consent from Landlord) and hereby releases Tenant from all liability to Landlord in connection with Tenant’s compliance with Lender’s written instructions.

     5. Lender Opportunity to Cure Landlord Defaults. Tenant agrees that, until the Security Instrument is released by Lender, it will not exercise any remedies under the Lease following a Landlord default without having first given to Lender (a) written notice of the alleged Landlord default and (b) the opportunity to cure such default within the time periods provided for cure by Landlord, measured from the time notice is given to Lender. Tenant acknowledges that Lender is not obligated to cure any Landlord default, but if Lender elects to do so, Tenant agrees to accept cure by Lender as that of Landlord under the Lease and will not exercise any right or remedy under the Lease for a Landlord default. Performance rendered by Lender on Landlord’s behalf is without prejudice to Lender’s rights against Landlord under the Security Instrument or any other documents executed by Landlord in favor of Lender in connection with the Loan.

     6. Miscellaneous.

          (a) Notices. All notices under this Agreement will be effective only if made in writing and addressed to the address for a party provided below such party’s signature. A new notice address may be established from time to time by written notice given in accordance with this Section. All notices will be deemed received only upon actual receipt.

          (b) Entire Agreement; Modification. This Agreement is the entire agreement between the parties relating to the subordination and nondisturbance of the Lease, and supersedes and replaces all prior discussions, representations and agreements (oral and written) with respect to the subordination and nondisturbance of the Lease. This Agreement controls any conflict between the terms of this Agreement and the Lease. This Agreement may not be modified, supplemented or terminated, nor any provision hereof waived, unless by written agreement of Lender and Tenant, and then only to the extent expressly set forth in such writing.

          (c) Binding Effect. This Agreement binds and inures to the benefit of each party hereto and their respective heirs, executors, legal representatives, successors and assigns, whether by voluntary action of the parties or by operation of law. If the Security Instrument is a deed of trust, this Agreement is entered into by the trustee of the Security Instrument solely in its capacity as trustee and not individually.

          (d) Unenforceability. Any provision of this Agreement which is determined by a government body or court of competent jurisdiction to be invalid, unenforceable or illegal shall be ineffective only to the extent of such holding and shall not affect the validity, enforceability or legality of any other provision, nor shall such determination apply in any circumstance or to any party not controlled by such determination.

          (e) Construction of Certain Terms. Defined terms used in this Agreement may be used interchangeably in singular or plural form, and pronouns cover all genders. Unless otherwise provided herein, all days from performance shall be calendar days, and a “business day” is any day other than Saturday, Sunday and days on which Lender is closed for legal holidays, by government order or weather emergency.

          (f) Governing Law. This Agreement shall be governed by the laws of the State in which the Property is located (without giving effect to its rules governing conflicts of laws).

          (g) WAIVER OF JURY TRIAL. TENANT, AS AN INDUCEMENT FOR LENDER TO PROVIDE THIS AGREEMENT AND THE ACCOMMODATIONS TO TENANT OFFERED HEREBY, HEREBY WAIVES ITS RIGHT, TO THE FULL EXTENT PERMITTED BY LAW, AND AGREES NOT TO ELECT, A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS AGREEMENT.

          (h) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together constitute a fully executed agreement even though all signatures do not appear on the same document. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from their respective obligations hereunder.

EXHIBIT D

Health Management Systems
Corporate Point

-2-

     IN WITNESS WHEREOF, this Agreement is executed this ___ day of                     , 200_.

LENDER:	TENANT:
[insert Trustee’s name here], Trustee	[insert Tenant’s name here]
By: Capmark Finance Inc., its [Master] Servicer

By:	By:
Name:	Name:
Title:	Title:

Lender Notice Address:	Tenant Notice Address:
[insert Trustee’s name here], Trustee	[insert Tenant’s name here]
c/o Capmark Finance Inc.
200 Witmer Road
Horsham, PA 19044
Attn: Executive Vice President — Servicing Administration	Attn:
LANDLORD:
[insert Landlord’s name here]

By:

Name:

Title:

Landlord Notice Address:

[insert Landlord’s name here]

Attn:

EXHIBIT D

Health Management Systems
Corporate Point

-3-

Notary Acknowledgement for Lender:

Commonwealth of Pennsylvania	:
County of Montgomery	:ss :

On this, the ___ day of                     , 200_, before me, the undersigned Notary Public, personally appeared                      known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and who acknowledged to me that he/she is an officer of Capmark Finance Inc. in the capacity stated and that he/she executed the within instrument in such capacity for the purposes therein contained.

          IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

Notary Public

{seal}

Notary Acknowledgement for Tenant:

State of	:
	:ss
County of	:

On this, the ___ day of                     , 200_, before me, the undersigned Notary Public, personally appeared                      known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and who acknowledged to me that he/she is an officer of the Tenant in the capacity stated and that he/she executed the within instrument in such capacity for the purposes therein contained.

          IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

Notary Public

{seal}

Notary Acknowledgement for Landlord:

State of	:
	:ss
County of	:

On this, the ___ day of                     , 200_, before me, the undersigned Notary Public, personally appeared                      known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and who acknowledged to me that he/she is an officer of the Landlord in the capacity stated and that he/she executed the within instrument in such capacity for the purposes therein contained.

          IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

Notary Public

{seal}

EXHIBIT D

Health Management Systems
Corporate Point

-4-

Exhibit “A”

(Legal Description of the Property)

EXHIBIT D

Health Management Systems
Corporate Point

-5-

	5001 Spring Valley Road
	Suite 600-West
	Dallas, Texas 75244 Telephone: 972.774.2500 Fax 972.774.2546

June 6, 2007

Kurt A. Cherry
Vice President
PM Realty Group
2080 N. Hwy 360, Ste. 390
Grand Prairie, Texas 75050

Kurt:

Health Management Systems has exclusively authorized Transwesten to submit the following Letter of Intent on their behalf for space requirements at Corporate Point at 5615 Highpoint Drive in Irving, Texas.

Commencement:	10/1/07 (with access to space by 9/1/07 for installation of IT, furniture, etc.)
Term:	68 months (10/1/07-5/31/13)

Rental Rate &
Square Footage:

Dates	SF	Floors	$/SF
10/1/07-3/31/08	46,5120	3,883sf + 6,081 sf on 1st, all 5th & 1/2 4th	$  0.00
4/1/08-9/30/08	46,5120	3,883sf + 6,081sf on 1st, all 5th & 1/2 4th	$15.50
10/1/08-9/30/09	58,708	3,883sf + 6,081 sf on 1st, all 5th & all 4th	$16.00
10/1/10-9/30/11	58,708	same as above	$16.50
10/1/11-9/30/12	58,708	same as above	$17.50
10/1/12-5/31/13	58,708	same as above	$17.50

Tenant Improvements:	Landlord to provide Tenant $25.00 per total RSF for tenant improvements.
Space Measurement:	The calculation of all rentable and usable square feet and conversion factors shall be the same and consistent with the Building Owner and

The Performance Advantage in Real Estate

	Refusal Space. If the prospective tenant desires to lease additional space covered by the statement in addition to the Right of First Refusal Space, Tenant must lease all space on such floor that the prospective tenant desires to lease if Tenant elects to lease the applicable Right of First Refusal Space.
Exclusivity:	Landlord shall not lease space to another organization in the building, with a similar use to that of Tenant for the term of the lease and any extension thereof other than those already tenants’ within the building.
Non-Disturbance Agreement:	Landlord shall use commercially reasonable efforts to obtain a non-disturbance agreement from the Building’s existing mortgagee. In addition, as a condition precedent to Tenant’s subordination of the lease to any future mortgagee, such future mortgagee shall provide to Tenant a non-disturbance agreement.
Parking:	Tenant shall be granted 5.7/1.000sf parking, at no additional charge throughout the term. Tenant shall have the right at its sole cost and expense and subject to Las Colinas Association review and approval to construct up to forty (40) carports on the surface parking lot. The location of which would also be subject to Landlord’s reasonable approval
Abandonment:	Tenant shall not be in default for vacating the Premises so long as Tenant pays its rent per the lease agreement, and is not in default of other provisions of the lease.
Relocation:	Landlord shall not have any rights to relocate Tenant from Tenant’s lease premises.
Unencumbered/ Ground Lease:	Landlord will represent and warrant that the leasehold space is not encumbered by the rights of other parties, such as rights of first refusal, rights of first offer, options to purchase, expansion options; etc.
Environmental & Toxic Materials:	Landlord shall have the express responsibility to advise Tenant of any environmental and/or toxic materials which are located in, on or about the Premises, parking area, storage area, or other parts of the building. It shall be the responsibility of Landlord, at its sole cost and expense, to remove any environmental and/or toxic materials prior to the commencement of Tenant’s improvement construction,

The Performance Advantage in Real Estate

	and to indemnify and hold Tenant harmless from any future action, which might occur as a result of the presence of environmental and/or toxic materials.
	Further, Landlord’s cost for the removal of environmental and/or toxic materials in Tenant’s Premises or in any other location in the building shall be excluded from operating costs which would otherwise be passed through to Tenant, and shall be excluded from the cost of tenant improvements.
Signage:	Subject to Landlord’s & Las Colinas Association approval Tenant may, at its sole cost and expense, utilize the existing monument signage for corporate identification. At such time that Tenant occupies fifty (50%) percent of the Building, Tenant shall have the right to install, at its sole cost and expense, second floor spandrel signage.
Sublease and Assignment Right:	Tenant shall be given the continuing right to assign the lease or sublet all or any portion of the premises at any time during the primary term or extensions thereof with Landlord’s consent not being unreasonably withheld and/or delayed and that they retain 100% of any rentals resulting from the sublease(s) or assignments.
The Americans with Disabilities Act of 1990:	Landlord shall fully responsible for all code (including ADA, fire life safety, etc.) compliance outside of Tenant’s space and for all code compliance within the restrooms throughout the lease term.
Fixtures:	Tenant shall have the right to remove all affixed appurtenances including, but not limited to fixtures, wall-mounted cabinets, computer and/or electronic equipment, may be removed by Tenant upon vacating the premises provided that any damage caused to premises by said removal be repaired to its original condition with reasonable wear and tear excepted.
Commissions:	Landlord agrees to pay Transwestern a fair market commission in accordance with a separate agreement.

The Performance Advantage in Real Estate

This Letter of Intent is an outline of the major lease provisions only, and is neither a binding legal agreement nor should it be construed as a legal offer to lease, and will be subject to Health Management Systems, Inc. Board of Directors approval. A reservation of space can only be made upon the full execution of a lease agreement mutually satisfactory to both parties. Please execute this offer where indicated below as your acknowledgement and agreement of these terms and indication of your intention to enter into a new lease agreement accordingly.

Sincerely,

TRANSWESTERN

Evonne N. Keene, SIOR
Sr. Vice President, Tenant Advisory Services

Cc: Steven J. Conrad, Transwestern

Agreed to Terms and Conditions listed above:

Health Management Systems, Inc.	Equastone High Point, LP
Thomas G. Archhold, CFO
Name and Title	Name and Title
6/6/07
Date	Date

The Performance Advantage in Real Estate

EX-10.12

EXHIBIT 10.12

DATA SERVICES AGREEMENT

between

HMS BUSINESS SERVICES, INC.
and

ZAVATA, INC.

Dated June 4, 2007

TABLE OF CONTENTS

Article 1 DEFINITIONS AND CONSTRUCTION	1
1.01 Definitions	1
1.02 Incorporation and References	7
1.03 Headings	7
1.04 Interpretation of Documents	7
Article 2 TERM	7
2.01 Initial Term	7
2.02 Renewal and Extension	7
Article 3 DESIGNATED SERVICES	7
3.01 General	8
3.02 Reports	8
Article 4 OUT-OF-SCOPE SERVICES	8
4.01 Out-of-Scope Services	8
Article 5 CUSTOMER RESPONSIBILITIES	8
5.01 Customer Contract Managers	8
5.02 Use of Customer Facilities	9
Article 6 SERVICE LEVELS	9
6.01 Designated Service Levels	9
6.02 Out-of-Scope Service Levels	9
6.03 Adjustment of Service Levels	9
6.04 Root-Cause Analysis	9
6.05 Service Level Reporting	9
6.06 Measurement and Monitoring Tools	9
6.07 Performance Credits	10
6.08 Semi-Annual Status Meeting	10
6.09 Changes in Law	10
Article 7 SERVICE LOCATIONS	10
7.01 Service Locations	10
7.02 Safety and Security Procedures	11
7.03 Data Security	11
7.04 No Viruses	11

i

7.05 Access to Premises	11
Article 8 VENDOR CONTRACT MANAGER AND SUBCONTRACTING	11
8.01 Vendor Contract Manager	11
8.02 Project Staff	12
8.03 Subcontractors	12
Article 9 MANAGEMENT AND CONTROL	12
9.01 Contract Managers	12
9.02 Change Control Procedures	12
Article 10 PROPRIETARY RIGHTS	13
10.01 Third Party Software	13
Article 11 DATA	13
11.01 Ownership of Customer Data	13
11.02 Return of Data	13
Article 12 LIMITATION OF LIABILITY	13
12.01 Disclaimer	13
12.02 Limitation	14
Article 13 DISASTER RECOVERY AND FORCE MAJEURE EVENTS	14
13.01 Disaster Recovery Plan	14
13.02 Force Majeure	14
13.03 Alternate Source	14
13.04 No Payment for Unperformed Services	15
13.05 Insurance	15
Article 14 PAYMENTS AND INVOICING	15
14.01 General	15
14.02 Designated Fees	15
14.03 Time of Payment	15
14.04 Adjustments to Fees	16
14.05 Unused Credits	16
14.06 Late Payments	16
Article 15 AUDITS	16
15.01 Services	16
15.02 Record Retention	16

ii

15.03 Facilities	16
Article 16 CONFIDENTIALITY	16
16.01 General Obligations	16
16.02 Unauthorized Acts	17
Article 17 REPRESENTATIONS AND WARRANTIES	17
17.01 By Customer	17
17.02 By Vendor	18
17.03 DISCLAIMER	18
Article 18 ADDITIONAL COVENANTS	19
18.01 By Customer	19
18.02 By Vendor	19
Article 19 DISPUTE RESOLUTION	19
19.01 Contract Managers	19
19.02 Arbitration	19
Article 20 TERMINATION	20
20.01 Termination for Cause	20
20.02 Termination for Insolvency	20
20.03 Termination by Customer	20
Article 21 TERMINATION ASSISTANCE	21
Article 22 INDEMNITIES	21
22.01 Indemnity by Customer	21
22.02 Indemnity by Vendor	21
22.03 Indemnification Procedures	22
Article 23 MISCELLANEOUS PROVISIONS	22
23.01 Assignment	22
23.02 Notices	23
23.03 Counterparts	24
23.04 Relationship	24
23.05 Consents, Approvals and Requests	24
23.06 Severability	24
23.07 Waivers	24
23.08 Remedies Cumulative	24

iii

23.09 Entire Agreement	24
23.10 Amendments	24
23.11 Survival	24
23.12 Third Party Beneficiaries	24
23.13 Governing Law	25
23.14 Sole and Exclusive Venue	25
23.15 Waiver of Jury Trial	25
23.16 Covenant of Further Assurances	25
23.17 Negotiated Terms	25
23.18 Export	25
23.19 Conflict of Interest	25
23.20 Publicity	25

iv

TABLE OF EXHIBITS

Exhibit 1	Statement of Work
Exhibit 2	Third Party Software
Exhibit 3	Service Location
Exhibit 4	Designated Fees
Exhibit 5	Service Levels and Performance Credits
Exhibit 6	In Scope Maximums
Exhibit 7	Hourly Rate Schedule
Exhibit 8	Reports
Exhibit 9	Data Safeguards
Exhibit 10	Change Control Procedures
Exhibit 11	Disaster Recovery Transition Procedures
Exhibit 12	Business Associates Agreement

v

          This DATA SERVICES AGREEMENT, dated July 31, 2007 (the “Effective Date”), is between HMS Business Services, Inc. (“Vendor”), Zavata, Inc. and its wholly owned subsidiary Accordis, Inc. (collectively referred to as the “Customer”).

W I T N E S S E T H:

               WHEREAS, Vendor desires to provide to Customer, and Customer desires to obtain from Vendor, the data processing, data storage and data management services and related services described in this Agreement on the terms and conditions set forth in this Agreement.

          NOW, THEREFORE, for and in consideration of the agreements set forth below, Customer and Vendor agree as follows:

ARTICLE 1 DEFINITIONS AND CONSTRUCTION.

          1.01 Definitions. The following defined terms used in this Agreement shall have the meanings specified below:

“AccessLine” shall mean a series of Customer-licensed, proprietary batch and online CICS programs used to manage the Customer’s business.

“AccessLine Accounts” shall mean the active accounts of responsible parties or patients of clients of Customer’s AccessLine business that constitute active accounts in AccessLine.

“Affiliate” shall mean, as to any entity, any other entity that, directly or indirectly, Controls, is Controlled by or is under common Control with such entity.

“Agreement” shall mean this Data Services Agreement between Customer and Vendor.

“Change(s)” shall mean any change to the Services, the Software used to provide the Services or the Machines used to provide the Services that would materially alter the functionality, performance standards or technical environment of the Software used to provide the Services or the Machines used to provide the Services, the manner in which the Services are provided, the composition of the Services or the cost to Customer of the Services. Software patches and upgrades provided by the third party Software vendors listed on Exhibit 2 shall not be deemed Changes unless the implementation requires material modification of the Machines. Phase-out or complete termination of Standard Processing shall not be deemed Changes.

“Change Control Procedures” shall mean the written description of the procedures used to control Changes made under this Agreement set forth in Exhibit 10.

“Change in Control” shall mean the (1) consolidation or merger of a Party with or into any entity (other than the consolidation or merger of a Party with an Affiliate of such Party in which such Party is the surviving entity of such consolidation or merger), (2) sale, transfer

or other disposition of all or substantially all of the assets of a Party or (3) acquisition by any entity, or group of entities acting in concert, of beneficial ownership of 20 percent or more (or such lesser percentage that constitutes Control) of the outstanding voting securities or other ownership interests of a Party.

“Confidential Information” of Customer or Vendor shall mean all information and documentation of Customer and Vendor, respectively, whether disclosed to or accessed by Customer or Vendor in connection with this Agreement, including (1) with respect to Customer, all Customer Data and all information of Customer or its customers, suppliers, contractors and other third parties doing business with Customer, (2) with respect to Vendor, the Third Party Software, (3) with respect to Customer and Vendor, the terms of this Agreement and (4) any information developed by reference to or use of Customer’s or Vendor’s information; provided, however, that except to the extent otherwise provided by Law, the term “Confidential Information” shall not include information that (a) is independently developed by the recipient, as demonstrated by the recipient’s written records, without violating the disclosing Party’s proprietary rights, (b) is or becomes publicly known (other than through unauthorized disclosure), (c) is already known by the recipient at the time of disclosure, as demonstrated by the recipient’s written records, and the recipient has no obligation of confidentiality other than pursuant to this Agreement or any confidentiality agreements between Customer and Vendor entered into prior to the Effective Date or (d) is rightfully received by a Party free of any obligation of confidentiality. Notwithstanding anything to the contrary set forth above, any and all information provided by or owned by Customer that could be used to identify individual patients, providers, or third party payors, shall be deemed Confidential Information of Customer, regardless of the form or format of such information.

“Contract Managers” shall mean the Customer Contract Managers and the Vendor Contract Manager, collectively.

“Contract Year” shall mean each 12-month period commencing, in the case of the first Contract Year, on the Effective Date and thereafter upon the completion of the immediately preceding Contract Year.

“Control” shall mean, with respect to any entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities (or other ownership interest), by contract or otherwise.

“Customer” shall mean Zavata, Inc., Accordis Holding Corp., its wholly-owned subsidiary Accordis, Inc. Accordis’ wholly-owned subsidiary HRM and any other subsidiaries or Affiliates of Zavata, Inc. and any other Affiliates of Zavata, Inc. as may be approved by Vendor in writing, which approval will not be unreasonably withheld.

“Customer Agents” shall mean the agents, subcontractors and representatives of Customer, other than Vendor and Vendor Agents, subject to the confidentiality restrictions of this Agreement.

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“Customer Consents” shall mean all licenses, consents, permits, approvals and authorizations that are necessary to allow Vendor and Vendor Agents to use (1) Customer’s owned assets and (2) the services provided for the benefit of Customer under Customer’s third party services contracts.

“Customer Contract Manager” shall mean Richard Lipack or his successor as designated by Customer.

“Customer Data” shall mean all data and information (including the data library and catalogue) (1) submitted to Vendor or Vendor Agents by or on behalf of Customer, (2) obtained, developed or produced by Vendor or Vendor Agents in connection with this Agreement or (3) to which Vendor or Vendor Agents have access in connection with the provision of the Services. Without limiting the generality of the foregoing, and for the avoidance of doubt, any and all data and information provided by or owned by Customer that could be used to identify individual patients, providers, or third party payors, shall be deemed Customer Data, regardless of the form or format of such information.

“Customer Designated Executives” shall mean Richard Lipack or his successor as designated by Customer.

“Customer Service Locations” shall mean any Customer service location set forth in Exhibit 3 and any other service location owned or leased by Customer for which Vendor has received Customer’s approval in accordance with Section 7.01.

“Data Safeguards” shall mean the data safeguards set forth on Exhibit 9 hereto.

“Designated Executives” shall mean the Customer Designated Executives and the Vendor Designated Executive, collectively.

“Designated Fees” shall mean the fees for the Designated Services set forth in Exhibit 4.

“Designated Service Levels” shall mean the service levels and standards for the performance of the Designated Services as described in Exhibit 5.

“Designated Services” shall have the meaning set forth in Section 3.01.

“DRP” shall have the meaning set forth in Section 13.01.

“Effective Date” shall have the meaning set forth in the introductory paragraph hereto.

“Fees” shall mean the Designated Fees and any other amounts payable by Customer to Vendor pursuant to this Agreement.

“Force Majeure Event” shall have the meaning set forth in Section 13.02.

“Governmental Approvals” shall mean all licenses, consents, permits, approvals and authorizations of any Governmental Authority, or any notice to any Governmental

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Authority, the granting of which is required by Law, including Regulations, for the consummation of the transactions contemplated by this Agreement.

“Governmental Authority” shall mean any federal, state, municipal, local, territorial, or other governmental department, regulatory authority, judicial or administrative body, whether domestic, international or foreign.

“HMS” shall mean Health Management Systems Inc., a corporation organized under the Law of New York

“Indemnified Party” shall have the meaning set forth in Section 22.03.

“Indemnifying Party” shall have the meaning set forth in Section 22.03.

“Initial Agreement Expiration Date” shall mean the fourth anniversary of the Effective Date.

“Initial Term” shall have the meaning set forth in Section 2.01.

“Law” shall mean any declaration, decree, directive, legislative enactment, order, ordinance, Regulations, rule or other binding restriction of or by any Governmental Authority, including, without limitation and for the avoidance of doubt, the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

“Losses” shall mean any and all damages, fines, penalties, deficiencies, losses, liabilities (including settlements and judgments) and expenses (including interest, court costs, reasonable fees and expenses of attorneys, accountants and other experts and professionals or other reasonable fees and expenses of litigation or other proceedings or of any claim, default or assessment).

“Machines” shall mean computers and related equipment, including central processing units and other processors, wireless and wired networks, controllers, modems, communications and telecommunications equipment (data and video), cables, storage devices, printers, terminals, cartridge and tape drive readers, other peripherals and input and output devices, and other tangible mechanical and electronic equipment intended for the processing, input, output, storage, manipulation, communication, transmission and retrieval of information and data.

“Out-of-Scope Service(s)” shall mean any service, product, Machine, or Software that is outside the scope of the Designated Services.

“Out-of-Scope Service Level(s)” shall mean any service level established by Vendor and Customer in connection with an Out-of-Scope Service.

“Parties” shall mean Customer and Vendor, collectively.

“Party” shall mean either Customer or Vendor, as the case may be.

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“Performance Credits” shall mean the performance credits set forth in Exhibit 5.

“RCR Clients” shall mean the Customer clients that require Standard Processing.

“Related Documentation” shall mean, with respect to Software and Tools, all materials, documentation, specifications, technical manuals, user manuals, flow diagrams, file descriptions and other written information that describes the function and use of such Software or Tools, as applicable.

“Service Levels” shall mean the Designated Service Levels and the Out-of-Scope Service Levels, collectively.

“Service Locations” shall mean any Customer Service Location or Vendor Service Location, as applicable.

“Services” shall mean the Designated Services, the Out-of-Scope Services being provided by Vendor pursuant to this Agreement and the Termination Assistance Services, collectively.

“Software” shall mean the source code and object code versions of any applications programs, operating system software, computer software languages, utilities, other computer programs and Related Documentation, in whatever form or media, including the tangible media upon which such applications programs, operating system software, computer software languages, utilities, other computer programs and Related Documentation are recorded or printed, together with all corrections, improvements, updates and releases thereof.

“Standard Processing” shall mean a series of Customer-owned proprietary batch programs used to manage the Customer RCR product line.

“Systems” shall mean the Software and the Machines, collectively, used to provide the Services.

“Term” shall mean the Initial Term and any renewal or extension of the Initial Term.

“Termination Assistance Period” shall mean a period of time designated by Customer, commencing no earlier than 90 days prior to the Initial Agreement Expiration Date and ending upon expiration of the Initial Agreement Expiration Date, during which Vendor shall provide the Termination Assistance Services.

“Termination Assistance Services” shall mean (1) the Services to the extent Customer requests such Services during the Termination Assistance Period, (2) Vendor’s cooperation with Customer or another service provider designated by Customer in the transfer of the Services to Customer or such other service provider in order to facilitate the transfer of the Services to Customer or such other service provider and (3) any Out-of-Scope Services requested by Customer in order to facilitate the transfer of the Services to Customer or another service provider designated by Customer.

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“Third Party Software” shall mean the third party Software and Related Documentation licensed, leased or otherwise obtained by Vendor that is used in connection with the Services or with any Third Party Software as set forth in Exhibit 2.

“Tools” shall mean any Software development and performance testing tools, know-how, methodologies, processes, technologies or algorithms and Related Documentation used by Vendor in providing the Services, and based upon trade secrets or software, documentation or other proprietary information owned or licensed by Vendor.

“Total In Scope AccessLine Accounts” shall mean the number of AccessLine Accounts allowed under the Designated Services as outlined in Exhibit 6, In Scope Maximums. For the avoidance of doubt, only active AccessLine Accounts shall be counted in the Total In Scope AccessLine Accounts.

“Total In Scope RCR Clients” shall mean the number of RCR Clients that are allowed under the Designated Services as RCR Clients requiring Standard Processing as outlined in Exhibit 6, In Scope Maximums.

“Use” shall mean the right to access, load, execute, store, transmit, display, copy, maintain, modify, enhance, create derivative works, make and have made.

“Vendor” shall mean HMS Business Services, a corporation organized under the Law of New York.

“Vendor Agents” shall mean the agents, subcontractors and representatives of Vendor.

“Vendor Consents” shall mean all licenses, consents, permits, approvals and authorizations that are necessary to allow (1) Customer and Customer Agents to use (a) the Third Party Software and (b) assets owned or leased by Vendor for the provisions of the Services; and (2) Vendor and Vendor Agents to use any third party services retained by Vendor to provide the Services during the Term and the Termination Assistance Period.

“Vendor Contract Manager” shall mean Joseph Joy or his successor.

“Vendor Designated Executive” shall mean Bill Lucia, or his successor.

“Vendor Machines” shall mean those Machines leased or owned by Vendor or Vendor Agents that are used by Vendor or Vendor Agents to provide the Services.

“Vendor Service Location(s)” shall mean any Vendor service location set forth in Exhibit 3 and any other service location approved by Customer pursuant to Section 7.01.

“Virus” shall mean (i) any software virus, worm, Trojan horse, trap door, time bomb, spyware, or other program code, programming instruction or set of instructions intentionally constructed by third parties having the capability to damage, interfere with or otherwise adversely affect the operation or security of computer programs, data files, operations, telecommunications or Services; or other code typically designed to be a virus.

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or (ii) any copies of Grokster, Kazaa, Morpheus, Napster, Aimster or other peer-to-peer software commonly used for downloading or sharing unlicensed media files.

“Zavata” shall mean Zavata, Inc., a corporation organized under the law of Delaware.

          1.02 Incorporation and References. In this Agreement and the Exhibits to this Agreement:

(1)	the Exhibits to this Agreement shall be incorporated into and deemed part of this Agreement and all references to this Agreement shall include the Exhibits to this Agreement;
(2)	references to an Exhibit, Section or Article shall be to such Exhibit, Section or Article of this Agreement, unless otherwise provided;
(3)	references to any Law shall mean references to such Law in changed or supplemented form or to a newly adopted Law replacing a previous Law; and
(4)	references to and mentions of the word “including” or the phrase “e.g.” shall mean “including, without limitation.”

          1.03 Headings. The Article and Section headings, Table of Contents and Table of Exhibits are for reference and convenience only and shall not be considered in the interpretation of this Agreement.

          1.04 Interpretation of Documents. Except as otherwise expressly set forth in the body of this Agreement or in any of the Exhibits, in the event of a conflict between the provisions in the body of this Agreement and the Exhibits, the provisions in the body of this Agreement shall prevail.

ARTICLE 2 TERM.

          2.01 Initial Term. The initial term of this Agreement shall commence on the Effective Date and continue until 23:59 (Eastern Standard Time) on the Initial Agreement Expiration Date, or such other date upon which this Agreement may be terminated in accordance with its terms (the “Initial Term”).

          2.02 Renewal and Extension. Unless this Agreement is terminated earlier pursuant to the terms hereof, Customer shall notify Vendor at least 180 days prior to the Initial Agreement Expiration Date as to whether Customer desires to renew this Agreement. If Customer provides Vendor with notice that it desires to renew this Agreement and the Parties have not agreed on the terms and conditions applicable to the renewal of this Agreement 90 days prior to the Initial Agreement Expiration Date, then the term of this Agreement shall expire on the Initial Agreement Expiration Date.

ARTICLE 3 DESIGNATED SERVICES.

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          3.01 General. Commencing on the Effective Date and continuing throughout the Term, Vendor shall be responsible for providing to Customer the services, functions and responsibilities described in this Agreement (including the services, functions, responsibilities and projects described in the Statement of Work set forth as Exhibit 1) (the “Designated Services”).

          3.02 Reports. Vendor shall provide to Customer, utilization and status reports currently being produced by HMS prior to the Effective Date, set forth in Exhibit 8, and such other reports necessary or appropriate to enable Customer to review and analyze the provision of the Services and the accuracy of the Fees charged by Vendor.

ARTICLE 4 OUT-OF-SCOPE SERVICES.

          4.01 Out-of-Scope Services. During the Term and Termination Assistance Period, Customer may request Vendor to perform an Out-of-Scope Service. Upon receipt of a written request setting forth a description of the services from Customer, Vendor shall provide Customer with a written proposal in respect of such Out-of-Scope Service, which proposal shall include:

(1)	a description of the services, functions and responsibilities Vendor anticipates performing in connection with such Out-of-Scope Service;
(2)	a schedule for commencing and completing such Out-of-Scope Service;
(3)	Vendor’s prospective fees for such Out-of-Scope Service, including a detailed breakdown of such fees, based upon the hourly time and material rates set forth in Exhibit 7, Hourly Rate Schedule;
(4)	when appropriate, a description of any new Software or Machines to be provided by Vendor in connection with such Out-of-Scope Service;
(5)	when appropriate, the Software and Machines and run-time requirements necessary to develop and operate any new Software;
(6)	a description of the human resources necessary to provide the Out-of-Scope Service;
(7)	when appropriate, acceptance test criteria and procedures for any new Software or any products, packages or services; and
(8)	the hourly time and material rates are outlined in Exhibit 7, Hourly Rate Schedule:

Vendor shall not begin performing any Out-of-Scope Service until Customer Contract Manager has provided Vendor with written authorization to perform such Out-of-Scope Service.

ARTICLE 5 CUSTOMER RESPONSIBILITIES.

          5.01 Customer Contract Manager. The Customer Contract Manager shall serve as the primary Customer representative under this Agreement. The Customer Contract Manager shall

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(1) have overall responsibility for managing and coordinating the performance of Customer’s obligations under this Agreement and (2) be authorized to act for and on behalf of Customer with respect to all matters relating to this Agreement. Notwithstanding the foregoing, the Customer Contract Manager may, upon notice to Vendor, delegate such of his or her responsibilities to other Customer employees, as the Customer Contract Manager deems appropriate.

          5.02 Use of Customer Facilities. Upon Vendor’s request, Customer shall grant Vendor access to and appropriate working space in the Customer Service Locations as reasonably necessary for the sole and exclusive purpose of the Vendor providing the Services. Vendor shall provide to the Customer Contract Manager a list of the names of the personnel of Vendor or of authorized Vendor subcontractors to be granted such access on the date hereof and as necessary thereafter specifying the Customer Service Location(s) to which each such person is to be admitted. All such personnel of Vendor or authorized subcontractors shall bear valid identification to enter any Customer Service Location.

ARTICLE 6 SERVICE LEVELS.

          6.01 Designated Service Levels. Vendor shall perform the Designated Services in accordance with the Designated Service Levels and in accordance with Exhibit 5.

          6.02 Out-of-Scope Service Levels. Vendor shall provide the Out-of-Scope Services at least at the Out-of-Scope Service Levels applicable to such Out-of-Scope Services.

          6.03 Adjustment of Service Levels. The Contract Managers (1) shall review the Service Levels for the preceding 12 months during the last calendar quarter of every Contract Year, (2) with respect to any Service Level subject to periodic adjustment pursuant to an express provision of this Agreement, if such Service Level is no longer appropriate because of an increase, decrease or change to the needs of Customer or the scale or nature of the Services, shall negotiate in good faith and reach mutual agreement on adjustment of the Service Levels for the subsequent Contract Year and, (3) with respect to all other Service Levels, may by mutual agreement adjust the Service Levels for the subsequent Contract Year. In addition, either Party may, at any time upon notice to the other Party, initiate negotiations to review and, upon agreement by the Contract Managers, adjust any Service Level which such Party in good faith believes is inappropriate at the time.

          6.04 Root-Cause Analysis. In the event Vendor fails to achieve any Service Level, Vendor shall, as soon as reasonably practicable, (1) perform a root-cause analysis to identify the cause of such failure, (2) provide Customer with a report detailing the cause of, and procedure for correcting, such failure, (3) upon Customer’s approval of such procedure, implement such procedure and (4) provide Customer with assurance satisfactory to Customer that such failure will not recur following the completion of the implementation of the procedure.

          6.05 Service Level Reporting. Vendor shall measure and report its performance against the Service Levels and meet with Customer at least once every month during the Term, or more frequently if requested by Customer, to review Customer’s actual performance against the Service Levels and discuss any remedial action necessary or appropriate to correct any deficiencies.

          6.06 Measurement and Monitoring Tools. As of the Effective Date, Vendor shall use existing measurement and monitoring Tools and procedures required to measure and report (as

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contemplated by Section 7.05) Vendor’s performance of the Services against the applicable Service Levels. Such measurement and monitoring and procedures shall (1) permit reporting at a level of detail sufficient to verify compliance with the Service Levels and (2) be subject to audit by Customer or Customer Agents. Vendor shall provide Customer and its designees with information concerning access to such measurement and monitoring Tools and procedures upon request, for inspection and verification purposes.

          6.07 Performance Credits. In the event of a failure to provide the Services in accordance with the applicable Service Levels, Vendor shall incur the Performance Credits identified in and according to the schedule set forth in Exhibit 5.

          6.08 Semi-Annual Status Meeting.

When requested by either party, the Designated Executives and Contract Managers of each Party shall meet semi-annually to discuss the Services and the administration of this Agreement.

          6.09 Changes in Law. The Parties acknowledge that the business of Zavata and HMS is conducted in a regulated environment subject to changes in Laws and the maintenance of Governmental Approvals. If either Party is aware of or believes that such a change or reinterpretation of Law has occurred, or that a Governmental Approval or a filing with a Governmental Authority is required, must be sought or submitted anew or modified (collectively, a “Change in Law”), within a reasonable period of time thereafter that Party shall provide written notice to the other Party of such Change in Law, and the Parties shall commence negotiations regarding proposed amendments to the Agreement or changes to the Services that will bring the Agreement into compliance with the Law or Governmental Approvals, and each Party shall negotiate such potential changes in good faith in an effort to obtain such compliance. If the parties cannot agree in good faith upon such modifications to the Agreement or the Services, then (a) Customer shall initiate the Change Control Procedures by submitting a Change Request setting forth the reasonable minimum number of changes to the Services necessitated, in the good faith assessment of Customer, by the Change in Law, and (b) Vendor shall respond to such Change Request by setting forth, inter alia, its good faith assessment of the minimum changes to the Services necessitated by such Change Request and reflecting a change in the fees hereunder based solely on Vendor’s good faith assessment of the incremental work required of Vendor to implement such Change Request. Customer may accept such proposal of Vendor, but if Customer declines to accept such proposal, Customer may terminate this Agreement within 90 days.

ARTICLE 7 SERVICE LOCATIONS.

          7.01 Service Locations. The Services shall be provided to Customer from (1) the Service Locations and (2) any other location for which Vendor has received Customer’s approval, such approval shall not be reasonably withheld. Unless otherwise agreed by the Parties, if Customer elects to move any Customer Service Location, then Customer shall bear any incremental expenses of Vendor incurred as a result of such relocation; provided, however, that Vendor shall bear any incremental expenses of Vendor incurred as a result of a relocation of the 401 Park Avenue South Customer Service Location identified in Part B of Exhibit 3, Service Locations. Unless otherwise agreed by the Parties, if Vendor elects to move any Vendor Service Location it

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may do so at will, but Vendor shall bear any incremental expenses of Customer incurred as a result of such relocation.

          7.02 Safety and Security Procedures. Vendor shall maintain and enforce its current safety and security procedures at the Service Locations.

          7.03 Data Security. Vendor shall store all Customer Data in accordance with the Data Safeguards. In the event Vendor intends to implement a change to the Data Safeguards, Vendor shall notify Customer and, upon Customer’s approval, implement such change. In the event Vendor or Vendor Agents discovers or is notified of a breach or potential breach of security relating to Customer Data, Vendor shall immediately (1) notify the Customer Contract Managers of such breach or potential breach and, (2) if the applicable Customer Data was in the possession of Vendor or Vendor Agents at the time of such breach or potential breach, Vendor shall (a) investigate and mitigate the effects of the breach or potential breach and (b) provide Customer with assurance satisfactory to Customer that such breach or potential breach will not recur.

          7.04 No Viruses. Each Party covenants to the other Party that such Party shall use commercially reasonable efforts to ensure that there are no Viruses or similar malicious coding in any software provided or used by such Party in connection with the Services. Vendor agrees that, if a Virus is found to have been introduced into such software from any source, Vendor shall use commercially reasonable efforts to eliminate the Virus, at Vendor’s expense if such Virus was introduced into its systems, intentionally or not, by Vendor or any of its employees or subcontractors.

          7.05 Access to Premises. During the Term and any Termination Period, Vendor shall provide the Customer Access Manager with reasonable access to the physical premises of the Vendor Service Locations. The purposes for which such access may be requested shall include third party tours of the premises for marketing of the services of Customer. Reasonable security and safety requirements of Vendor will be observed by Customer at all times while on Vendor’s premises.

ARTICLE 8 VENDOR CONTRACT MANAGER AND SUBCONTRACTING.

          8.01 Vendor Contract Manager. The Vendor Contract Manager shall serve as the primary Vendor representative under this Agreement. Vendor’s appointment of any Vendor Contract Manager shall be subject to Customer’s prior approval. The Vendor Contract Manager shall (1) have overall responsibility for managing and coordinating the performance of Vendor’s obligations under this Agreement and (2) be authorized to act for and on behalf of Vendor with respect to all matters relating to this Agreement. Vendor shall not replace or reassign the Vendor Contract Manager for one year from the Effective Date, unless Customer consents to such reassignment or replacement or such individual (i) voluntarily resigns from Vendor, (ii) is dismissed by Vendor for misconduct (e.g., fraud, drug abuse, theft), (iii) fails to perform his or her duties and responsibilities pursuant to this Agreement or (iv) dies or is unable to work due to his or her disability. Notwithstanding the foregoing, the Vendor Contract Manager may, upon notice to Customer, delegate such of his or her responsibilities to other Vendor employees, as the Vendor

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Contract Manager deems appropriate, provided that the Vendor Contract Manager shall retain ultimate authority as Vendor representative.

          8.02 Project Staff. Vendor shall appoint to the project staff individuals with suitable training and skills to perform the Services.

          8.03 Subcontractors. With respect to subcontracting, Customer and Vendor agree that:

(1)	Vendor shall not subcontract any of its duties under this Agreement without the prior written authorization of Customer, such consent not to be unreasonably withheld, conditioned or delayed;
(2)	no subcontracting shall release Vendor from its responsibility for its obligations under this Agreement. Vendor shall be responsible for the work and activities of each of the Vendor Agents, including compliance with the terms of this Agreement. Vendor shall be responsible for all payments to its subcontractors; and
(2)	Vendor shall promptly pay for all services, materials, equipment and labor used by Vendor in providing the Services.
(3)	All subcontractors shall agree in writing to be subject to the Confidentiality provisions of this Agreement.

ARTICLE 9 MANAGEMENT AND CONTROL.

          9.01 Contract Managers. Customer Contract Managers shall maintain a written log of problems regarding the provision of the Services and Service Levels and Customer Contract Managers shall send a copy of such written log to the Vendor Contract Manager each week. At the request of either party, the Contract Managers shall meet in person or by video conference during the Term to discuss (1) Customer’s current and anticipated needs for the Services and (2) disagreements regarding the provision of the Services and Service Levels as described in the Customer Contract Manager’s written log.

          9.02 Change Control Procedures. (1) The Change Control Procedures are set forth in Exhibit 10.

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ARTICLE 10 PROPRIETARY RIGHTS.

          10.01 Third Party Software. Vendor represents and warrants to Customer that it has the right and authority to Use the Third Party Software to perform the Services and otherwise to comply with the terms and conditions of this Agreement. Vendor hereby grants to Customer, during the Term and Termination Assistance Period, a non-exclusive, non-transferable, limited license to Use, sublicense, and permit Customer Agents to Use, solely in connection providing goods or services to, or purchasing goods or services from, Customer, the Third Party Software. Upon Customer’s request, Vendor shall provide Customer with a list of all Third Party Software being used to provide the Services as of the date of such request. Customer shall have the right to request additional Third Party Software, it being understood that any such additional software would be provided at Customer’s expense for fees and transaction costs of Vendor. Vendor will supply a cost estimate to Vendor Contract Manager for approval prior to any new Third Party Software is provided.

ARTICLE 11 DATA.

          11.01 Ownership of Customer Data. All Customer Data is, or will be, and shall remain the property of Customer. Without Customer’s approval (in its sole discretion), the Customer Data shall not (1) be used by Vendor or Vendor Agents other than in connection with providing the Services, (2) be disclosed, sold, assigned, leased or otherwise provided to third parties by Vendor or Vendor Agents or (3) be commercially exploited by or on behalf of Vendor or Vendor Agents. Vendor hereby irrevocably assigns, transfers and conveys, and shall cause Vendor Agents to assign, transfer and convey, to Customer without further consideration all of its and their right, title and interest in and to the Customer Data. Upon request by Customer, Vendor shall execute and deliver, and shall cause Vendor Agents to execute and deliver, any financing statements or other documents that may be necessary or desirable under any Law to preserve, or enable Customer to enforce, its rights with respect to the Customer Data.

          11.02 Return of Data. Upon Customer’s request at any time during the Term, and upon expiration or termination of this Agreement, Vendor shall (1) promptly return to Customer, all or any part of Customer Data and (2) erase or destroy all or any part of Customer Data in Vendor’s possession or under its control, in each case, to the extent requested by Customer.

ARTICLE 12 LIMITATION OF LIABILITY

          12.01 Disclaimer. UNDER NO CIRCUMSTANCES WILL EITHER PARTY, ITS AFFILIATES, LICENSORS OR SUBCONTRACTORS BE RESPONSIBLE OR LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR OTHER INDIRECT DAMAGES, INCLUDING (1) SUCH DAMAGES RESULTING FROM LOSS OF USE OR LOSS OF DATA, (2) LOSS OF PROFITS OR LOSS OF BUSINESS ARISING OUT OF OR IN CONNECTION WITH THE SERVICES OR ANY OTHER OBLIGATIONS OF EITHER PARTY RELATING TO THIS AGREEMENT, IN EACH CASE WHETHER OR NOT SUCH PARTY, ITS AFFILIATES, LICENSORS OR SUBCONTRACTORS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

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          12.02 Limitation. Vendor’s aggregate liability, whether in contract, tort, or otherwise, arising out of or in connection with the Services or this Agreement at any time shall not exceed the amount of Designated Fees paid or payable to Vendor for the then-current twelve (12) months of Services hereunder. Customer’s aggregate liability, whether in contract, tort, or otherwise, arising out of or in connect with this Agreement shall not exceed the amount due and payable hereunder for Services actually rendered.

ARTICLE 13 DISASTER RECOVERY AND FORCE MAJEURE EVENTS.

          13.01 Disaster Recovery Plan. At Vendor’s expense, Vendor shall maintain a third-party disaster recovery agreement (the “DRP”) with a service provider (the “Disaster Recovery Vendor”) that encompasses maintenance of a backup data center for emergency replacement of the Services. As part of the Services hereunder, Vendor shall maintain the DRP in force, shall supervise the preparations of the Disaster Recovery Vendor pursuant to the DRP, and shall perform the Services using the Disaster Recovery Vendor and its data center and other facilities immediately upon any occurrence prompting such use. Vendor shall notify the Customer Contract Managers immediately upon the occurrence of a disaster or Force Majeure Event that prevents or will prevent a Vendor Service Location from being available for more than 24 hours. In such event, upon the reasonable request of Customer, Vendor shall implement the disaster recovery transition procedures set forth in Exhibit 11.

          13.02 Force Majeure. If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions or revolutions, or any other similar cause beyond the reasonable control of such Party (each, a “Force Majeure Event”), and such non-performance, hindrance or delay could not have been prevented by reasonable precautions, then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues and such Party continues to use its best efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall immediately notify the other Party of the occurrence of the Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event. The occurrence of a Force Majeure Event does not excuse, limit or otherwise affect Vendor’s obligation to use best efforts to provide normal recovery procedures or other obligations described in Section 13.01 or Exhibit 11.

          13.03 Alternate Source.

(1)	In the event of a disaster or a Force Majeure Event, Customer may procure the Services from an alternate source.
(2)	Customer shall consider in good faith any proposal made by Vendor regarding an alternate source provider, provided that the alternate source provider proposed by Vendor is capable of providing the Services at the Service Levels.

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(3) If a disaster or Force Majeure Event continues to prevent, hinder or delay the performance of the Services by Vendor for more than 60 days either Party may terminate this Agreement without regard to Section 22.02, as of the date specified by either Party in its termination notice to the other Party.

          13.04 No Payment for Unperformed Services. Except as provided in Section 13.02, nothing in this Article shall limit Customer’s obligation to pay any Fees; provided, however, that if Vendor fails to provide the Services in accordance with this Agreement due to the occurrence of a Force Majeure Event or disaster the Fees shall be adjusted in a manner such that Customer is not responsible for the payment of any Fees for those Services that Vendor fails to provide.

          13.05. Insurance. During the Term and Termination Period, Vendor shall at all times keep and maintain at least the following insurance coverages and limits of liability:

          (1) Commercial General Liability including coverage for (a) premises/operations, (b) independent contractors, (c) products/completed operations, (d) personal and advertising injury, (e) contractual liability, and (f) explosion, collapse and underground hazards, with combined single limit of not less than $1,000,000 each occurrence or its equivalent;

          (2) Worker’s Compensation in amounts required by applicable law and Employer’s Liability with a limit of at least $1,000,000 each accident;

          (3) Automobile Liability including coverage for owned/leased, non-owned or hired automobiles with combined single limit of not less than $1,000,000 each accident;

          (4) General Commercial Liability for death or personal injury and damage to tangible personal property with limits of not less than $1,000,000 per occurrence; and

          (5) Errors and Omissions Coverage with a limit of at least $1,000,000 each occurrence.

          Such insurance coverages or limits of liability shall not be changed unless at least thirty (30) days’ notice is given to Customer. If requested by Customer, Vendor shall deliver a Certificate of Insurance evidencing such coverages and limits of liability.

ARTICLE 14 PAYMENTS AND INVOICING.

          14.01 General. In consideration of Vendor providing the Designated Services, Customer shall pay to Vendor the Designated Fees in accordance with Section 14.02. Except as expressly set forth in this Agreement, there shall be no charges or fees due from Customer, or payable to Vendor, in respect of Vendor’s performance of its obligations pursuant to this Agreement.

          14.02 Designated Fees. Vendor shall submit invoices to Customer for the Designated Services monthly in arrears on the terms of net 30 days.

          14.03 Time of Payment. Any sum due to Vendor pursuant to this Agreement for Services other than Designated Services, unless payment terms are otherwise specified expressly

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herein, shall be due and payable 30 days after receipt by Customer of an invoice from Vendor following performance of such Services.

          14.04 Adjustments to Fees. Except for changes to the Fees due to the inclusion of Out-of-Scope Services, exceeding maximums in Exhibit 6, In Scope Maximums, exceeding the number of hours in Exhibit 1, Statement Of Work, Section XIV and XV, Performance Credits for Customer’s benefit pursuant to Exhibit 5, Service Levels and Performance Credits or other Changes implemented through the Change Control Process, there shall be no adjustments to the Fees.

          14.05 Unused Credits. Any unused credits against future payments owed to either Party by the other pursuant to this Agreement shall be paid to the applicable Party within 30 days of the earlier of the expiration or termination of this Agreement.

          14.06 Late Payments. Any amount that is payable to Vendor pursuant to this Agreement and not paid pursuant to the terms of this Agreement shall bear interest from the due date at the lesser of the rate of one (1.0%) percent per month or the maximum permitted by law. All costs of collection, including reasonable attorney’s fees, shall be paid by Customer.

ARTICLE 15 AUDITS.

          15.01 Services. Upon reasonable advance notice from Customer, Vendor and Vendor Agents shall provide Customer, Customer Agents, and any of Customer’s regulators with access to and any assistance that they may require with respect to the Service Locations and the Systems for the purpose of performing audits or inspections of the Services and the business of Customer relating to the Services. Such audits may occur no more often than once in any six (6) month period, in which case Customer shall pay for any such additional audits at the same rates applicable to Out of Scope Services under this Agreement.

          15.02 Record Retention. Vendor shall retain records and supporting documentation sufficient to document the Services and the charges paid or payable by Customer under this Agreement in accordance with Customer’s then-current record retention procedures, as in effect from time to time.

          15.03 Facilities. Vendor shall provide to Customer and Customer Agents, on Vendor’s premises (or, if the audit is being performed of a Vendor Agent, the Vendor Agent’s premises if necessary), space, office furnishings (including lockable cabinets), telephone and facsimile services, utilities and office-related equipment and duplicating services as Customer or such Customer Agents may reasonably require to perform the audits described in this Article.

ARTICLE 16 CONFIDENTIALITY.

          16.01 General Obligations. Parties agree that all Confidential Information shall be held in confidence by the recipient to the same extent and in at least the same manner as the recipient protects its own confidential information. Neither Customer nor Vendor shall disclose, publish, release, transfer or otherwise make available Confidential Information of, or obtained from, the other in any form to, or for the use or benefit of, any person or entity without the disclosing Party’s consent. Each of Customer and Vendor shall, however, be permitted to disclose

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relevant aspects of the other’s Confidential Information to its officers, directors, agents, professional advisors, contractors subcontractors and employees and to the officers, directors, agents, professional advisors, contractors, subcontractors and employees of its Affiliates, to the extent such disclosure is not restricted under any Consents or any Governmental Approvals and only to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations or the determination, preservation or exercise of its rights and remedies under this Agreement; provided, however, that the recipient shall take all reasonable measures to ensure that Confidential Information of the disclosing Party is not disclosed or duplicated in contravention of the provisions of this Agreement by such officers, directors, agents, professional advisors, contractors, subcontractors and employees. The obligations in this Section shall not restrict any disclosure pursuant to any Law (provided that the recipient shall give prompt notice to the disclosing Party of such order).

          16.02 Unauthorized Acts. Without limiting a Party’s rights in respect of a breach of this Article, each Party shall:

(1)	promptly notify the other Party of any unauthorized possession, use or knowledge, or attempt thereof, of the other Party’s Confidential Information by any person or entity that may become known to such Party;
(2)	promptly furnish to the other Party full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist the other Party in investigating or preventing the recurrence of any unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information;
(3)	cooperate with the other Party in any litigation and investigation against third parties deemed necessary by the other Party to protect its proprietary rights; and
(4)	promptly use its best efforts to prevent a recurrence of any such unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information.

Each Party shall bear the cost it incurs as a result of compliance with this Section.

ARTICLE 17 REPRESENTATIONS AND WARRANTIES.

          17.01 By Customer. Customer represents and warrants to Vendor that:

(1)	Customer is a corporation validly existing and in good standing under the Laws of Delaware;
(2)	Customer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement;
(3)	the execution, delivery and performance of this Agreement by Customer (a) has been duly authorized by Customer and (b) will not conflict with, result in a breach of, or constitute a default under, any other agreement to which Customer is a party or by which Customer is bound.

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          17.02 By Vendor. Vendor represents and warrants to Customer that:

(1)	Vendor is a corporation validly existing and in good standing under the Laws of the state of New York;
(2)	Vendor has all requisite power and authority to execute, deliver and perform its obligations under this Agreement;
(3)	the execution, delivery and performance of this Agreement by Vendor (a) has been duly authorized by Vendor, (b) will not conflict with, result in a breach of, or constitute a default under, any other agreement to which Vendor is a party or by which Vendor is bound and (c) does not require any Customer Consents or Vendor Consents that have not already been obtained;
(4)	Vendor is duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on Vendor’s ability to fulfill its obligations under this Agreement;
(5)	Vendor is in compliance with all Laws applicable to Vendor and has obtained all applicable permits and licenses required of Vendor in connection with its obligations under this Agreement;
(6)	there is no outstanding litigation, arbitrated matter or other dispute or administrative proceeding to which Vendor is a party which, if decided unfavorably to Vendor, would reasonably be expected to have a material adverse effect on Vendor’s ability to fulfill its obligations under this Agreement;
(7)	None of the Vendor Machines contain Viruses and, consistent with reasonable best practices in information technology, Vendor operates automated searches for and firewalls to prevent the introduction of Viruses in the Vendor Machines; and
(8)	The Vendor Machines and Vendor’s related systems have not been subject to any Denial-of-Service attack, successful physical or logical intrusion by unauthorized persons, or other breach of security in the previous year, and Vendor has established physical and logical security for the Vendor Machines and related systems, and backup procedures and facilities for the same, consistent with reasonable best practices in information technology. All security audits, security analyses and intentional security probes and attacks relating to the Vendor Machines and related systems, and all reports relating thereto, have previously been disclosed to Customer.

          17.03 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER CUSTOMER NOR VENDOR MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SERVICES OR THE SYSTEMS AND EACH

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EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. NOTHING IN THIS SECTION 17.03 SHALL BE DEEMED TO LIMIT OR DISCLAIM ANY REPRESENTATION OR WARRANTY IN THE SPA OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREUNDER (APART FROM THIS AGREEMENT).

ARTICLE 18 ADDITIONAL COVENANTS.

          18.01 By Customer. Customer covenants and agrees with Vendor that, during the Term and the Termination Assistance Period that Customer shall comply with all Laws applicable to Customer and, except as otherwise provided in this Agreement, shall obtain all applicable permits and licenses required of Customer, to the extent required to comply with its obligations under this Agreement.

          18.02 By Vendor. Vendor covenants and agrees with Customer that, during the Term and the Termination Assistance Period:

(1)	Vendor shall comply with all Laws applicable to Vendor and shall obtain all applicable permits and licenses required of Vendor in connection with its obligations under this Agreement;
(2)	Vendor shall comply with the Business Associates Agreement set forth in Exhibit 12.

ARTICLE 19 DISPUTE RESOLUTION.

          19.01 Contract Managers. Any dispute arising under this Agreement shall be considered in person or by telephone by the Contract Managers within seven business days after receipt of a notice from either Party specifying the nature of the dispute; provided, however, that a dispute relating to Section 11.02, Article 17 or Article 23 shall not be subject to this Section. If for any reason, including failure to meet or communicate, the Contract Managers have not resolved such dispute to the satisfaction of either Party within seven business days, then either of the Customer Contract Managers or the Vendor Contract Manager may immediately refer such dispute to the Designated Executives. The Designated Executives shall make a good faith attempt to consider and resolve such dispute in person or by telephone within fifteen business days of the date such dispute is referred to them. If for any reason the Designated Executives have not resolved such dispute within fifteen business days of the date such dispute was referred to it, then either Party may pursue its rights and remedies under Section 19.02.

          19.02 Arbitration. Any dispute not settled pursuant Section 19.01 shall be finally and exclusively settled by binding arbitration and, unless otherwise agreed by the Parties, the following procedure:

(1) the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) and judgment upon

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the award rendered by the arbitrator may be entered in any court having jurisdiction thereof;

(2)	the arbitration shall be conducted in New York, New York;
(3)	either Party may, without inconsistency with this Agreement, seek from a court any interim or provisional relief that may be necessary to protect the rights or property of that Party pending the establishment of the arbitral tribunal;
(4)	the arbitrator shall have a background in, and knowledge of, the information technology services industry and shall be an appropriate person based on the nature of the dispute; and
(5)	the Parties shall appoint a single arbitrator who shall perform the arbitration; provided that, if the Parties cannot agree on that single arbitrator within thirty (30) days of the request of either Party, then the single arbitrator shall be appointed by the President of the AAA.

Notwithstanding the foregoing, if disputes are being arbitrated under the SPA, any disputes under this Agreement shall be arbitrated in that same proceeding under the arbitration provisions set forth in the SPA.

ARTICLE 20 TERMINATION.

          20.01 Termination for Cause.

(1) If Vendor materially defaults in the performance of any of its material obligations under this Agreement (except as provided in Section 19.02), and does not cure such default within thirty (30) days after receipt of a notice of default from Customer, then Customer may, by giving notice to Vendor, terminate this Agreement, in whole or in part, as of the termination date specified in the notice; provided that, Customer and Vendor agree that, if Vendor fails to provide any Services under this Agreement, such failure shall constitute a disaster for the purposes of Article 13 and the Parties shall follow the process for identifying an Alternate Source set forth under Section 13.03 hereof.

(2) If Customer fails to make payments due to Vendor under this Agreement and does not cure such default within thirty (30) days after receipt of a notice of default from Vendor, then Vendor may, by giving notice to Customer, terminate this Agreement in whole as of the termination date specified in the notice.

          20.02 Termination for Insolvency. This Agreement may be terminated by either Party, upon notice to the other Party, (i) if such Party becomes insolvent, (ii) upon the institution of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of its debts, (iii) upon such Party’s making a general assignment for the benefit of credits, or (iv) upon such Party’s dissolution or ceasing to conduct business in the normal course.

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          20.03 Termination by Customer. At any time after the first twenty-four months of the Initial Term, Customer may elect to terminate this Agreement by providing notice at least six months prior to such termination, such termination to be effective no sooner than thirty months after the commencement of the Initial Term.

ARTICLE 21 TERMINATION ASSISTANCE.

Upon Customer’s request, Vendor shall, during the Termination Assistance Period, provide the Termination Assistance Services. Customer shall pay to Vendor the following fees for the Termination Assistances Services: (1) with respect to the Designated Services, the Designated Fees, (2) with respect to Out-of-Scope Services, an amount calculated pursuant to Exhibit 7, Hourly Rate Schedule for such services and (3) any incremental, out-of-pocket expenses incurred by Vendor in connection with the Termination Assistance Services and approved in advance by Customer. The quality and level of performance of the Services shall not be degraded during the Termination Assistance Period. After the expiration of the Termination Assistance Period, Vendor shall (1) answer questions from Customer regarding the Services on an “as needed” basis at Vendor’s then-standard billing rates and (2) promptly deliver to Customer any remaining Customer-owned reports and documentation still in Vendor’s possession.

ARTICLE 22 INDEMNITIES.

          22.01 Indemnity by Customer. Customer shall indemnify Vendor from, and defend and hold Vendor harmless from and against, any Losses suffered, incurred or sustained by Vendor or to which Vendor becomes subject, resulting from, arising out of or relating to any claim:

(1) arising from the Customer Data, provided that such claim is not due to Vendor’s breach of Law or any duty hereunder;

(2)	relating to any amounts, including taxes, interest and penalties, assessed against Vendor which are the obligation of Customer;
(3)	relating to personal injury (including death) or third party property loss or damage resulting from Customer’s or Customers Agents’ acts or omissions;
(4)	relating to a breach of Articles 16, 17 or 18.

Customer shall indemnify Vendor from any costs and expenses, including reasonable attorney fees, incurred in connection with the enforcement of this Section.

          22.02 Indemnity by Vendor. Vendor shall indemnify Customer from, and defend and hold Customer harmless from and against, any Losses suffered, incurred or sustained by Customer or to which Customer becomes subject, resulting from, arising out of or relating to any claim:

(1) arising from the Customer Data, provided that such claim is due to Vendor’s breach of Law or a duty hereunder;

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(2)	relating to personal injury (including death) or third party property loss or damage resulting from Vendor’s or Vendor Agents’ acts or omissions;
(3)	relating to any amounts, including taxes, interest and penalties, assessed against Customer which are the obligation of Vendor;
(4)	relating to a breach of Articles 10, 16, 17 or 18 of the Business Associates Agreement set forth in Exhibit 12.

Vendor shall indemnify Customer from any costs and expenses, including reasonable attorney fees, incurred in connection with the enforcement of this Section.

          22.03 Indemnification Procedures. If any third party claim is commenced against a Party entitled to indemnification under Section 25.01 or Section 25.02 (as applicable, the “Indemnified Party”), notice thereof shall be given to the Party that is obligated to provide indemnification (as applicable, the “Indemnifying Party”) as promptly as practicable. If, after such notice, the Indemnifying Party acknowledges that this Agreement applies with respect to such claim, then the Indemnifying Party shall be entitled, if it so elects, in a notice promptly delivered to the Indemnified Party, but in no event less than 10 days prior to the date on which a response to such claim is due, to immediately take control of the defense and investigation of such claim and to employ and engage attorneys reasonably acceptable to the Indemnified Party to handle and defend the same, at the Indemnifying Party’s sole cost and expense. The Indemnified Party shall cooperate, at the cost of the Indemnifying Party, in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost and expense, participate, through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom. No settlement of a claim that involves a remedy other than the payment of money by the Indemnifying Party shall be entered into without the consent of the Indemnified Party. After notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses incurred thereafter by such Indemnified Party in connection with the defense of that claim. If the Indemnifying Party does not assume full control over the defense of a claim subject to such defense as provided in this Section, the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party shall have the right to defend the claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party.

ARTICLE 23 MISCELLANEOUS PROVISIONS.

          23.01 Assignment. Customer shall not, without the consent of Vendor, assign this Agreement or any amounts payable pursuant to this Agreement, except that Customer may assign this Agreement, in whole or in part, to an Affiliate or another entity or business unit of Customer or pursuant to a reorganization or Change in Control of Customer without such consent. Vendor shall not, without the consent of Customer, assign this Agreement or amounts receivable pursuant to this Agreement, except that Vendor may assign this Agreement, in whole or in part, to an Affiliate or another entity or business unit of Vendor or pursuant to a reorganization or Change in Control of

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Vendor without such consent. The consent of a Party to any assignment of this Agreement shall not constitute such Party’s consent to further assignment. This Agreement shall be binding on the Parties and their respective successors and permitted assigns. Any assignment in contravention of this subsection shall be void.

          23.02 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally, mailed by certified mail, return receipt requested, or by overnight mail, to the parties (and shall also be transmitted by facsimile to the Persons receiving copies thereof) at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):

If to Vendor, to:

HMS Holdings Corp.
401 Park Avenue South
New York, NY 10016
Attention: Robert M. Holster, Chief Executive Officer
Facsimile: (212) 557-5973

With a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP
399 Park Avenue
New York, NY 10022
Attention: Robert A Schwed, Esq.
Facsimile: (212) 230-8888

If to Customer, to:

Zavata Inc.

400 Perimeter Center Terrace, STE 249

Atlanta, GA 30346

Attention: Chemain Sanan, Executive Vice President

Facsimile: (770) 280-2631

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          23.03 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which taken together shall constitute one single agreement between the Parties.

          23.04 Relationship. The Parties intend to create an independent contractor relationship and nothing contained in this Agreement shall be construed to make either Customer or Vendor partners, joint ventures, principals, agents or employees of the other. No officer, director, employee, agent, Affiliate or contractor retained by Vendor to perform work on Customer’s behalf under this Agreement shall be deemed to be an employee, agent or contractor of Customer. Neither Party shall have any right, power or authority, express or implied, to bind the other.

          23.05 Consents, Approvals and Requests. Except as specifically set forth in this Agreement, all consents and approvals to be given by either Party under this Agreement shall not be unreasonably withheld or delayed and each Party shall make only reasonable requests under this Agreement.

          23.06 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to Law, then the remaining provisions of this Agreement, if capable of substantial performance, shall remain in full force and effect.

          23.07 Waivers. No delay or omission by either Party to exercise any right or power it has under this Agreement shall impair or be construed as a waiver of such right or power. A waiver by any Party of any breach or covenant shall not be construed to be a waiver of any succeeding breach or any other covenant. All waivers must be signed by the Party waiving its rights.

          23.08 Remedies Cumulative. No right or remedy herein conferred upon or reserved to either Party is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy under this Agreement, or under applicable law, whether now or hereafter existing.

          23.09 Entire Agreement. This Agreement and the Exhibits to this Agreement represent the entire agreement between the Parties with respect to its subject matter, and there are no other representations, understandings or agreements between the Parties relative to such subject matter.

          23.10 Amendments. No amendment to, or change, waiver or discharge of, any provision of this Agreement shall be valid unless in writing and signed by an authorized representative of each of the Parties.

          23.11 Survival. The terms of Articles 11, 12, 14, 15, 16, 19, 20, 21, 22 and 23 shall survive the expiration or termination of this Agreement.

          23.12 Third Party Beneficiaries. Each Party agrees that this Agreement shall not benefit, or create any right or cause of action in or on behalf of, any person or entity other than the Vendor and the Customer. Customer shall be entitled to enforce this Agreement on behalf of Customer and shall have the right to pursue any right or remedy of the Customer arising hereunder with respect to the delivery of Services or otherwise.

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          23.13 Governing Law. This Agreement and the rights and obligations of the Parties under this Agreement shall be governed by and construed in accordance with the Laws of New York, without giving effect to the principles thereof relating to the conflicts of Laws.

          23.14 Sole and Exclusive Venue. Each Party irrevocably agrees that Section 8.6 of the SPA shall be effective under this Agreement as if set forth in full herein.

          23.15 Waiver of Jury Trial. Each Party hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement, the transactions contemplated by this Agreement or disputes relating hereto. Each Party (a) certifies that no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other Party hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section.

          23.16 Covenant of Further Assurances. Customer and Vendor covenant and agree that, subsequent to the execution and delivery of this Agreement and, without any additional consideration, each of Customer and Vendor shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate the purposes of this Agreement.

          23.17 Negotiated Terms. The Parties agree that the terms and conditions of this Agreement are the result of negotiations between the Parties and that this Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party or its professional advisors participated in the preparation of this Agreement.

          23.18 Export. Customer and Vendor shall not knowingly export or re-export any personal computer system, part, technical data or sub-elements under this Agreement, directly or indirectly, to any destinations prohibited by the government of the U.S.A. The term “technical data” in this context, means such data as is defined as technical data by applicable export regulations in effect in the U.S.A.

          23.19 Conflict of Interest. Vendor shall not pay any salaries, commissions, fees or make any payments or rebates to any employee of Customer, or to any designee of such employee, or favor any employee of Customer, or any designee of such employee, with gifts or entertainment of significant cost or value or with services or goods sold at less than full market value. Vendor agrees that its obligation to Customer under this Section shall also be binding upon Vendor Agents. Vendor further agrees to insert the provisions of this Section in each contract with a Vendor Agent.

          23.20 Publicity. Each Party shall (1) submit to the other all advertising, written sales promotions, press releases and other publicity matters relating to this Agreement in which the other Party’s name or any its trademarks or service marks is mentioned or which contains language from which the connection of said name or trademark or service mark may be inferred or implied and (2) not publish or use such advertising, sales promotions, press releases or publicity matters without the other Party’s consent.

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*      *      *      *

          IN WITNESS WHEREOF, each of Vendor and Customer has caused this Services Agreement to be signed and delivered by its duly authorized representative.

HMS BUSINESS SERVICES INC.
By:	/s/ HMS Business Services Inc.
	Name:
	Title:
ZAVATA, INC.
By:	/s/ Zavata, Inc.
	Name:
	Title:

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EXHIBIT 1

STATEMENT OF WORK

I. Machines

a.	Vendor shall provide an appropriate mainframe processor(s) that supports the service levels outlined in Exhibit 5.
b.	Vendor shall provide an appropriate level of DASD and Tape to support the Service Levels outlined in Exhibit 5.
c.	Customer shall be responsible for obtaining mainframe printing and mailing services consistent with support provided prior to the Effective Date.

II. Software

a.	Vendor shall provide the Third Party Software set forth in Exhibit 2.
b.	Additional Third Party Software may be requested by Customer. Vendor will pass through cost to Customer for any additional Third Party Software specifically requested by Customer. Vendor will follow steps outlined in Article 4 for Out-Of-Services Services to implement requested Third Party Software.
c.	Vendor will maintain six (6) CICS AccessLine regions (Branch, West, Data, HSW, QA and Test). Vendor will follow steps outlined in Article 4 for Out-Of-Scope Services to create new CICS regions.
d.	Vendor will schedule and run Customer’s Standard Processing not less frequently than as being run prior to the Effective Date.
e.	Any new systems, new development efforts, or processing outside AccessLine and Standard Processing that is not consistent with the support and Machine processing prior to the Effective Date will be considered Out-Of-Scope Services and will be handled as such under Article 4, Out of Scope Services.

III. Tape Management, Library Operations and Data Services

Tape and cartridges, storage and backups will be provided by Vendor as follows:

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a.	Copies of critical files (up to a maximum of 100) will be stored offsite at Iron Mountain located at 203 Moonachie Road, Moonachie, NJ 07074.
b.	Vendor has implementing a offsite backup solution utilizing a EMC Centera DASD backup machine.
c.	Mainframe incremental and nightly backup and reorganization of files will be performed in accordance with Customer current backup schedule, which consists of daily incremental backup and weekly full volume backup. Backup copies will be stored off-site.
d.	Where appropriate, the vendor will utilize hardware assisted facilities (Flashcopy) to perform incremental daily backups.

IV. Network Connectivity.

a.	Vendor shall maintain and manage the current Customer network connectivity in accordance with the network diagram attached to this Exhibit 1 as Appendix A.
b.	Additional lines/connections will be handled as Out of Scope Services pursuant to Article 4.

V. System Support Services

a. Vendor shall provide the following System Support Services:

• Monitoring of all Machines and Third Party Software on a daily basis for potential problems.

• Providing timely response to problems and questions reported by Customer.

• Performing ongoing capacity planning and performance monitoring activities.

• Making recommendations for short term and long term improved system performance.

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• Trouble Shooting and implementing solutions to Third Party Software problems.

• Coordinating problem diagnosis and providing correction in the event application problems or Viruses occur, at Customer’s expense if such Virus was introduced into its systems, intentionally or not, by Vendor or any of its employees or subcontractors.

• Performing RACF security administration for TSO sign on and other administrations consistent with those performed prior to the Effective Date.

• Performing disaster recovery transition procedures set forth in Exhibit 11.

• Performing system database administration function.

VI. Operations Services

a. Vendor shall perform the following Operations Services:

• Monitoring of systems consoles during operational hours.

• Performing checks to ensure Machines are operating optimally.

• Monitoring of all jobs and applications to ensure that they are running properly based upon supplied documentation.

• Responding to system messages and request for resources as required.

• Coordinating system startups and shutdowns with Customer Contract Managers.

• Documenting cause and nature of both scheduled and unscheduled outages.

• Maintaining the Customer tape inventory stored at the Vendor Service Location and offsite at Iron Mountain.

• Reporting Machines malfunctions to responsible parties.

• Responding to system requests for tape/cartridge mounts.

• Providing timely process on daily and weekly backups.

• Performing job scheduling.

• Providing data center operations support availability 24 hours a day seven days a week on mainframe/communications availability and related software issues.

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VII. Reporting

a. In addition to providing the Reports listed in Exhibit 8, Vendor shall perform the following reporting services:

• Documenting cause and nature of both scheduled and unscheduled outages.

• Provide job accounting reporting.

VIII. Lotus Notes Technical Change Control Procedures

a. Vendor shall manage any change to the technical configuration through the Lotus Notes Technical Change Control Procedures set forth in the Mainframe Change Control Database provided to Vendor with instructions about the database and using the database. If such change constitutes a Change, Vendor shall also manage such Change through the Change Control Process set forth in Exhibit 10.

IX. Source Data Management

• Vendor will be responsible for data logging and tracking using SDM DB for Customer physical data input, in a manner consistent with that performed prior to the Effective Date.

X. EDI

• Customer is responsible for establishing all EDI set ups, as they pertain to Customer’s business, with any Vendor assistance to be treated and charged as an Out of Scope Service under Article 4.

• Vendor is responsible for maintenance, execution, logging and tracking of EDI transmissions performed by Vendor.

• Customer is responsible for all EDI application programming, as it pertains to Customer’s business.

XI. Help Desk

• Vendor will supply backup security administration for user systems and a user help desk on a 24 x 7 basis for reporting system problems.

• All calls will be tracked and responded to in a manner consistent with the support provided prior to the Effective Date.

• Vendor will reset RACF security passwords promptly upon request and in any event within 24 hours of any request.

XII. DSS Support Services

a. Vendor is responsible for the managing and maintaining the servers listed in the network diagram attached to Exhibit 1 as Appendix A, and for replacing the servers if and as required to perform the Services.

30

b.	Customer is responsible for all costs for PCs and Network printers in Customer Service Locations.
c.	Vendor will provide network monitoring and configuration support consistent with the support provided prior to the Effective Date.
d.	Vendor will approve all new equipment (PCs and network printers) before being added to the HMS network (approval is not to be unreasonably withheld or delayed).
e.	Vendor will maintain the server hardware and software for Lotus Notes email and Databases.
f.	Vendor is responsible for managing print services consistent with the support provided prior to the Effective Date.
g.	Vendor will provide network access to the current release of CCS-MTU billing software for use on behalf of existing Accordis CCS-MTU customers.

XIII. Telephone

a.	Vendor will manage the existing telephone systems for Customer at 401 Park Avenue South, New York, NY, 10016.
b.	Vendor will interact with communications equipment suppliers and telephone companies to resolve problems related to the specific circuits and network components provided by the Vendor.
c.	Customer is responsible for maintaining a services agreement for Customer Service Location telephone switches, except at 401 Park Avenue South, New York, NY, 10016, which is the responsibility of Vendor.

XIV. Communications

• Customer is responsible for all data line costs for each line (broadwing frame relay, new edge frame relay over DSL and broadwing IP VPN) indicated on the attached network diagram attached to this Exhibit 1 as Appendix A. Vendor will maintain the contract with third parties for the data lines and will include Customer only data line costs on monthly invoices.

• Vendor will maintain and manage the existing video conferencing equipment consistent with the support provided prior to the Effective Date. Customer is responsible for any additional equipment needed for any new Customer Service Location.

• Vendor will maintain and manage all communications and data lines used in providing the Services. Customer will maintain and manage PC and local printer data lines within the Customer Service Locations.

XV. Service Levels

• Vendor will supply 100 hours per month of Customer specific DSS Support Services (XII), Telephone (XIII) and Communications (XIV) as part of the

31

Designated Fees. Support on the shared servers in New York as listed on the network diagram attached to this Appendix A will not be included in the 100 hours. Additional support will be charged via the schedule in Exhibit 7, Hourly Rate Schedule. Travel costs associated with Customer specific services are not included in Designated Fees and will be charged back to Customer according to Vendor’s travel and expense policy.

Vendor will include the system maintenance on customer service eligibility modules as part of its support.

XVI. Holidays

• Vendor will be responsible for providing the Services each day of the year except Thanksgiving and Christmas days, provided, however, that upon 48 hours’ advance notice to Vendor, Customer may require Vendor to provide Services on those holidays and Customer shall pay Vendor’s out-of-pocket expenses for the provision of such Services.

32

33

EXHIBIT 2

THIRD PARTY SOFTWARE

I. Third Party Software Other Than IBM Products

PRODUCT	VENDOR
NAME	NAME	Description
Beta/88	Beta Systems, Inc.	RACF Security Mgt.
CA-Deliver	Computer Associates	View Report Distribution
CA-ISM (Faver)	Computer Associates	VSAM Export/Restore
CA-View	Computer Associates	Report Repository
CA-Vision/Sixty	Computer Associates	4 GL Language Generator
CA-Vision:Doc	Computer Associates	4 GL Language Generator
CA-Vision:Results	Computer Associates	4 GL Language Generator
Endeavor	Computer Associates	Program Management
Code-1 Plus	Group One Software Inc.	ZIP Code +
Code-1 Plus subscript	Group One Software Inc.	ZIP Code +
Decision Analyzer	Decision Technology	Data Analytical Rpt. Tool
Direct Connect	Sterling Commerce	Network Data Mover
Fastgener	Software Corp of Amer	Copy Utility
File-Aid/MVS/DB2	Compuware	File Management
Gentran	Sterling Commerce	Ansi Data Converter
Host on Demand	IBM Software	Product Number: E1BGELL
In-tune	Boole & Babbage	Performance/Tuning Analyzer
Jobscan	Diversified Software Sys	JCL Validation
MVS-Plus (Pkzip)	Ascent Solutions Inc.	Data Compression
MXG Software	Merrill Consultants	Performance Reporting & Analysis

34

PRODUCT	VENDOR
NAME	NAME	Description
OCE Editor	American Medical Association	Outpatient Code Editor
Quickref	Chicago Soft	Interactive Systems Documentation
QuickTape	Texas Digital	Tape Mgt. Mounting Facil.
TableBase	Data Kinetics	Data Utility
Tmon/CICS	Landmark Systems	CICS Performance Monitor
Tubes/MVS	Macro 4	3270 Session Manager
VPS	Levi, Ray, Strupp	Network Printing
Xpeditor/CICS	Compuware	CICS Code
Zela	Software Corp of Amer	Tape consolidation

II. Vendor Provided IBM Products

The following table outlines the IBM program products to be supplied by the Vendor.

Product Number	IBM Program Product
5694 A01	Z/OS V1 Base
5694 A01	Z/OS V1 DFSMS DSS+HSM
5694 A01	Z/OS V1 DFSORT
5694 A01	Z/OS V1 HLA Toolkit
5694 A01	Z/OS V1 RMF
5694 A01	Z/OS V1 SDSF
5694 A01	Z/OS V1 Security Server
5655 G53	COBOL Full Function
5648063	3746 Model 900 Feat
5648063	ACF/NCP V7
5655041	ACF/SSP Version 4 MVS
5655103	DITTO/ESA for MVS
5655 M15	CICS TS for Z/OS
5625 DB2	DB2 UDB for Z/OS

35

Product Number	IBM Program Product
5625 DB2	QMF Classic
5697 ENV	Tivoli NetView Enterprise
5698 S51	Tivoli Workload Scheduler

36

EXHIBIT 3

SERVICE LOCATIONS

A. Vendor Service Location:

1. 401 Park Avenue South, Floors 9-11, New York, New York 10016

B. Customer Service Locations:

1.	401 Park Avenue South, 8th Floor, New York, New York 10016
2.	500 Bi County Blvd, Farmingdale, NY 11735
3.	7800 West Oakland Park Blvd, Bldg. C, Sunrise, FL 33351
4.	9841 Airport Blvd, Los Angeles. CA 90045
5.	2960 South Baker Drive, Springfield, IL 62703
6.	400 Perimeter Center Terrace, Atlanta, GA 30346
7.	105 Industrial Drive, Americus, GA 31719

37

EXHIBIT 4

DESIGNATED FEES

DESIGNATED FEES The Designated Fees for the Designated Services are $166,666 per month during first Contract Year. The Designated Fees for the Designated Services are $183,333 per month during Contract Years 2 through 4.

a. If the number of active AccessLine Accounts exceeds the Total In Scope AccessLine Accounts in a month, the following calculation will be used to calculate the additional AccessLine monthly charges to Customer:

i. AccessLine Accounts Percentage Over is calculated as follows:

1. (number of active AccessLine Accounts / Total In Scope AccessLine Accounts) – 100%.

ii. AccessLine additional monthly charge is calculated as follows:

1. 90% of the monthly Designated Fee multiplied by AccessLine Account Percentage Over.

b. If the number of RCR Clients exceed the Total In Scope RCR Clients in a month, the following calculation will be used to calculate the additional RCR monthly charges to Customer:

i. RCR Clients Percentage Over is calculated as follows:

1. (number of RCR Clients / Total In Scope RCR Clients) – 100%.

ii. RCR additional monthly charge is calculated as follows:

1. 10% of the monthly Designated Fee multiplied by RCR Client Percentage Over.

38

EXHIBIT 5

SERVICE LEVELS AND PERFORMANCE CREDITS

1. GENERAL PROVISIONS.

1.1. General.

The Service Levels referenced in Article 6 of the Agreement are set forth in this Exhibit.

1.2. Definitions.

Capitalized terms used in this Exhibit that are not defined in this Exhibit shall have the meanings assigned to them in the Agreement. The following defined terms used in this Exhibit shall have the meanings specified below:

“Performance Credit” shall mean a credit in an amount set forth in Section 5 below payable to Customer by Vendor in connection with a Service Level Failure.

“Service Levels” shall have the meaning set forth in this Exhibit.

“Service Level Failure” shall mean Vendor’s failure to achieve a Service Level in any given month.

2. PERFORMANCE TRACKING AND REPORTING.

A. General: Vendor shall provide Customer with a report of the performance level attainment against the Service Levels as set forth in Exhibit 8 no later than the 25th day of each month. Vendor will be responsible for promptly investigating and correcting Vendor’s failure to meet established Service Levels in accordance with Section 6.04 of the Agreement. If the Root Cause Analysis shows that Customer was the Root Cause of the Service Level Failure, or the cause was outside control of Vendor, then Vendor shall not be subject to a Performance Credit.

3. SERVICE LEVEL REVIEWS.

The Parties will review the Service Levels in accordance with this Section 6.03 of the Agreement. As part for their monthly meetings, the Vendor Contract Manager and the Customer Contract Manager shall discuss the Service Levels. Any additions, deletions or modifications to the Service Levels may be made by mutual agreement of the Contract Managers at such monthly meetings.

39

4. PERFORMANCE CREDITS.

In the event of a Service Level Failure, Vendor shall incur the Performance Credit associated with the Service Level that Vendor failed to achieve. If more than one Service Level Failure has occurred in a single month, the sum of the corresponding Performance Credits shall be paid to Customer; provided, however that, notwithstanding the amount of Performance Credits incurred by Vendor, in no event shall the total amount of Performance Credits incurred by Vendor in a single month exceed $25,000. All Performance Credits incurred by Vendor in a given month shall be Customer’s sole remedy for Service Level Failures and shall be credited to Customer on the next monthly invoice.

5. SERVICE LEVELS

Initial Service Levels are set forth below.

A. RESOURCE AVAILABILITY-is defined as Machines at the Vendor Service Location and Third Party Software (“Resources”) available to Customer from local and remote Customer sites 24 hours a day, seven days a week including all national and corporate holiday schedules, except for periods of scheduled maintenance authorized by Customer (“Resource Availability”).

Category	Description	SLA Calculation
Resource Availability*	Hardware (CPU & DASD)	If either the CPU or DASD is down on any given day and not operational for a period Greater than 4 hours Vendor shall incur a Performance Credit.
	System Software (CICS)	If all CICS is down on any given day and not operational for a period Greater than 4 hours Vendor shall incur a Performance Credit.
	Third Party Software (see Exhibit 2)	If any of the Third Party Software program products are down on any given day and not operational for a period Greater than 4 hours Vendor shall incur a Performance Credit.

(i) Performance Credit for Critical Resources. Vendor shall incur the following Performance Credits for each day that any or all the Resources are not available for 4 hours or more on such day during a given month:

40

Problem extends:	4.1 hours to 8 hours — $2,000
	8.1 hours to 16 hours — $4,000
	16.1 hours to 24 hours — $6,000

* Periodically system maintenance is performed, requiring an IPL (Initial Program Load which is required to install new and upgraded releases of software and hardware) of the Machine. This scheduled down time is excluded from the Resource Availability. This maintenance is scheduled in advance with proper notice provided to Customer, and is typically performed on Sundays.

B. TRANSACTION RESPONSE TIME-is defined as the actual wall clock time from the instant the user initiates a request depressing the enter key until the information has been fully displayed on the user screen and the system has unlocked the keyboard. CICS Monitor and RMF software will be used to track and calculate total transactions and response time calculations.

(i) Online Performance Windows for each CICS region shall be available:

A. Branch and Data

•     Monday through Friday	8:00 am-10:00 pm (EST)
•     Saturday	8:00 am-4:00 pm (EST)
•     Sunday	Upon request

B. West*

•     Monday through Friday	11:00 am-6:00 pm (EST)
•     Saturday	11:00 am-6:00 pm (EST)
•     Sunday	Upon request

C. HSW

•     Monday through Friday	10:00 am-11:00 pm (EST)
•     Saturday	10:00 am-3:00 pm (EST)
•     Sunday	Upon request

D. QA and Test

•     Monday through Friday	8:00 am-6:00 pm (EST)
•     Saturday	8:00 am-6:00 pm (EST)
•     Sunday	Upon request

41

*	If End Of Month (EOM) processing is performed the next business day the region up time is not guaranteed.
**	if EOM processing or LAC loads run (typically second week of the month), the region up time is not guaranteed.

(ii) Performance Credit: Vendor shall incur a Performance Credit of $100 per day, per CICS region that Vendor fails to meet the region availability.

(a) Network Response Time Performance Standard:

(1)	95% of total transactions (Branch, West, Data, HSW) to be completed within 1.0-3.0 seconds
(2)	90% of total transactions (QA and Test) to be completed within 1.0-3.0 seconds

(b) Performance Credit: Vendor shall incur a Performance Credit of $2,000, per region in which the applicable standard is not met, if Vendor fails to meet, in the aggregate, the applicable Network Response Time Performance Standard in a given month.

(iii) Online Performance Window for TSO transactions

(a) TSO Response Time Standard:

(1) 85% of all TSO transactions need to be completed within 3.0 seconds

(b) Performance Credit: Vendor shall incur a Performance Credit of $2,000 for any month in which Vendor fails to meet, in the aggregate, the TSO Response Time Standard for TSO transactions in such month.

C. BATCH WINDOW STANDARDS

(i) The following batch class initiators must be available to Customer starting at 8:00 am (EST) and ending at 7:00 pm (EST):

CLASS	ELAPSED TIME	CPU TIME
A	15 minutes	1 minute
B	1 Hour	10 minutes
C	48 Hours	unlimited
S	On Demand	unlimited

42

(ii) Performance Credit: Vendor shall incur a Performance Credit of $100 per class, per day that the required batch class services are not available to the Customer.

43

EXHIBIT 6

IN SCOPE MAXIMUMS

A. Total In Scope AccessLine Accounts in the Active Master File

Contract Year 1:	15,730,000
Contract Year 2:	17,303,000
Contract Year 3:	18,000,000
Contract Year 4:	19,000,000

B. Total In Scope RCR Clients

Contract Year 1:	16
Contract Year 2:	17
Contract Year 3:	18
Contract Year 4:	19

44

EXHIBIT 7

HOURLY RATE SCHEDULE

1. Out-Of-Scope Services will use the follow hourly rates:

a.	Contract Year 1 — $151/hour
b.	Contract Year 2-4 — $166/hour

45

EXHIBIT 8

REPORTS

I.	Monthly Reports
A.	Vendor shall provide the following monthly reports to Customer by the 15th day of each month.

1.	Overall TSO response time by period in the form attached to this Exhibit 8 as Appendix A.
2.	CICS/ESA monitor for all CICS regions –(WEST, EAST, Data Entry, LAC) in the form attached to this Exhibit 8 as Appendix A.
3.	A consolidated report, including status updates, with respect to each Change Request.
4.	Consolidated Service Level report, including a list of any Service Level Failures and Performance Credits incurred during such month.

II. Daily Reports

A. Vendor shall provide the CICS regions start time and all hardware and Third Party Software problems within the Vendor Service Location for the DPO Morning Report each day by 8:00 am (EST) via email to the Customer Contract Manager and all other Customer employees designated by the Customer Contract Manager.

III.	Other Reports
A.	Vendor shall provide the following reports as required:

1. Root Cause Analysis Report within 30 days of a Service Level failure

IV. Review of Reports

As part of their monthly meeting, the Contract Managers shall review and discuss all reports produced during such month.

46

Appendix A Form of Reports TSO Response Time OVERALLTSO OESPÖN5E TIME BY BEPOHT OATE AND TIKE:FBI L JAN FROM09JANQ5 — ;.PERIOD — H, 2005 tiMNQSSLS I 1494? FRIttftKJANUARYti,20037« SYSTEM ID PEFJlOOAVERAGE ENDED TRANSACTION COUNT PERCENT EhlCED TRANSACTIONCPU rce ‘JbHVICEEG ^FRWLLL UMTS SEBVICF “WV,?. t-QUICK1 $ee O.SS i2eS50 lOO.OO 112 930.!B3 13903.SS1,466 123550 10O.0O i-2 930,153696,357 90-3,661 ,4&6 CICS Response Time OATE: OJ/31/05 TIME : 00:27;12 Th*Monit,: SYSTEM TOTAL PAGT “orCICS/ESA :¦!!«WESTON 01/10/05 P-in^: ¦I Z>Mt-IS FBOM0V10/ÜS fl ‘¦ 11:37 TO01/10/05 AT23:59 CICS SYSTEM ACTrviTVCPU ANALYSISCPSJ TEWE TOTAL DISPATCH RESPONSE TIME DISTRIBUTION TOTAL AD09ESS SPACE CPU43:28 50E4 SESPDMSETXNS PCTCUM X0 12 3A 5678 . . iCB SO ..SRS 2: (9 2613 2434 0.0-1.0 SEC?04,B19 1.0-5.O 5EC1.04B 2.0-3.0 SEC32& 3.0-4.0 SFC134 4.0-5.0 SEC80 5.0+++ EEC131Sfl.SW9BJ.3J6 .9Ü99.3% ¦ 3% W.S% ,\%m-i%         .OK99. a« .176100.OK SUBTASKS CPU DECTUCONTROL TASKCPU . .O-BCTL THREAD ..THQM3UBTA5K ..OTHEH SUBTASKS 6:2E 6;Sfl =:3b> t oooo coco 43J1 TOTAL TRANSACTIONS EXECUTED APPLICATION TASKS CPU/OISP 34:43 3 228 1:3006.8693TRANSACTIONS EXCUJDEÜ FRQK HIGH TASK ENDED TRANSACTIONS 106,542I/O ACTIVITY COUNT AVSTIME TOTALTIME CICS5T5TEW AVAILABILITYSVSTEM AVAILABILITY1 PERCENTAGE FROM TIMETOTIME5YSTEM OUTAGESTART TIMEEND TIME 11:35;CO31:07:39 29. -r-y.00:00:00 24:00:00 14:27:21DURATION 09:32:33 f’JLL H?OJESTS3 PROGRAM LOADSJOURNAL «EOUF^TCTO BEQUESTS OL/I CALLS DL/J WAITS SOLCALLS TODS2 NON-SOL CALLSTODE2 USERDATABASECALLS DB2 VAIT V/Q THREAD 563,109 ¦ 0C-2S . oc-o; , 00:10 .0031 — r.200 .CfSOO -ooon .COW] .0000 2:51 ;43.6551 34.27S« .oooc         .0331 . C..00 . 0000 -0ÖOO 0000 .ÖC3C — MA -* MA * DB2 PLAN OVERFLOW 0 *HA * STORAGE ANALYSIS HIGHWATER MARK INFORMATION CATEGORY FILE WAIT S3. TIME THAN 10 929B T240USA NAME SIZE CDS!1.024K ECOSAB , 192K E3DSA 1B.432K INUSE 1.01SK I.&EOK 1T.916«1~1 00 L> O 0 CATEGORYPOOL USER24 USEF531 CICS24 CTC531SIZE TRANTD 8KOC 257KT24Ö IK CESN 23K CEMTE5DSA+304*K EUDSA 0.072K RDSA 2S6K SD5A 2S6K UDSA assK 1.216K ?32K 1 «X 1 s^e HIGHEST RASING RATE PER SEC 1,273
HISHEST WORKINGSET (PAGE FRAMES) KIGHE5T DPSYS STORAGE LEVEL 0

47

EXHIBIT 9

DATA SAFEGUARDS

Ø	At the Vendor Service Location(s), Vendor shall maintain restricted access to data center via existing security card access.
Ø	At the Vendor Service Location(s), Vendor shall be responsible for all building support, including, power, air conditioning and prevention from water damage.
Ø	Vendor shall comply with existing RACF security policies and procedures consistent with the support provided prior to Effective Date.
Ø	Vendor shall use access granted by Customer to the Customer Service Locations to perform the Services as set forth in the Agreement (including the Exhibits).
Ø	Vendor shall supply storage and security for customer tape, cartridge media and Vendor shall restrict access to such storage to only those Vendor employees or Vendor Agents requiring access.
Ø	Vendor shall ensure appropriate disposal of all Confidential Information including printed outputs DASD floppy disks tape and cartridge.
Ø	Customer may initiate, with Vendor’s cooperation, ad hoc security review audits to assess security risks to the Customer Data – no more frequent than quarterly.
Ø	Vendor shall issue security alerts and warnings to the Customer Contract Manager if Vendor becomes aware of any breach of (1) these data safeguard procedures, or (2) any other security policies and procedures in effect at the Vendor Service Location(s) or Customer Service Locations.
Ø	Any and all additional safeguards as may be required in the Business Associate Agreement.

48

EXHIBIT 10
CHANGE CONTROL PROCEDURES

I. CHANGE REQUESTS

Either Party may request, orally or in writing, a Change to this Agreement. Upon either Party’s receipt of request for Change, the Parties shall work together to prepare a written change request containing the general information set forth below and in Appendix A to this Exhibit regarding the proposed Change (a “Change Request”).

II. ORIGINATING THE CHANGE REQUEST

Using the Change Request Form attached hereto as Appendix A, the Party requesting the Change shall provide a description of the proposed Change(s) and specify the reason for the Change. Vendor shall assign a unique number to the Change Request, and the Parties shall complete the Change Request by including the following information in the Change Request Form:

1. List the documents and solution components that will need to be updated when the Change in implemented

2. Estimate the impact of the Change (minimal (8 hrs or less), moderate (9-40 hours) or major (over 40 hours))

3. Indicate whether a full evaluation of the Change impact is required and, if so, estimating the time needed for evaluation and assigning a resource to perform the evaluation.

The Vendor shall then enter the Change Request into the Change Control Log.

All completed Change Requests shall be forwarded to a Vendor designated evaluator for evaluation. Vendor shall complete its evaluation of each Change Request within 30 days of receipt of a complete Change Request and forward such Change Request, with its recommendations, to the Contract Managers for approval. Vendor shall log the status of the Change Request and keep Customer informed of the status of each Change Request.

III. APPROVAL

Upon receipt of the Change Request and the recommendations of the Vendor evaluator, the Contract Managers shall review the Change Request and shall, within 30 days of receipt of such Change Request, either approve or not approve such Change Request. No Change shall be made to any Services or to this Agreement unless it has been approved by the Customer Contract Managers and the Vendor Contract Manager.

IV. IMPLEMENTATION

Vendor shall manage the implementation of an approved Change Request. Vendor shall track progress of the Change, apprise Customer Contract Managers of the status of the Change Request

49

during implementation (not less than once a week), and make any adjustments in Services as needed.

V. CLOSURE

When Vendor successfully implements a Change Request, Vendor shall update the status of the Change Request in the Change Control Log, archive the Change Request related documentation, notify Customer of the implementation and close the Change Request.

VI. REPORTING

A consolidated report, including status updates with respect to each Change Request, shall be included in a monthly report.

50

APPENDIX A

Sample Change Request Form

Zavata, Inc.

Change Request Form

				Requested
Customer	Request	Phone	Request	Completion
Contact	Number	Number	Date	Date

Change Description:

Reason for Change:

Specific Tasks:

Assigned to:		Rate:
Total Change Order:	Cost: $
Hours:
Change Request Completion Date:		Attachments:
Customer Approval:		Approval Date:
	Accordis Holding Corp.
Vendor Approval:		Approval Date:
	HMS

51

EXHIBIT 11

DISASTER RECOVERY TRANSITION PROCEDURES

• Vendor shall notify the Customer Contract Manager of an existing, pending or potential event that would require Vendor to deploy its DRP and provide the Services by means of the Disaster Recovery Vendor.

• Customer shall supply a list of Customer Service Locations for which back-up connectivity to the Disaster Recover Vendor would be necessary in the event a disaster is declared. Vendor will arrange for implementation, maintenance and management of the back-up data lines and Customer will be responsible for the installation and ongoing line costs for these back-up data lines, as described in Exhibit I, Section IV.

• Upon the occurrence of an event requiring Vendor to deploy its DRP and provide the Services by means of the Disaster Recovery Vendor, Vendor shall:

• notify telecommunication vendors to switch all network lines to the Disaster Recovery Vendor site;

• notify Iron Mountain to send all backup tapes to the Disaster Recovery Vendor;

• ensure that all necessary supplies and tapes are sent from the Vendor Service Location(s) to the Disaster Recovery Vendor; and

• The Disaster Recovery Vendor is:

SUNGARD RECOVERY SERVICES

401 North Broad Street

Suite 600

Philadelphia, PA 19102

Contract Number: 93068100-37050-44932

• The Iron Mountain facility used by the Vendor is located at 203 Moonachie Road, Moonachie, NJ 07074.

52

EXHIBIT 12
BUSINESS ASSOCIATE AGREEMENT

     [Attached separately]

53

EX-10.13.(I)

Exhibit 10.13(i)

Execution Version

DATA SERVICES AGREEMENT

between

HMS BUSINESS SERVICES, INC.

and

ACCORDIS HOLDING CORP.

Dated July 31, 2007

TABLE OF CONTENTS

Article 1 DEFINITIONS AND CONSTRUCTION	1
1.01 Definitions	1
1.02 Incorporation and References	7
1.03 Headings	7
1.04 Interpretation of Documents	7
Article 2 TERM	8
2.01 Initial Term	8
2.02 Renewal and Extension	8
Article 3 DESIGNATED SERVICES	8
3.01 General	8
3.02 Reports	8
Article 4 OUT-OF-SCOPE SERVICES	8
4.01 Out-of-Scope Services	8
Article 5 CUSTOMER RESPONSIBILITIES	9
5.01 Customer Contract Managers	9
5.02 Use of Customer Facilities	9
Article 6 SERVICE LEVELS	9
6.01 Designated Service Levels	9
6.02 Out-of-Scope Service Levels	9
6.03 Adjustment of Service Levels	9
6.04 Root-Cause Analysis	10
6.05 Service Level Reporting	10
6.06 Measurement and Monitoring Tools	10
6.07 Performance Credits	10
Article 7 SERVICE LOCATIONS	11
7.01 Service Locations	11
7.02 Safety and Security Procedures	11
7.03 Data Security	11
Article 8 VENDOR CONTRACT MANAGER AND SUBCONTRACTING	12
8.01 Vendor Contract Manager	12
8.02 Project Staff	12

i

8.03 Subcontractors	12
Article 9 MANAGEMENT AND CONTROL	13
9.01 Contract Managers	13
9.02 Change Control Procedures	13
Article 10 PROPRIETARY RIGHTS	13
10.01 Third Party Software	13
Article 11 DATA	13
11.01 Ownership of Customer Data	13
11.02 Return of Data	13
Article 12 LIMITATION OF LIABILITY	14
12.01 Disclaimer	14
12.02 Limitation	14
Article 13 DISASTER RECOVERY AND FORCE MAJEURE EVENTS	14
13.01 Disaster Recovery Plan	14
13.02 Force Majeure	14
13.03 Alternate Source	15
13.04 No Payment for Unperformed Services	15
Article 14 PAYMENTS AND INVOICING	16
14.01 General	16
14.02 Designated Fees	16
14.03 Time of Payment	16
14.04 Adjustments to Fees	16
14.05 Unused Credits	16
14.06 Late Payments	16
Article 15 AUDITS	16
15.01 Services	16
15.02 Record Retention	16
15.03 Facilities	16
Article 16 CONFIDENTIALITY	17
16.01 General Obligations	17
16.02 Unauthorized Acts	17
Article 17 REPRESENTATIONS AND WARRANTIES	18

ii

17.01 By Customer	18
17.02 By Vendor	18
17.03 DISCLAIMER	19
Article 18 ADDITIONAL COVENANTS	19
18.01 By Customer	19
18.02 By Vendor	19
Article 19 DISPUTE RESOLUTION	20
19.01 Contract Managers	20
19.02 Arbitration	20
Article 20 TERMINATION	21
20.01 Termination for Cause	21
20.02 Termination for Insolvency	21
20.03 Termination to Conform to Law	21
20.04 Termination by Customer	21
Article 21 TERMINATION ASSISTANCE	21
Article 22 INDEMNITIES	22
22.01 Indemnity by Customer	22
22.02 Indemnity by Vendor	22
22.03 Indemnification Procedures	23
22.04 SPA Indemnification	23
Article 23 MISCELLANEOUS PROVISIONS	23
23.01 Assignment	23
23.02 Notices	24
23.03 Counterparts	24
23.04 Relationship	24
23.05 Consents, Approvals and Requests	25
23.06 Severability	25
23.07 Waivers	25
23.08 Remedies Cumulative	25
23.09 Entire Agreement	25
23.10 Amendments	25
23.11 Survival	25

iii

23.12 Third Party Beneficiaries	25
23.13 Governing Law	25
23.14 Sole and Exclusive Venue	25
23.15 Covenant of Further Assurances	25
23.16 Negotiated Terms	26
23.17 Export	26
23.18 Conflict of Interest	26
23.19 Publicity	26

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TABLE OF EXHIBITS

Exhibit 1	Statement of Work
Exhibit 2	Third Party Software
Exhibit 3	Service Location
Exhibit 4	Designated Fees
Exhibit 5	Service Levels and Performance Credits
Exhibit 6	In Scope Maximums
Exhibit 7	Hourly Rate Schedule
Exhibit 8	Reports
Exhibit 9	Data Safeguards
Exhibit 10	Change Control Procedures
Exhibit 11	Disaster Recovery Transition Procedures
Exhibit 12	Business Associates Agreement

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Execution Version

               This DATA SERVICES AGREEMENT, dated July 31, 2007 (the “Effective Date”), is between HMS Business Services, Inc. (“Vendor”) and Accordis Holding Corp. (“Accordis Holding”).

W I T N E S S E T H:

               WHEREAS, Section 6.1(f) of the Stock Purchase Agreement between HMS Holdings Corp. (“HMS”) and Accordis Holding dated August 31, 2005 (the “SPA”), pursuant to which Accordis Holding is acquiring all of the capital stock of Accordis, Inc. (“Accordis”), requires that Vendor and Accordis Holding enter into a services agreement to provide that Vendor, an affiliate of HMS, would perform data processing and hosting services to Accordis Holding and certain of its Affiliates (defined below collectively as Customer) to the same extent that Accordis and its subsidiary HRM received such services as subsidiaries of HMS prior to the closing of the transactions contemplated in the Stock Purchase Agreement; and

               WHEREAS, Vendor desires to provide to Customer, and Customer desires to obtain from Vendor, the data processing, data storage and data management services and related services described in this Agreement on the terms and conditions set forth in this Agreement.

               NOW, THEREFORE, for and in consideration of the agreements set forth below, Customer and Vendor agree as follows:

ARTICLE 1 DEFINITIONS AND CONSTRUCTION.

               1.01 Definitions. The following defined terms used in this Agreement shall have the meanings specified below:

“AccessLine” shall mean a series of Customer-licensed, proprietary batch and online CICS programs used to manage the Customer’s business.

“AccessLine Accounts” shall mean the active accounts of responsible parties or patients of clients of Customer’s AccessLine business that constitute active accounts in AccessLine.

“Accordis” shall mean Accordis, Inc., a corporation organized under the Law of New York.

“Affiliate” shall mean, as to any entity, any other entity that, directly or indirectly, Controls, is Controlled by or is under common Control with such entity.

“Agreement” shall mean this Data Services Agreement between Customer and Vendor.

“Change(s)” shall mean any change to the Services, the Software used to provide the Services or the Machines used to provide the Services that would materially alter the functionality, performance standards or technical environment of the Software used to provide the Services or the Machines used to provide the Services, the manner in which the Services are provided, the composition of the Services or the cost to Customer of the Services. Software patches and upgrades provided by the third party Software vendors

listed on Exhibit 2 shall not be deemed Changes unless the implementation requires material modification of the Machines. Phase-out or complete termination of Standard Processing shall not be deemed Changes.

“Change Control Procedures” shall mean the written description of the procedures used to control Changes made under this Agreement set forth in Exhibit 10.

“Change in Control” shall mean the (1) consolidation or merger of a Party with or into any entity (other than the consolidation or merger of a Party with an Affiliate of such Party in which such Party is the surviving entity of such consolidation or merger), (2) sale, transfer or other disposition of all or substantially all of the assets of a Party or (3) acquisition by any entity, or group of entities acting in concert, of beneficial ownership of 20 percent or more (or such lesser percentage that constitutes Control) of the outstanding voting securities or other ownership interests of a Party.

“Confidential Information” of Customer or Vendor shall mean all information and documentation of Customer and Vendor, respectively, whether disclosed to or accessed by Customer or Vendor in connection with this Agreement, including (1) with respect to Customer, all Customer Data and all information of Customer or its customers, suppliers, contractors and other third parties doing business with Customer, (2) with respect to Vendor, the Third Party Software, (3) with respect to Customer and Vendor, the terms of this Agreement and (4) any information developed by reference to or use of Customer’s or Vendor’s information; provided, however, that except to the extent otherwise provided by Law, the term “Confidential Information” shall not include information that (a) is independently developed by the recipient, as demonstrated by the recipient’s written records, without violating the disclosing Party’s proprietary rights, (b) is or becomes publicly known (other than through unauthorized disclosure), (c) is already known by the recipient at the time of disclosure, as demonstrated by the recipient’s written records, and the recipient has no obligation of confidentiality other than pursuant to this Agreement or any confidentiality agreements between Customer and Vendor entered into prior to the Effective Date or (d) is rightfully received by a Party free of any obligation of confidentiality. Notwithstanding anything to the contrary set forth above, any and all information provided by or owned by Customer that could be used to identify individual patients, providers, or third party payors, shall be deemed Confidential Information of Customer, regardless of the form or format of such information.

“Contract Managers” shall mean the Customer Contract Managers and the Vendor Contract Manager, collectively.

“Contract Year” shall mean each 12-month period commencing, in the case of the first Contract Year, on the Effective Date and thereafter upon the completion of the immediately preceding Contract Year.

“Control” shall mean, with respect to any entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity,

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whether through the ownership of voting securities (or other ownership interest), by contract or otherwise.

“Customer” shall mean Accordis Holding, its wholly-owned subsidiary Accordis, Accordis’ wholly-owned subsidiary HRM and any other Affiliates of Accordis Holding as may be approved by Vendor in writing, which approval will not be unreasonably withheld.

“Customer Agents” shall mean the agents, subcontractors and representatives of Customer, other than Vendor and Vendor Agents, subject to the confidentiality restrictions of this Agreement.

“Customer Consents” shall mean all licenses, consents, permits, approvals and authorizations that are necessary to allow Vendor and Vendor Agents to use (1) Customer’s owned assets and (2) the services provided for the benefit of Customer under Customer’s third party services contracts.

“Customer Contract Manager” shall mean Richard Lipack or his successor as designated by Customer.

“Customer Data” shall mean all data and information (including the data library and catalogue) (1) submitted to Vendor or Vendor Agents by or on behalf of Customer, (2) obtained, developed or produced by Vendor or Vendor Agents in connection with this Agreement or (3) to which Vendor or Vendor Agents have access in connection with the provision of the Services. Without limiting the generality of the foregoing, and for the avoidance of doubt, any and all data and information provided by or owned by Customer that could be used to identify individual patients, providers, or third party payors, shall be deemed Customer Data, regardless of the form or format of such information.

“Customer Designated Executives” shall mean ????? or his successor as designated by Customer.

“Customer Service Locations” shall mean any Customer service location set forth in Exhibit 3 and any other service location owned or leased by Customer for which Vendor has received Customer’s approval in accordance with Section 7.01.

“Data Safeguards” shall mean the data safeguards set forth on Exhibit 9 hereto.

“Designated Executives” shall mean the Customer Designated Executives and the Vendor Designated Executive, collectively.

“Designated Fees” shall mean the fees for the Designated Services set forth in Exhibit 4.

“Designated Service Levels” shall mean the service levels and standards for the performance of the Designated Services as described in Exhibit 5.

“Designated Services” shall have the meaning set forth in Section 3.01.

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“DRP” shall have the meaning set forth in Section 13.01.

“Effective Date” shall have the meaning set forth in the introductory paragraph hereto.

“Fees” shall mean the Designated Fees and any other amounts payable by Customer to Vendor pursuant to this Agreement.

“Force Majeure Event” shall have the meaning set forth in Section 13.02.

“Governmental Approvals” shall mean all licenses, consents, permits, approvals and authorizations of any Governmental Authority, or any notice to any Governmental Authority, the granting of which is required by Law, including Regulations, for the consummation of the transactions contemplated by this Agreement.

“Governmental Authority” shall mean any federal, state, municipal, local, territorial, or other governmental department, regulatory authority, judicial or administrative body, whether domestic, international or foreign.

“HMS” shall mean Health Management Systems Inc., a corporation organized under the Law of New York

“HRM” shall mean Accordis’ wholly-owned subsidiary Health Receivables Management, Inc.

“Indemnified Party” shall have the meaning set forth in Section 22.03.

“Indemnifying Party” shall have the meaning set forth in Section 22.03.

“Initial Agreement Expiration Date” shall mean the fourth anniversary of the Effective Date.

“Initial Term” shall have the meaning set forth in Section 2.01.

“Law” shall mean any declaration, decree, directive, legislative enactment, order, ordinance, Regulations, rule or other binding restriction of or by any Governmental Authority, including, without limitation and for the avoidance of doubt, the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

“Losses” shall mean any and all damages, fines, penalties, deficiencies, losses, liabilities (including settlements and judgments) and expenses (including interest, court costs, reasonable fees and expenses of attorneys, accountants and other experts and professionals or other reasonable fees and expenses of litigation or other proceedings or of any claim, default or assessment).

“Machines” shall mean computers and related equipment, including central processing units and other processors, wireless and wired networks, controllers, modems, communications and telecommunications equipment (data and video), cables, storage devices, printers,

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terminals, cartridge and tape drive readers, other peripherals and input and output devices, and other tangible mechanical and electronic equipment intended for the processing, input, output, storage, manipulation, communication, transmission and retrieval of information and data.

“Out-of-Scope Service(s)” shall mean any service, product, Machine, or Software that is outside the scope of the Designated Services.

“Out-of-Scope Service Level(s)” shall mean any service level established by Vendor and Customer in connection with an Out-of-Scope Service.

“Parties” shall mean Customer and Vendor, collectively.

“Party” shall mean either Customer or Vendor, as the case may be.

“Performance Credits” shall mean the performance credits set forth in Exhibit 5.

“RCR Clients” shall mean the Customer clients that require Standard Processing.

“Regulations” shall have the same meaning in this Agreement as is given to that term in the SPA.

“Related Documentation” shall mean, with respect to Software and Tools, all materials, documentation, specifications, technical manuals, user manuals, flow diagrams, file descriptions and other written information that describes the function and use of such Software or Tools, as applicable.

“Service Levels” shall mean the Designated Service Levels and the Out-of-Scope Service Levels, collectively.

“Service Locations” shall mean any Customer Service Location or Vendor Service Location, as applicable.

“Services” shall mean the Designated Services, the Out-of-Scope Services being provided by Vendor pursuant to this Agreement and the Termination Assistance Services, collectively.

“Software” shall mean the source code and object code versions of any applications programs, operating system software, computer software languages, utilities, other computer programs and Related Documentation, in whatever form or media, including the tangible media upon which such applications programs, operating system software, computer software languages, utilities, other computer programs and Related Documentation are recorded or printed, together with all corrections, improvements, updates and releases thereof.

“Standard Processing” shall mean a series of Customer-owned proprietary batch programs used to manage the Customer RCR product line.

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“Systems” shall mean the Software and the Machines, collectively, used to provide the Services.

“Term” shall mean the Initial Term and any renewal or extension of the Initial Term.

“Termination Assistance Period” shall mean a period of time designated by Customer, commencing no earlier than 90 days prior to the Initial Agreement Expiration Date and ending upon expiration of the Initial Agreement Expiration Date, during which Vendor shall provide the Termination Assistance Services.

“Termination Assistance Services” shall mean (1) the Services to the extent Customer requests such Services during the Termination Assistance Period, (2) Vendor’s cooperation with Customer or another service provider designated by Customer in the transfer of the Services to Customer or such other service provider in order to facilitate the transfer of the Services to Customer or such other service provider and (3) any Out-of-Scope Services requested by Customer in order to facilitate the transfer of the Services to Customer or another service provider designated by Customer.

“Third Party Software” shall mean the third party Software and Related Documentation licensed, leased or otherwise obtained by Vendor that is used in connection with the Services or with any Third Party Software as set forth in Exhibit 2.

“Tools” shall mean any Software development and performance testing tools, know-how, methodologies, processes, technologies or algorithms and Related Documentation used by Vendor in providing the Services, and based upon trade secrets or software, documentation or other proprietary information owned or licensed by Vendor.

“Total In Scope AccessLine Accounts” shall mean the number of AccessLine Accounts allowed under the Designated Services as outlined in Exhibit 6, In Scope Maximums. For the avoidance of doubt, only active AccessLine Accounts shall be counted in the Total In Scope AccessLine Accounts.

“Total In Scope RCR Clients” shall mean the number of RCR Clients that are allowed under the Designated Services as RCR Clients requiring Standard Processing as outlined in Exhibit 6, In Scope Maximums.

“Use” shall mean the right to access, load, execute, store, transmit, display, copy, maintain, modify, enhance, create derivative works, make and have made.

“Vendor” shall mean HMS Business Services, a corporation organized under the Law of New York.

“Vendor Agents” shall mean the agents, subcontractors and representatives of Vendor.

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“Vendor Consents” shall mean all licenses, consents, permits, approvals and authorizations that are necessary to allow (1) Customer and Customer Agents to use (a) the Third Party Software and (b) assets owned or leased by Vendor for the provisions of the Services; and (2) Vendor and Vendor Agents to use any third party services retained by Vendor to provide the Services during the Term and the Termination Assistance Period.

“Vendor Contract Manager” shall mean Joseph Joy or his successor.

“Vendor Designated Executive” shall mean Bill Lucia, or his successor.

“Vendor Machines” shall mean those Machines leased or owned by Vendor or Vendor Agents that are used by Vendor or Vendor Agents to provide the Services.

“Vendor Service Location(s)” shall mean any Vendor service location set forth in Exhibit 3 and any other service location approved by Customer pursuant to Section 7.01.

“Virus” shall mean (i) any software virus, worm, Trojan horse, trap door, time bomb, spyware, or other program code, programming instruction or set of instructions intentionally constructed by third parties having the capability to damage, interfere with or otherwise adversely affect the operation or security of computer programs, data files, operations, telecommunications or Services; or other code typically designed to be a virus. or (ii) any copies of Grokster, Kazaa, Morpheus, Napster, Aimster or other peer-to-peer software. • • • • • • • • • • • Exhibits to this Agreement:

(1)	the Exhibits to this Agreement shall be incorporated into and deemed part of this Agreement and all references to this Agreement shall include the Exhibits to this Agreement;
(2)	references to an Exhibit, Section or Article shall be to such Exhibit, Section or Article of this Agreement, unless otherwise provided;
(3)	references to any Law shall mean references to such Law in changed or supplemented form or to a newly adopted Law replacing a previous Law; and
(4)	references to and mentions of the word “including” or the phrase “e.g.” shall mean “including, without limitation.”

          1.03 Headings. The Article and Section headings, Table of Contents and Table of Exhibits are for reference and convenience only and shall not be considered in the interpretation of this Agreement.

          1.04 Interpretation of Documents. Except as otherwise expressly set forth in the body of this Agreement or in any of the Exhibits, in the event of a conflict between the provisions in the body of this Agreement and the Exhibits, the provisions in the body of this Agreement shall prevail.

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ARTICLE 2 TERM.

          2.01 Initial Term. The initial term of this Agreement shall commence on the Effective Date and continue until 23:59 (Eastern Standard Time) on the Initial Agreement Expiration Date, or such other date upon which this Agreement may be terminated in accordance with its terms (the “Initial Term”).

          2.02 Renewal and Extension. Unless this Agreement is terminated earlier pursuant to the terms hereof, Customer shall notify Vendor at least 180 days prior to the Initial Agreement Expiration Date as to whether Customer desires to renew this Agreement. If Customer provides Vendor with notice that it desires to renew this Agreement and the Parties have not agreed on the terms and conditions applicable to the renewal of this Agreement 90 days prior to the Initial Agreement Expiration Date, then the term of this Agreement shall expire on the Initial Agreement Expiration Date.

ARTICLE 3 DESIGNATED SERVICES.

          3.01 General. Commencing on the Effective Date and continuing throughout the Term, Vendor shall be responsible for providing to Customer the services, functions and responsibilities described in this Agreement (including the services, functions, responsibilities and projects described in the Statement of Work set forth as Exhibit 1) (the “Designated Services”).

          3.02 Reports. Vendor shall provide to Customer, utilization and status reports currently being produced by HMS prior to the Effective Date, set forth in Exhibit 8, and such other reports necessary or appropriate to enable Customer to review and analyze the provision of the Services and the accuracy of the Fees charged by Vendor.

ARTICLE 4 OUT-OF-SCOPE SERVICES.

          4.01 Out-of-Scope Services. During the Term and Termination Assistance Period, Customer may request Vendor to perform an Out-of-Scope Service. Upon receipt of a written request setting forth a description of the services from Customer, Vendor shall provide Customer with a written proposal in respect of such Out-of-Scope Service, which proposal shall include:

(1)	a description of the services, functions and responsibilities Vendor anticipates performing in connection with such Out-of-Scope Service;
(2)	a schedule for commencing and completing such Out-of-Scope Service;
(3)	Vendor’s prospective fees for such Out-of-Scope Service, including a detailed breakdown of such fees, based upon the hourly time and material rates set forth in Exhibit 7, Hourly Rate Schedule;
(4)	when appropriate, a description of any new Software or Machines to be provided by Vendor in connection with such Out-of-Scope Service;

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(5)	when appropriate, the Software and Machines and run-time requirements necessary to develop and operate any new Software;
(6)	a description of the human resources necessary to provide the Out-of-Scope Service;
(7)	when appropriate, acceptance test criteria and procedures for any new Software or any products, packages or services; and
(8)	the hourly time and material rates are outlined in Exhibit 7, Hourly Rate Schedule:

Vendor shall not begin performing any Out-of-Scope Service until Customer Contract Managers has provided Vendor with written authorization to perform such Out-of-Scope Service.

ARTICLE 5 CUSTOMER RESPONSIBILITIES.

          5.01 Customer Contract Manager. The Customer Contract Manager shall serve as the primary Customer representative under this Agreement. The Customer Contract Manager shall (1) have overall responsibility for managing and coordinating the performance of Customer’s obligations under this Agreement and (2) be authorized to act for and on behalf of Customer with respect to all matters relating to this Agreement. Notwithstanding the foregoing, the Customer Contract Manager may, upon notice to Vendor, delegate such of his or her responsibilities to other Customer employees, as the Customer Contract Manager deems appropriate.

          5.02 Use of Customer Facilities. Upon Vendor’s request, Customer shall grant Vendor access to and appropriate working space in the Customer Service Locations as reasonably necessary for the sole and exclusive purpose of the Vendor providing the Services. Vendor shall provide to the Customer Contract Manager a list of the names of the personnel of Vendor or of
authorized Vendor subcontractors to be granted such access on the date hereof and as necessary thereafter specifying the Customer Service Location(s) to which each such person is to be admitted. All such personnel of Vendor or authorized subcontractors shall bear valid identification to enter any Customer Service Location.

ARTICLE 6 SERVICE LEVELS.

          6.01 Designated Service Levels. Vendor shall perform the Designated Services in accordance with the Designated Service Levels and in accordance with Exhibit 5.

          6.02 Out-of-Scope Service Levels. Vendor shall provide the Out-of-Scope Services at least at the Out-of-Scope Service Levels applicable to such Out-of-Scope Services.

          6.03 Adjustment of Service Levels. The Contract Managers (1) shall review the Service Levels for the preceding 12 months during the last calendar quarter of every Contract Year, (2) with respect to any Service Level subject to periodic adjustment pursuant to an express provision of this Agreement, if such Service Level is no longer appropriate because of an increase, decrease or change to the needs of Customer or the scale or nature of the Services, shall negotiate in good faith and reach mutual agreement on adjustment of the Service Levels for the subsequent Contract Year and, (3) with respect to all other Service Levels, may by mutual agreement adjust the

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Service Levels for the subsequent Contract Year. In addition, either Party may, at any time upon notice to the other Party, initiate negotiations to review and, upon agreement by the Contract Managers, adjust any Service Level which such Party in good faith believes is inappropriate at the time.

          6.04 Root-Cause Analysis. In the event Vendor fails to achieve any Service Level, Vendor shall, as soon as reasonably practicable, (1) perform a root-cause analysis to identify the cause of such failure, (2) provide Customer with a report detailing the cause of, and procedure for correcting, such failure, (3) upon Customer’s approval of such procedure, implement such procedure and (4) provide Customer with assurance satisfactory to Customer that such failure will not recur following the completion of the implementation of the procedure.

          6.05 Service Level Reporting. Vendor shall measure and report its performance against the Service Levels and meet with Customer at least once every month during the Term, or more frequently if requested by Customer, to review Customer’s actual performance against the Service Levels and discuss any remedial action necessary or appropriate to correct any deficiencies.

          6.06 Measurement and Monitoring Tools. As of the Effective Date, Vendor shall use existing measurement and monitoring Tools and procedures required to measure and report (as contemplated by Section 7.05) Vendor’s performance of the Services against the applicable Service Levels. Such measurement and monitoring and procedures shall (1) permit reporting at a level of detail sufficient to verify compliance with the Service Levels and (2) be subject to audit by Customer or Customer Agents. Vendor shall provide Customer and its designees with information concerning access to such measurement and monitoring Tools and procedures upon request, for inspection and verification purposes.

          6.07 Performance Credits. In the event of a failure to provide the Services in accordance with the applicable Service Levels, Vendor shall incur the Performance Credits identified in and according to the schedule set forth in Exhibit 5.

          6.08 Semi-Annual Status Meeting.

When requested by either party, the Designated Executives and Contract Managers of each Party shall meet semi-annually to discuss the Services and the administration of this Agreement.

          6.09 Changes in Law. The Parties acknowledge that the business of Accordis and HMS is conducted in a regulated environment subject to changes in Laws and the maintenance of Governmental Approvals. If either Party is aware of or believes that such a change or reinterpretation of Law has occurred, or that a Governmental Approval or a filing with a Governmental Authority is required, must be sought or submitted anew or modified (collectively, a “Change in Law”), within a reasonable period of time thereafter that Party shall provide written notice to the other Party of such Change in Law, and the Parties shall commence negotiations regarding proposed amendments to the Agreement or changes to the Services that will bring the Agreement into compliance with the Law or Governmental Approvals, and each Party shall negotiate such potential changes in good faith in an effort to obtain such compliance. If the parties cannot agree in good faith upon such modifications to the Agreement or the Services, then (a) Customer shall initiate the Change Control Procedures by submitting a Change Request setting forth the reasonable minimum number of changes to the Services necessitated, in the good faith

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assessment of Customer, by the Change in Law, and (b) Vendor shall respond to such Change Request by setting forth, inter alia, its good faith assessment of the minimum changes to the Services necessitated by such Change Request and reflecting a change in the fees hereunder based solely on Vendor’s good faith assessment of the incremental work required of Vendor to implement such Change Request. Customer may accept such proposal of Vendor, but if Customer declines to accept such proposal, Customer may terminate this Agreement within 90 days.

ARTICLE 7 SERVICE LOCATIONS.

          7.01 Service Locations. The Services shall be provided to Customer from (1) the Service Locations and (2) any other location for which Vendor has received Customer’s approval, such approval shall not be reasonably withheld. Unless otherwise agreed by the Parties, if Customer elects to move any Customer Service Location, then Customer shall bear any incremental expenses of Vendor incurred as a result of such relocation; provided, however, that Vendor shall bear any incremental expenses of Vendor incurred as a result of a relocation of the 401 Park Avenue South Customer Service Location identified in Part B of Exhibit 3, Service Locations. Unless otherwise agreed by the Parties, if Vendor elects to move any Vendor Service Location it may do so at will, but Vendor shall bear any incremental expenses of Customer incurred as a result of such relocation.

          7.02 Safety and Security Procedures. Vendor shall maintain and enforce its current safety and security procedures at the Service Locations.

          7.03 Data Security. Vendor shall store all Customer Data in accordance with the Data Safeguards. In the event Vendor intends to implement a change to the Data Safeguards, Vendor shall notify Customer and, upon Customer’s approval, implement such change. In the event Vendor or Vendor Agents discovers or is notified of a breach or potential breach of security relating to Customer Data, Vendor shall immediately (1) notify the Customer Contract Managers of such breach or potential breach and, (2) if the applicable Customer Data was in the possession of Vendor or Vendor Agents at the time of such breach or potential breach, Vendor shall (a) investigate and mitigate the effects of the breach or potential breach and (b) provide Customer with assurance satisfactory to Customer that such breach or potential breach will not recur.

          7.04 No Viruses. Each Party covenants to the other Party that such Party shall use commercially reasonable efforts to ensure that there are no Viruses or similar malicious coding in any software provided or used by such Party in connection with the Services. Vendor agrees that, if a Virus is found to have been introduced into such software from any source, Vendor shall use commercially reasonable efforts to eliminate the Virus, at Vendor’s expense if such Virus was introduced into its systems, intentionally or not, by Vendor or any of its employees or subcontractors.

          7.05 Access to Premises. During the Term and any Termination Period, Vendor shall provide the Customer Access Manager with reasonable access to the physical premises of the Vendor Service Locations. The purposes for which such access may be requested shall include third party tours of the premises for marketing of the services of Customer. Reasonable security and safety requirements of Vendor will be observed by Customer at all times while on Vendor’s premises.

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ARTICLE 8 VENDOR CONTRACT MANAGER AND SUBCONTRACTING.

          8.01 Vendor Contract Manager. The Vendor Contract Manager shall serve as the primary Vendor representative under this Agreement. Vendor’s appointment of any Vendor Contract Manager shall be subject to Customer’s prior approval. The Vendor Contract Manager shall (1) have overall responsibility for managing and coordinating the performance of Vendor’s obligations under this Agreement and (2) be authorized to act for and on behalf of Vendor with respect to all matters relating to this Agreement. Vendor shall not replace or reassign the Vendor Contract Manager for one year from the Effective Date, unless Customer consents to such reassignment or replacement or such individual (i) voluntarily resigns from Vendor, (ii) is dismissed by Vendor for misconduct (e.g., fraud, drug abuse, theft), (iii) fails to perform his or her duties and responsibilities pursuant to this Agreement or (iv) dies or is unable to work due to his or her disability. Notwithstanding the foregoing, the Vendor Contract Manager may, upon notice to Customer, delegate such of his or her responsibilities to other Vendor employees, as the Vendor Contract Manager deems appropriate, provided that the Vendor Contract Manager shall retain ultimate authority as Vendor representative.

          8.02 Project Staff. Vendor shall appoint to the project staff individuals with suitable training and skills to perform the Services.

          8.03 Subcontractors. With respect to subcontracting, Customer and Vendor agree that:

(1)	Vendor shall not subcontract any of its duties under this Agreement without the prior written authorization of Customer, such consent not to be unreasonably withheld, conditioned or delayed;
(2)	no subcontracting shall release Vendor from its responsibility for its obligations under this Agreement. Vendor shall be responsible for the work and activities of each of the Vendor Agents, including compliance with the terms of this Agreement. Vendor shall be responsible for all payments to its subcontractors; and
(2)	Vendor shall promptly pay for all services, materials, equipment and labor used by Vendor in providing the Services.
(3)	All subcontractors shall agree in writing to be subject to the Confidentiality provisions of this Agreement.

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ARTICLE 9 MANAGEMENT AND CONTROL.

          9.01 Contract Managers. Customer Contract Managers shall maintain a written log of problems regarding the provision of the Services and Service Levels and Customer Contract Managers shall send a copy of such written log to the Vendor Contract Manager each week. At the request of either party, the Contract Managers shall meet in person or by video conference during the Term to discuss (1) Customer’s current and anticipated needs for the Services and (2) disagreements regarding the provision of the Services and Service Levels as described in the Customer Contract Manager’s written log.

          9.02 Change Control Procedures. The Change Control Procedures are set forth in Exhibit 10.

ARTICLE 10 PROPRIETARY RIGHTS.

          10.01 Third Party Software. Vendor represents and warrants to Customer that it has the right and authority to Use the Third Party Software to perform the Services and otherwise to comply with the terms and conditions of this Agreement. Vendor hereby grants to Customer, during the Term and Termination Assistance Period, a non-exclusive, non-transferable, limited license to Use, sublicense, and permit Customer Agents to Use, solely in connection providing goods or services to, or purchasing goods or services from, Customer, the Third Party Software. Upon Customer’s request, Vendor shall provide Customer with a list of all Third Party Software being used to provide the Services as of the date of such request. Customer shall have the right to request additional Third Party Software, it being understood that any such additional software would be provided at Customer’s expense for fees and transaction costs of Vendor. Vendor will supply a cost estimate to Vendor Contract Manager for approval prior to any new Third Party Software is provided.

ARTICLE 11 DATA.

          11.01 Ownership of Customer Data. All Customer Data is, or will be, and shall remain the property of Customer. Without Customer’s approval (in its sole discretion), the Customer Data shall not (1) be used by Vendor or Vendor Agents other than in connection with providing the Services, (2) be disclosed, sold, assigned, leased or otherwise provided to third parties by Vendor or Vendor Agents or (3) be commercially exploited by or on behalf of Vendor or Vendor Agents. Vendor hereby irrevocably assigns, transfers and conveys, and shall cause Vendor Agents to assign, transfer and convey, to Customer without further consideration all of its and their right, title and interest in and to the Customer Data. Upon request by Customer, Vendor shall execute and deliver, and shall cause Vendor Agents to execute and deliver, any financing statements or other documents that may be necessary or desirable under any Law to preserve, or enable Customer to enforce, its rights with respect to the Customer Data.

          11.02 Return of Data. Upon Customer’s request at any time during the Term, and upon expiration or termination of this Agreement, Vendor shall (1) promptly return to Customer, all or any part of Customer Data and (2) erase or destroy all or any part of Customer Data in Vendor’s possession or under its control, in each case, to the extent requested by Customer.

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ARTICLE 12 LIMITATION OF LIABILITY

          12.01 Disclaimer. UNDER NO CIRCUMSTANCES WILL EITHER PARTY, ITS AFFILIATES, LICENSORS OR SUBCONTRACTORS BE RESPONSIBLE OR LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR OTHER INDIRECT DAMAGES, INCLUDING (1) SUCH DAMAGES RESULTING FROM LOSS OF USE OR LOSS OF DATA, (2) LOSS OF PROFITS OR LOSS OF BUSINESS ARISING OUT OF OR IN CONNECTION WITH THE SERVICES OR ANY OTHER OBLIGATIONS OF EITHER PARTY RELATING TO THIS AGREEMENT, IN EACH CASE WHETHER OR NOT SUCH PARTY, ITS AFFILIATES, LICENSORS OR SUBCONTRACTORS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

          12.02 Limitation. Vendor’s aggregate liability, whether in contract, tort, or otherwise, arising out of or in connection with the Services or this Agreement at any time shall not exceed the amount of Designated Fees paid or payable to Vendor for the then-current twelve (12) months of Services hereunder. Customer’s aggregate liability, whether in contract, tort, or otherwise, arising out of or in connect with this Agreement shall not exceed the amount due and payable hereunder for Services actually rendered.

ARTICLE 13 DISASTER RECOVERY AND FORCE MAJEURE EVENTS.

          13.01 Disaster Recovery Plan. At Vendor’s expense, Vendor shall maintain a third-party disaster recovery agreement (the “DRP”) with a service provider (the “Disaster Recovery Vendor”) that encompasses maintenance of a backup data center for emergency replacement of the Services. As part of the Services hereunder, Vendor shall maintain the DRP in force, shall supervise the preparations of the Disaster Recovery Vendor pursuant to the DRP, and shall perform the Services using the Disaster Recovery Vendor and its data center and other facilities immediately upon any occurrence prompting such use. Vendor shall notify the Customer Contract Managers immediately upon the occurrence of a disaster or Force Majeure Event that prevents or will prevent a Vendor Service Location from being available for more than 24 hours. In such event, upon the reasonable request of Customer, Vendor shall implement the disaster recovery transition procedures set forth in Exhibit 11.

          13.02 Force Majeure. If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions or revolutions, or any other similar cause beyond the reasonable control of such Party (each, a “Force Majeure Event”), and such non-performance, hindrance or delay could not have been prevented by reasonable precautions, then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues and such Party continues to use its best efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall immediately notify the other Party of the occurrence of the Force Majeure Event and describe in reasonable

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detail the nature of the Force Majeure Event. The occurrence of a Force Majeure Event does not excuse, limit or otherwise affect Vendor’s obligation to use best efforts to provide normal recovery procedures or other obligations described in Section 13.01 or Exhibit 11.

          13.03 Alternate Source.

(1)	In the event of a disaster or a Force Majeure Event, Customer may procure the Services from an alternate source.
(2)	Customer shall consider in good faith any proposal made by Vendor regarding an alternate source provider, provided that the alternate source provider proposed by Vendor is capable of providing the Services at the Service Levels.
(3)	If a disaster or Force Majeure Event continues to prevent, hinder or delay the performance of the Services by Vendor for more than 60 days either Party may terminate this Agreement without regard to Section 22.02, as of the date specified by either Party in its termination notice to the other Party.

          13.04 No Payment for Unperformed Services. Except as provided in Section 13.02, nothing in this Article shall limit Customer’s obligation to pay any Fees; provided, however, that if Vendor fails to provide the Services in accordance with this Agreement due to the occurrence of a Force Majeure Event or disaster the Fees shall be adjusted in a manner such that Customer is not responsible for the payment of any Fees for those Services that Vendor fails to provide.

          13.05. Insurance. During the Term and Termination Period, Vendor shall at all times keep and maintain at least the following insurance coverages and limits of liability:

          (1) Commercial General Liability including coverage for (a) premises/operations, (b) independent contractors, (c) products/completed operations, (d) personal and advertising injury, (e) contractual liability, and (f) explosion, collapse and underground hazards, with combined single limit of not less than $1,000,000 each occurrence or its equivalent;

          (2) Worker’s Compensation in amounts required by applicable law and Employer’s Liability with a limit of at least $1,000,000 each accident;

          (3) Automobile Liability including coverage for owned/leased, non-owned or hired automobiles with combined single limit of not less than $1,000,000 each accident;

          (4) General Commercial Liability for death or personal injury and damage to tangible personal property with limits of not less than $1,000,000 per occurrence; and

          (5) Errors and Omissions Coverage with a limit of at least $1,000,000 each occurrence.

          Such insurance coverages or limits of liability shall not be changed unless at least thirty (30) days’ notice is given to Customer. If requested by Customer, Vendor shall deliver a Certificate of Insurance evidencing such coverages and limits of liability.

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ARTICLE 14 PAYMENTS AND INVOICING.

          14.01 General. In consideration of Vendor providing the Designated Services, Customer shall pay to Vendor the Designated Fees in accordance with Section 14.02. Except as expressly set forth in this Agreement, there shall be no charges or fees due from Customer, or payable to Vendor, in respect of Vendor’s performance of its obligations pursuant to this Agreement.

          14.02 Designated Fees. Vendor shall submit invoices to Customer for the Designated Services monthly in arrears on the terms of net 30 days.

          14.03 Time of Payment. Any sum due to Vendor pursuant to this Agreement for Services other than Designated Services, unless payment terms are otherwise specified expressly herein, shall be due and payable 30 days after receipt by Customer of an invoice from Vendor following performance of such Services.

          14.04 Adjustments to Fees. Except for changes to the Fees due to the inclusion of Out-of-Scope Services, exceeding maximums in Exhibit 6, In Scope Maximums, exceeding the number of hours in Exhibit 1, Statement Of Work, Section XIV and XV, Performance Credits for Customer’s benefit pursuant to Exhibit 5, Service Levels and Performance Credits or other Changes implemented through the Change Control Process, there shall be no adjustments to the Fees.

          14.05 Unused Credits. Any unused credits against future payments owed to either Party by the other pursuant to this Agreement shall be paid to the applicable Party within 30 days of the earlier of the expiration or termination of this Agreement.

          14.06 Late Payments. Any amount that is payable to Vendor pursuant to this Agreement and not paid pursuant to the terms of this Agreement shall bear interest from the due date at the lesser of the rate of one (1.0%) percent per month or the maximum permitted by law. All costs of collection, including reasonable attorney’s fees, shall be paid by Customer.

ARTICLE 15 AUDITS.

          15.01 Services. Upon reasonable advance notice from Customer, Vendor and Vendor Agents shall provide Customer, Customer Agents, and any of Customer’s regulators with access to and any assistance that they may require with respect to the Service Locations and the Systems for the purpose of performing audits or inspections of the Services and the business of Customer relating to the Services. Such audits may occur no more often than once in any six (6) month period, in which case Customer shall pay for any such additional audits at the same rates applicable to Out of Scope Services under this Agreement.

          15.02 Record Retention. Vendor shall retain records and supporting documentation sufficient to document the Services and the charges paid or payable by Customer under this Agreement in accordance with Customer’s then-current record retention procedures, as in effect from time to time.

          15.03 Facilities. Vendor shall provide to Customer and Customer Agents, on Vendor’s premises (or, if the audit is being performed of a Vendor Agent, the Vendor Agent’s premises if necessary), space, office furnishings (including lockable cabinets), telephone and

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facsimile services, utilities and office-related equipment and duplicating services as Customer or such Customer Agents may reasonably require to perform the audits described in this Article.

ARTICLE 16 CONFIDENTIALITY.

          16.01 General Obligations. Parties agree that all Confidential Information shall be held in confidence by the recipient to the same extent and in at least the same manner as the recipient protects its own confidential information. Neither Customer nor Vendor shall disclose, publish, release, transfer or otherwise make available Confidential Information of, or obtained from, the other in any form to, or for the use or benefit of, any person or entity without the disclosing Party’s consent. Each of Customer and Vendor shall, however, be permitted to disclose relevant aspects of the other’s Confidential Information to its officers, directors, agents, professional advisors, contractors subcontractors and employees and to the officers, directors, agents, professional advisors, contractors, subcontractors and employees of its Affiliates, to the extent such disclosure is not restricted under any Consents or any Governmental Approvals and only to the extent that such disclosure is reasonably necessary for the performance of its duties and obligations or the determination, preservation or exercise of its rights and remedies under this Agreement; provided, however, that the recipient shall take all reasonable measures to ensure that Confidential Information of the disclosing Party is not disclosed or duplicated in contravention of the provisions of this Agreement by such officers, directors, agents, professional advisors, contractors, subcontractors and employees. The obligations in this Section shall not restrict any disclosure pursuant to any Law (provided that the recipient shall give prompt notice to the disclosing Party of such order).

          16.02 Unauthorized Acts. Without limiting a Party’s rights in respect of a breach of this Article, each Party shall:

(1)	promptly notify the other Party of any unauthorized possession, use or knowledge, or attempt thereof, of the other Party’s Confidential Information by any person or entity that may become known to such Party;
(2)	promptly furnish to the other Party full details of the unauthorized possession, use or knowledge, or attempt thereof, and assist the other Party in investigating or preventing the recurrence of any unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information;
(3)	cooperate with the other Party in any litigation and investigation against third parties deemed necessary by the other Party to protect its proprietary rights; and
(4)	promptly use its best efforts to prevent a recurrence of any such unauthorized possession, use or knowledge, or attempt thereof, of Confidential Information.

Each Party shall bear the cost it incurs as a result of compliance with this Section.

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ARTICLE 17 REPRESENTATIONS AND WARRANTIES.

          17.01 By Customer. Customer represents and warrants to Vendor that:

(1)	Customer is a corporation validly existing and in good standing under the Laws of Delaware;
(2)	Customer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement;
(3)	the execution, delivery and performance of this Agreement by Customer (a) has been duly authorized by Customer and (b) will not conflict with, result in a breach of, or constitute a default under, any other agreement to which Customer is a party or by which Customer is bound.

          17.02 By Vendor. Vendor represents and warrants to Customer that:

(1)	Vendor is a corporation validly existing and in good standing under the Laws of New York;
(2)	Vendor has all requisite power and authority to execute, deliver and perform its obligations under this Agreement;
(3)	the execution, delivery and performance of this Agreement by Vendor (a) has been duly authorized by Vendor, (b) will not conflict with, result in a breach of, or constitute a default under, any other agreement to which Vendor is a party or by which Vendor is bound and (c) does not require any Customer Consents or Vendor Consents that have not already been obtained;
(4)	Vendor is duly licensed, authorized or qualified to do business and is in good standing in every jurisdiction in which a license, authorization or qualification is required for the ownership or leasing of its assets or the transaction of business of the character transacted by it, except where the failure to be so licensed, authorized or qualified would not have a material adverse effect on Vendor’s ability to fulfill its obligations under this Agreement;
(5)	Vendor is in compliance with all Laws applicable to Vendor and has obtained all applicable permits and licenses required of Vendor in connection with its obligations under this Agreement;
(6)	there is no outstanding litigation, arbitrated matter or other dispute or administrative proceeding to which Vendor is a party which, if decided unfavorably to Vendor, would reasonably be expected to have a material adverse effect on Vendor’s ability to fulfill its obligations under this Agreement;
(7)	the provision of the Designated Services to Customer under this Agreement, together with the use of the other information technology-related resources and personnel of Accordis and HRM immediately following the Closing under the SPA,

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	shall suffice to provide all technology-related resources necessary for the operation of the businesses of Accordis and HRM as conducted during the six-month period prior to the Effective Date;
(8)	the entry into this Agreement and the consummation of the Closing under the SPA and the transactions contemplated thereby shall not require any change to the information technology practices of Accordis and HRM during the six-month period prior to the Effective Date either under their express terms hereof or in order to render the representation in the preceding subsection valid;
(9)	None of the Vendor Machines contain Viruses and, consistent with reasonable best practices in information technology, Vendor operates automated searches for and firewalls to prevent the introduction of Viruses in the Vendor Machines; and
(10)	The Vendor Machines and Vendor’s related systems have not been subject to any Denial-of-Service attack, successful physical or logical intrusion by unauthorized persons, or other breach of security in the previous year, and Vendor has established physical and logical security for the Vendor Machines and related systems, and backup procedures and facilities for the same, consistent with reasonable best practices in information technology. All security audits, security analyses and intentional security probes and attacks relating to the Vendor Machines and related systems, and all reports relating thereto, have previously been disclosed to Customer.

          17.03 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER CUSTOMER NOR VENDOR MAKES ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SERVICES OR THE SYSTEMS AND EACH EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. NOTHING IN THIS SECTION 17.03 SHALL BE DEEMED TO LIMIT OR DISCLAIM ANY REPRESENTATION OR WARRANTY IN THE SPA OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREUNDER (APART FROM THIS AGREEMENT).

ARTICLE 18 ADDITIONAL COVENANTS.

          18.01 By Customer. Customer covenants and agrees with Vendor that, during the Term and the Termination Assistance Period that Customer shall comply with all Laws applicable to Customer and, except as otherwise provided in this Agreement, shall obtain all applicable permits and licenses required of Customer, to the extent required to comply with its obligations under this Agreement.

          18.02 By Vendor. Vendor covenants and agrees with Customer that, during the Term and the Termination Assistance Period:

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(1)	Vendor shall comply with all Laws applicable to Vendor and shall obtain all applicable permits and licenses required of Vendor in connection with its obligations under this Agreement;
(2)	Vendor shall comply with the Business Associates Agreement set forth in Exhibit 12.

ARTICLE 19 DISPUTE RESOLUTION.

          19.01 Contract Managers. Any dispute arising under this Agreement shall be considered in person or by telephone by the Contract Managers within seven business days after receipt of a notice from either Party specifying the nature of the dispute; provided, however, that a dispute relating to Section 11.02, Article 17 or Article 23 shall not be subject to this Section. If for any reason, including failure to meet or communicate, the Contract Managers have not resolved such dispute to the satisfaction of either Party within seven business days, then either of the Customer Contract Managers or the Vendor Contract Manager may immediately refer such dispute to the Designated Executives. The Designated Executives shall make a good faith attempt to consider and resolve such dispute in person or by telephone within fifteen business days of the date such dispute is referred to them. If for any reason the Designated Executives have not resolved such dispute within fifteen business days of the date such dispute was referred to it, then either Party may pursue its rights and remedies under Section 19.02.

          19.02 Arbitration. Any dispute not settled pursuant Section 19.01 shall be finally and exclusively settled by binding arbitration and, unless otherwise agreed by the Parties, the following procedure:

(1)	the arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof;
(2)	the arbitration shall be conducted in New York, New York;
(3)	either Party may, without inconsistency with this Agreement, seek from a court any interim or provisional relief that may be necessary to protect the rights or property of that Party pending the establishment of the arbitral tribunal;
(4)	the arbitrator shall have a background in, and knowledge of, the information technology services industry and shall be an appropriate person based on the nature of the dispute; and
(5)	the Parties shall appoint a single arbitrator who shall perform the arbitration; provided that, if the Parties cannot agree on that single arbitrator within thirty (30) days of the request of either Party, then the single arbitrator shall be appointed by the President of the AAA.

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Notwithstanding the foregoing, if disputes are being arbitrated under the SPA, any disputes under this Agreement shall be arbitrated in that same proceeding under the arbitration provisions set forth in the SPA.

ARTICLE 20 TERMINATION.

          20.01 Termination for Cause.

(1)

If Vendor materially defaults in the performance of any of its material obligations under this Agreement (except as provided in Section 19.02), and does not cure such default within thirty (30) days after receipt of a notice of default from Customer, then Customer may, by giving notice to Vendor, terminate this Agreement, in whole or in part, as of the termination date specified in the notice; provided that, Customer and Vendor agree that, if Vendor fails to provide any Services under this Agreement, such failure shall constitute a disaster for the purposes of Article 13 and the Parties shall follow the process for identifying an Alternate Source set forth under Section 13.03 hereof.

(2)

If Customer fails to make payments due to Vendor under this Agreement and does not cure such default within thirty (30) days after receipt of a notice of default from Vendor, then Vendor may, by giving notice to Customer, terminate this Agreement in whole as of the termination date specified in the notice.

          20.02 Termination for Insolvency. This Agreement may be terminated by either Party, upon notice to the other Party, (i) if such Party becomes insolvent, (ii) upon the institution of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of its debts, (iii) upon such Party’s making a general assignment for the benefit of credits, or (iv) upon such Party’s dissolution or ceasing to conduct business in the normal course.

          20.03 No Cross-Defaults. No breach of the SPA or the other transactions contemplated thereunder by one Party shall be deemed a breach hereof or a basis for the non-breaching Party to terminate this Agreement or the transactions contemplated hereunder, and vice versa.

          20.04 Termination by Customer. At any time after the first twenty-four months of the Initial Term, Customer may elect to terminate this Agreement by providing notice at least six months prior to such termination, such termination to be effective no sooner than thirty months after the commencement of the Initial Term.

ARTICLE 21 TERMINATION ASSISTANCE.

Upon Customer’s request, Vendor shall, during the Termination Assistance Period, provide the Termination Assistance Services. Customer shall pay to Vendor the following fees for the Termination Assistances Services: (1) with respect to the Designated Services, the Designated Fees, (2) with respect to Out-of-Scope Services, an amount calculated pursuant to Exhibit 7, Hourly Rate Schedule for such services and (3) any incremental, out-of-pocket expenses incurred

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by Vendor in connection with the Termination Assistance Services and approved in advance by Customer. The quality and level of performance of the Services shall not be degraded during the Termination Assistance Period. After the expiration of the Termination Assistance Period, Vendor shall (1) answer questions from Customer regarding the Services on an “as needed” basis at Vendor’s then-standard billing rates and (2) promptly deliver to Customer any remaining Customer-owned reports and documentation still in Vendor’s possession.

ARTICLE 22 INDEMNITIES.

          22.01 Indemnity by Customer. Customer shall indemnify Vendor from, and defend and hold Vendor harmless from and against, any Losses suffered, incurred or sustained by Vendor or to which Vendor becomes subject, resulting from, arising out of or relating to any claim:

(1)	arising from the Customer Data, provided that such claim is not due to Vendor’s breach of Law or any duty hereunder;
(2)	relating to any amounts, including taxes, interest and penalties, assessed against Vendor which are the obligation of Customer;
(3)	relating to personal injury (including death) or third party property loss or damage resulting from Customer’s or Customers Agents’ acts or omissions;
(4)	relating to a breach of Articles 16, 17 or 18.

Customer shall indemnify Vendor from any costs and expenses, including reasonable attorney fees, incurred in connection with the enforcement of this Section.

          22.02 Indemnity by Vendor. Vendor shall indemnify Customer from, and defend and hold Customer harmless from and against, any Losses suffered, incurred or sustained by Customer or to which Customer becomes subject, resulting from, arising out of or relating to any claim:

(1)	arising from the Customer Data, provided that such claim is due to Vendor’s breach of Law or a duty hereunder;
(2)	relating to personal injury (including death) or third party property loss or damage resulting from Vendor’s or Vendor Agents’ acts or omissions;
(3)	relating to any amounts, including taxes, interest and penalties, assessed against Customer which are the obligation of Vendor;
(4)	relating to a breach of Articles 10, 16, 17 or 18 of the Business Associates Agreement set forth in Exhibit 12.

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Vendor shall indemnify Customer from any costs and expenses, including reasonable attorney fees, incurred in connection with the enforcement of this Section.

          22.03 Indemnification Procedures. If any third party claim is commenced against a Party entitled to indemnification under Section 25.01 or Section 25.02 (as applicable, the “Indemnified Party”), notice thereof shall be given to the Party that is obligated to provide indemnification (as applicable, the “Indemnifying Party”) as promptly as practicable. If, after such notice, the Indemnifying Party acknowledges that this Agreement applies with respect to such claim, then the Indemnifying Party shall be entitled, if it so elects, in a notice promptly delivered to the Indemnified Party, but in no event less than 10 days prior to the date on which a response to such claim is due, to immediately take control of the defense and investigation of such claim and to employ and engage attorneys reasonably acceptable to the Indemnified Party to handle and defend the same, at the Indemnifying Party’s sole cost and expense. The Indemnified Party shall cooperate, at the cost of the Indemnifying Party, in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost and expense, participate, through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom. No settlement of a claim that involves a remedy other than the payment of money by the Indemnifying Party shall be entered into without the consent of the Indemnified Party. After notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses incurred thereafter by such Indemnified Party in connection with the defense of that claim. If the Indemnifying Party does not assume full control over the defense of a claim subject to such defense as provided in this Section, the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party shall have the right to defend the claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party.

          22.04 SPA Indemnification. Notwithstanding anything to the contrary in this Agreement, if any Damages (as defined in the SPA) are subject to indemnification rights of Customer or Vendor under the SPA, then those Damages shall not be subject to the indemnification rights of Customer or Vendor set forth in this Article 22.

ARTICLE 23 MISCELLANEOUS PROVISIONS.

          23.01 Assignment. Customer shall not, without the consent of Vendor, assign this Agreement or any amounts payable pursuant to this Agreement, except that Customer may assign this Agreement, in whole or in part, to an Affiliate or another entity or business unit of Customer or pursuant to a reorganization or Change in Control of Customer without such consent, so long as such assignment is effected in connection with a transfer of the Accordis business. Vendor shall not, without the consent of Customer, assign this Agreement, except as provided in Section 8.12 of the SPA. The consent of a Party to any assignment of this Agreement shall not constitute such Party’s consent to further assignment. This Agreement shall be binding on the Parties and their respective successors and permitted assigns. Any assignment in contravention of this subsection shall be void.

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          23.02 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally, mailed by certified mail, return receipt requested, or by overnight mail, to the parties (and shall also be transmitted by facsimile to the Persons receiving copies thereof) at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):

If to Vendor, to:

HMS Holdings Corp.
401 Park Avenue South
New York, NY 10016
Attention: Robert M. Holster, Chief Executive Officer
Facsimile: (212) 557-5973

With a copy to:

Wilmer Cutler Pickering Hale and Dorr LLP
399 Park Avenue
New York, NY 10022
Attention: Robert A Schwed, Esq.
Facsimile: (212) 230-8888

If to Customer, to:

Accordis Holding Corp.
25 Duncan Lane
Skillman, NJ 08558
Attention: Hamilton F. Potter III, Chief Executive Officer
Facsimile: (609) 466-8687

With a copy to:

Covington & Burling
1330 Avenue of the Americas
New York, NY 10019
Attention: Stephen A. Infante, Esq.
Facsimile: (212) 841-1010

          23.03 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which taken together shall constitute one single agreement between the Parties.

          23.04 Relationship. The Parties intend to create an independent contractor relationship and nothing contained in this Agreement shall be construed to make either Customer or Vendor partners, joint venturers, principals, agents or employees of the other. No officer, director, employee, agent, Affiliate or contractor retained by Vendor to perform work on Customer’s behalf

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under this Agreement shall be deemed to be an employee, agent or contractor of Customer. Neither Party shall have any right, power or authority, express or implied, to bind the other.

          23.05 Consents, Approvals and Requests. Except as specifically set forth in this Agreement, all consents and approvals to be given by either Party under this Agreement shall not be unreasonably withheld or delayed and each Party shall make only reasonable requests under this Agreement.

          23.06 Severability. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to Law, then the remaining provisions of this Agreement, if capable of substantial performance, shall remain in full force and effect.

          23.07 Waivers. No delay or omission by either Party to exercise any right or power it has under this Agreement shall impair or be construed as a waiver of such right or power. A waiver by any Party of any breach or covenant shall not be construed to be a waiver of any succeeding breach or any other covenant. All waivers must be signed by the Party waiving its rights.

          23.08 Remedies Cumulative. No right or remedy herein conferred upon or reserved to either Party is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy under this Agreement, or under applicable law, whether now or hereafter existing.

          23.09 Entire Agreement. This Agreement and the Exhibits to this Agreement represent the entire agreement between the Parties with respect to its subject matter, and there are no other representations, understandings or agreements between the Parties relative to such subject matter.

          23.10 Amendments. No amendment to, or change, waiver or discharge of, any provision of this Agreement shall be valid unless in writing and signed by an authorized representative of each of the Parties.

          23.11 Survival. The terms of Articles 11, 12, 14, 15, 16, 19, 20, 21, 22 and 23 shall survive the expiration or termination of this Agreement.

          23.12 Third Party Beneficiaries. Each Party agrees that this Agreement shall not benefit, or create any right or cause of action in or on behalf of, any person or entity other than the Vendor and the Customer. Customer shall be entitled to enforce this Agreement on behalf of Customer and shall have the right to pursue any right or remedy of the Customer arising hereunder with respect to the delivery of Services or otherwise.

          23.13 Governing Law. This Agreement and the rights and obligations of the Parties under this Agreement shall be governed by and construed in accordance with the Laws of New York, without giving effect to the principles thereof relating to the conflicts of Laws.

          23.14 Sole and Exclusive Venue. Each Party irrevocably agrees that Section 8.6 of the SPA shall be effective under this Agreement as if set forth in full herein.

          23.15 Waiver of Jury Trial. Each Party hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement, the transactions contemplated by this Agreement or disputes relating hereto. Each Party (a) certifies that no

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representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other Party hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section.

          23.16 Covenant of Further Assurances. Customer and Vendor covenant and agree that, subsequent to the execution and delivery of this Agreement and, without any additional consideration, each of Customer and Vendor shall execute and deliver any further legal instruments and perform any acts that are or may become necessary to effectuate the purposes of this Agreement.

          23.17 Negotiated Terms. The Parties agree that the terms and conditions of this Agreement are the result of negotiations between the Parties and that this Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party or its professional advisors participated in the preparation of this Agreement.

          23.18 Export. Customer and Vendor shall not knowingly export or re-export any personal computer system, part, technical data or sub-elements under this Agreement, directly or indirectly, to any destinations prohibited by the government of the U.S.A. The term “technical data” in this context, means such data as is defined as technical data by applicable export regulations in effect in the U.S.A.

          23.19 Conflict of Interest. Vendor shall not pay any salaries, commissions, fees or make any payments or rebates to any employee of Customer, or to any designee of such employee, or favor any employee of Customer, or any designee of such employee, with gifts or entertainment of significant cost or value or with services or goods sold at less than full market value. Vendor agrees that its obligation to Customer under this Section shall also be binding upon Vendor Agents. Vendor further agrees to insert the provisions of this Section in each contract with a Vendor Agent.

          23.20 Publicity. Each Party shall (1) submit to the other all advertising, written sales promotions, press releases and other publicity matters relating to this Agreement in which the other Party’s name or any its trademarks or service marks is mentioned or which contains language from which the connection of said name or trademark or service mark may be inferred or implied and (2) not publish or use such advertising, sales promotions, press releases or publicity matters without the other Party’s consent.

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*      *      *      *

          IN WITNESS WHEREOF, each of Vendor and Customer has caused this Services Agreement to be signed and delivered by its duly authorized representative.

HMS BUSINESS SERVICES INC.
By:	/s/ HMS Business Services Inc.
	Name:
	Title:
ACCORDIS HOLDING CORP.
By:	/s/ Accordis Holding Corp.
	Name:
	Title:

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EXHIBIT 1

STATEMENT OF WORK

I. Machines

a.	Vendor shall provide an appropriate mainframe processor(s) that supports the service levels outlined in Exhibit 5.
b.	Vendor shall provide an appropriate level of DASD and Tape to support the Service Levels outlined in Exhibit 5.
c.	Customer shall be responsible for obtaining mainframe printing and mailing services consistent with support provided prior to the Effective Date.

II. Software

a.	Vendor shall provide the Third Party Software set forth in Exhibit 2.
b.	Additional Third Party Software may be requested by Customer. Vendor will pass through cost to Customer for any additional Third Party Software specifically requested by Customer. Vendor will follow steps outlined in Article 4 for Out-Of-Services Services to implement requested Third Party Software.
c.	Vendor will maintain six (6) CICS AccessLine regions (Branch, West, Data, HSW, QA and Test). Vendor will follow steps outlined in Article 4 for Out-Of-Scope Services to create new CICS regions.
d.	Vendor will schedule and run Customer’s Standard Processing not less frequently than as being run prior to the Effective Date.
e.	Any new systems, new development efforts, or processing outside AccessLine and Standard Processing that is not consistent with the support and Machine processing prior to the Effective Date will be considered Out-Of-Scope Services and will be handled as such under Article 4, Out of Scope Services.

III. Tape Management, Library Operations and Data Services

Tape and cartridges, storage and backups will be provided by Vendor as follows:

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a.	Copies of critical files (up to a maximum of 100) will be stored offsite at Iron Mountain located at 203 Moonachie Road, Moonachie, NJ 07074.
b.	Vendor has implementing a offsite backup solution utilizing a EMC Centera DASD backup machine.
c.	Mainframe incremental and routine backup and reorganization of files will be performed in accordance with Customer current backup schedule, which consists of incremental backup and weekly full volume backup. Backup copies will be stored off-site.

IV. Network Connectivity.

a.	Vendor shall maintain and manage the current Customer network connectivity in accordance with the network diagram attached to this Exhibit 1 as Appendix A.
b.	Additional lines/connections will be handled as Out of Scope Services pursuant to Article 4.

V. System Support Services

a. Vendor shall provide the following System Support Services:

• Monitoring of all Machines and Third Party Software on a daily basis for potential problems.

• Providing timely response to problems and questions reported by Customer.

• Performing ongoing capacity planning and performance monitoring activities.

• Making recommendations for short term and long term improved system performance.

• Trouble Shooting and implementing solutions to Third Party Software problems.

• Coordinating problem diagnosis and providing correction in the event application problems or Viruses occur, at Customer’s

29

	expense if such Virus was introduced into its systems, intentionally or not, by Vendor or any of its employees or subcontractors.
•	Performing RACF security administration for TSO sign on and other administrations consistent with those performed prior to the Effective Date.
•	Performing disaster recovery transition procedures set forth in Exhibit 11.
•	Performing system database administration function.

VI. Operations Services

a. Vendor shall perform the following Operations Services:

• Monitoring of systems consoles during operational hours.

• Performing checks to ensure Machines are operating optimally.

• Monitoring of all jobs and applications to ensure that they are running properly based upon supplied documentation.

• Responding to system messages and request for resources as required.

• Coordinating system startups and shutdowns with Customer Contract Managers.

• Documenting cause and nature of both scheduled and unscheduled outages.

• Maintaining the Customer tape inventory stored at the Vendor Service Location and offsite at Iron Mountain.

• Reporting Machines malfunctions to responsible parties.

• Responding to system requests for tape/cartridge mounts.

• Providing timely process on business requested and weekly backups.

• Performing job scheduling.

• Providing data center operations support availability 24 hours a day seven days a week on mainframe/communications availability and related software issues.

VII. Reporting

a. In addition to providing the Reports listed in Exhibit 8, Vendor shall perform the following reporting services:

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• Documenting cause and nature of both scheduled and unscheduled outages.

• Provide job accounting reporting.

VIII. Lotus Notes Technical Change Control Procedures

a. Vendor shall manage any change to the technical configuration through the Lotus Notes Technical Change Control Procedures set forth in the Mainframe Change Control Database provided to Vendor with instructions about the database and using the database. If such change constitutes a Change, Vendor shall also manage such Change through the Change Control Process set forth in Exhibit 10.

IX. Source Data Management

Vendor will be responsible for data logging and tracking using SDM DB for Customer physical data input, in a manner consistent with that performed prior to the Effective Date.

X. EDI

Customer is responsible for establishing all EDI set ups, as they pertain to Customer’s business, with any Vendor assistance to be treated and charged as an Out of Scope Service under Article 4.

Vendor is responsible for maintenance, execution, logging and tracking of EDI transmissions performed by Vendor.

Customer is responsible for all EDI application programming, as it pertains to Customer’s business.

XI. Help Desk

Vendor will supply backup security administration for user systems and a user help desk for reporting system problems.

All calls will be tracked and responded to in a manner consistent with the support provided prior to the Effective Date.

Vendor will reset RACF security passwords promptly upon request and in any event within 24 hours of any request.

XII. DSS Support Services

a.	Vendor is responsible for the managing and maintaining the servers listed in the network diagram attached to Exhibit 1 as Appendix A, and for replacing the servers if and as required to perform the Services.
b.	Customer is responsible for all costs for PCs and Network printers in Customer Service Locations.

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c.	Vendor will provide network monitoring and configuration support consistent with the support provided prior to the Effective Date.
d.	Vendor will approve all new equipment (PCs and network printers) before being added to the network (approval is not to be unreasonably withheld or delayed).
e.	Vendor will help supervise Customer onsite network administrators for data functionality.
f.	Vendor will maintain firewall, FTP services and Internet Services.
g.	Vendor will maintain Anti virus and PC operating service patches and push updates to network PCs.
h.	Vendor will maintain the server hardware and software for Lotus Notes email, Databases and iNotes.
i.	Vendor is responsible for managing print services consistent with the support provided prior to the Effective Date.
j.	Vendor will provide network access to the current release of CCS-MTU billing software for use on behalf of existing Accordis CCS-MTU customers.

XIII. Telephone

a.	Vendor will manage the existing telephone systems for Customer at 401 Park Avenue South, New York, NY, 10016.
b.	Vendor will interact with communications equipment suppliers and telephone companies to resolve problems related to the specific circuits and network components provided by the Vendor.
c.	Customer is responsible for maintaining a services agreement for Customer Service Location telephone switches, except at 401 Park Avenue South, New York, NY, 10016, which is the responsibility of Vendor.

XIV. Communications

Customer is responsible for all data line costs for each line (broadwing frame relay, new edge frame relay over DSL and broadwing IP VPN) indicated on the attached network diagram attached to this Exhibit 1 as Appendix A. Vendor will maintain the contract with third parties for the data lines and will include Customer only data line costs on monthly invoices.

Vendor will maintain and manage the existing video conferencing equipment consistent with the support provided prior to the Effective Date. Customer is responsible for any additional equipment needed for any new Customer Service Location.

Vendor will maintain and manage all communications and data lines used in providing the Services. Customer will maintain and manage PC and local printer data lines within the Customer Service Locations.

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XV. Service Levels

Vendor will supply 100 hours per month of Customer specific DSS Support Services (XII), Telephone (XIII) and Communications (XIV) as part of the Designated Fees. Support on the shared servers in New York as listed on the network diagram attached to this Appendix A will not be included in the 100 hours. Additional support will be charged via the schedule in Exhibit 7, Hourly Rate Schedule. Travel costs associated with Customer specific services are not included in Designated Fees and will be charged back to Customer according to Vendor’s travel and expense policy.

XVI. Holidays

Vendor will be responsible for providing the Services each day of the year except Federal Holidays, Thanksgiving and Christmas days, provided, however, that upon 48 hours’ advance notice to Vendor, Customer may require Vendor to provide Services on those holidays and Customer shall pay Vendor’s out-of-pocket expenses for the provision of such Services.

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34

EXHIBIT 2

THIRD PARTY SOFTWARE

I. Third Party Software Other Than IBM Products

PRODUCT	VENDOR
NAME	NAME	Description
Beta/88	Beta Systems, Inc.	RACF Security Mgt.
CA-Deliver	Computer Associates	View Report Distribution
CA-ISM (Faver)	Computer Associates	VSAM Export/Restore
CA-View	Computer Associates	Report Repository
CA-Vision/Sixty	Computer Associates	4 GL Language Generator
CA-Vision:Doc	Computer Associates	4 GL Language Generator
CA-Vision:Results	Computer Associates	4 GL Language Generator
Endeavor	Computer Associates	Program Management
Code-1 Plus	Group One Software Inc.	ZIP Code +
Code-1 Plus subscript	Group One Software Inc.	ZIP Code +
Decision Analyzer	Decision Technology	Data Analytical Rpt. Tool
Direct Connect	Sterling Commerce	Network Data Mover
File-Aid/MVS/DB2	Compuware	File Management
Gentran	Sterling Commerce	Ansi Data Converter
Host on Demand	IBM Software	Product Number: E1BGELL
In-tune	Boole & Babbage	Performance/Tuning Analyzer
Jobscan	Diversified Software Sys	JCL Validation
MVS-Plus (Pkzip)	Ascent Solutions Inc.	Data Compression

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PRODUCT	VENDOR
NAME	NAME	Description
MXG Software	Merrill Consultants	Performance Reporting & Analysis
OCE Editor	American Medical Association	Outpatient Code Editor
Quickref	Chicago Soft	Interactive Systems Documentation
QuickTape	Texas Digital	Tape Mgt. Mounting Facil.
TableBase	Data Kinetics	Data Utility
Tmon/CICS	Landmark Systems	CICS Performance Monitor
Tubes/MVS	Macro 4	3270 Session Manager
VPS	Levi, Ray, Strupp	Network Printing
Xpeditor/CICS	Compuware	CICS Code
Zela	Software Corp of Amer	Tape consolidation

II. Vendor Provided IBM Products

     The following table outlines the IBM program products to be supplied by the Vendor.

Product Number	IBM Program Product
5694 A01	Z/OS V1 Base
5694 A01	Z/OS V1 DFSMS DSS+HSM
5694 A01	Z/OS V1 DFSORT
5694 A01	Z/OS V1 HLA Toolkit
5694 A01	Z/OS V1 RMF
5694 A01	Z/OS V1 SDSF
5694 A01	Z/OS V1 Security Server
5655 G53	COBOL Full Function
5648063	3746 Model 900 Feat
5648063	ACF/NCP V7
5655041	ACF/SSP Version 4 MVS
5655103	DITTO/ESA for MVS
5655 M15	CICS TS for Z/OS

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Product Number	IBM Program Product
5625 DB2	DB2 UDB for Z/OS
5625 DB2	QMF Classic
5697 ENV	Tivoli NetView Enterprise
5698 S51	Tivoli Workload Scheduler

37

EXHIBIT 3

SERVICE LOCATIONS

A.  Vendor Service Location:

1. 401 Park Avenue South, Floors 9-11, New York, New York 10016

B.  Customer Service Locations:

1.	401 Park Avenue South, 8th Floor, New York, New York 10016
2.	500 Bi County Blvd, Farmingdale, NY 11735
3.	7800 West Oakland Park Blvd, Bldg. C, Sunrise, FL 33351
4.	9841 Airport Blvd, Los Angeles. CA 90045
5.	2960 South Baker Drive, Springfield, IL 62703
6.	400 Perimeter Center Terrace, Atlanta, GA 30346

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EXHIBIT 4

DESIGNATED FEES

DESIGNATED FEES The Designated Fees for the Designated Services are $166,666 per month during first Contract Year. The Designated Fees for the Designated Services are $183,333 per month during Contract Years 2 through 4.

a. If the number of active AccessLine Accounts exceeds the Total In Scope AccessLine Accounts in a month, the following calculation will be used to calculate the additional AccessLine monthly charges to Customer:

i. AccessLine Accounts Percentage Over is calculated as follows:

1. (number of active AccessLine Accounts / Total In Scope AccessLine Accounts) — 100%.

ii. AccessLine additional monthly charge is calculated as follows:

1. 90% of the monthly Designated Fee multiplied by AccessLine Account Percentage Over.

b. If the number of RCR Clients exceed the Total In Scope RCR Clients in a month, the following calculation will be used to calculate the additional RCR monthly charges to Customer:

i. RCR Clients Percentage Over is calculated as follows:

1. (number of RCR Clients / Total In Scope RCR Clients) — 100%.

ii. RCR additional monthly charge is calculated as follows:

1. 10% of the monthly Designated Fee multiplied by RCR Client Percentage Over.

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EXHIBIT 5

SERVICE LEVELS AND PERFORMANCE CREDITS

1. GENERAL PROVISIONS.

1.1. General.

The Service Levels referenced in Article 6 of the Agreement are set forth in this Exhibit.

1.2. Definitions.

Capitalized terms used in this Exhibit that are not defined in this Exhibit shall have the meanings assigned to them in the Agreement. The following defined terms used in this Exhibit shall have the meanings specified below:

“Performance Credit” shall mean a credit in an amount set forth in Section 5 below payable to Customer by Vendor in connection with a Service Level Failure.

“Service Levels” shall have the meaning set forth in this Exhibit.

“Service Level Failure” shall mean Vendor’s failure to achieve a Service Level in any given month.

2. PERFORMANCE TRACKING AND REPORTING.

A. General: Vendor shall provide Customer with a report of the performance level attainment against the Service Levels as set forth in Exhibit 8 no later than the 25th day of each month. Vendor will be responsible for promptly investigating and correcting Vendor’s failure to meet established Service Levels in accordance with Section 6.04 of the Agreement. If the Root Cause Analysis shows that Customer was the Root Cause of the Service Level Failure, or the cause was outside control of Vendor, then Vendor shall not be subject to a Performance Credit.

3. SERVICE LEVEL REVIEWS.

The Parties will review the Service Levels in accordance with this Section 6.03 of the Agreement. As part for their monthly meetings, the Vendor Contract Manager and the Customer Contract Manager shall discuss the Service Levels. Any additions, deletions or modifications to the Service Levels may be made by mutual agreement of the Contract Managers at such monthly meetings.

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4. PERFORMANCE CREDITS.

In the event of a Service Level Failure, Vendor shall incur the Performance Credit associated with the Service Level that Vendor failed to achieve. If more than one Service Level Failure has occurred in a single month, the sum of the corresponding Performance Credits shall be paid to Customer; provided, however that, notwithstanding the amount of Performance Credits incurred by Vendor, in no event shall the total amount of Performance Credits incurred by Vendor in a single month exceed $25,000. All Performance Credits incurred by Vendor in a given month shall be Customer’s sole remedy for Service Level Failures and shall be credited to Customer on the next monthly invoice.

5. SERVICE LEVELS

Initial Service Levels are set forth below.

A. RESOURCE AVAILABILITY-is defined as Machines at the Vendor Service Location and Third Party Software (“Resources”) available to Customer from local and remote Customer sites 24 hours a day, seven days a week including all national and corporate holiday schedules, except for periods of scheduled maintenance authorized by Customer (“Resource Availability”).

Category	Description	SLA Calculation
Resource Availability*	Hardware (CPU & DASD)	If either the CPU or DASD is down on any given day and not operational for a period Greater than 4 hours Vendor shall incur a Performance Credit.
	System Software (CICS)	If all CICS is down on any given day and not operational for a period Greater than 4 hours Vendor shall incur a Performance Credit.
	Third Party Software (see Exhibit 2)	If any of the Third Party Software program products are down on any given day and not operational for a period Greater than 4 hours Vendor shall incur a Performance Credit.

(i) Performance Credit for Critical Resources. Vendor shall incur the following Performance Credits for each day that any or all the Resources are not available for 4 hours or more on such day during a given month:

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Problem extends:	4.1 hours to 8 hours — $2,000
	8.1 hours to 16 hours — $4,000
	16.1 hours to 24 hours — $6,000

               * Periodically system maintenance is performed, requiring an IPL (Initial Program Load which is required to install new and upgraded releases of software and hardware) of the Machine. This scheduled down time is excluded from the Resource Availability. This maintenance is scheduled in advance with proper notice provided to Customer, and is typically performed on Sundays.

B. TRANSACTION RESPONSE TIME-is defined as the actual wall clock time from the instant the user initiates a request depressing the enter key until the information has been fully displayed on the user screen and the system has unlocked the keyboard. CICS Monitor and RMF software will be used to track and calculate total transactions and response time calculations.

(i) Online Performance Windows for each CICS region shall be available:

A.    Branch and Data
•    Monday through Friday	8:00 am-10:00 pm (EST)
•    Saturday	8:00 am-4:00 pm (EST)
•    Sunday	Upon request
B.    West*
•    Monday through Friday	12:00 am-6:00 pm (EST)
•    Saturday	12:00 am-6:00 pm (EST)
•    Sunday	Upon request
C.    HSW
•    Monday through Friday	10:00 am-11:00 pm (EST)
•    Saturday	10:00 am-3:00 pm (EST)
•    Sunday	Upon request
D.    QA and Test
•    Monday through Friday	8:00 am-6:00 pm (EST)
•    Saturday	8:00 am-6:00 pm (EST)

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•    Sunday Upon request

*    If End Of Month (EOM) processing is performed the next business day the region up time is not guaranteed.

**  if EOM processing or LAC loads run (typically second week of the month), the region up time is not guaranteed.

(ii) Performance Credit: Vendor shall incur a Performance Credit of $100 per day, per CICS region that Vendor fails to meet the region availability.

(a) Network Response Time Performance Standard:

(1)	95% of total transactions (Branch, West, Data, HSW) to be completed within 1.0-3.0 seconds
(2)	90% of total transactions (QA and Test) to be completed within 1.0-3.0 seconds

(b) Performance Credit: Vendor shall incur a Performance Credit of $2,000, per region in which the applicable standard is not met, if Vendor fails to meet, in the aggregate, the applicable Network Response Time Performance Standard in a given month.

(iii) Online Performance Window for TSO transactions

(a) TSO Response Time Standard:

(1) 85% of all TSO transactions need to be completed within 3.0 seconds

(b) Performance Credit: Vendor shall incur a Performance Credit of $2,000 for any month in which Vendor fails to meet, in the aggregate, the TSO Response Time Standard for TSO transactions in such month.

C. BATCH WINDOW STANDARDS

(i) The following batch class initiators must be available to Customer starting at 8:00 am (EST) and ending at 7:00 pm (EST):

CLASS	ELAPSED TIME	CPU TIME
A	15 minutes	1 minute

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CLASS	ELAPSED TIME	CPU TIME
B	1 Hour	10 minutes
C	48 Hours	unlimited
S	On Demand	unlimited

(ii)  Performance Credit: Vendor shall incur a Performance Credit of $100 per class, per day that the required batch class services are not available to the Customer.

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EXHIBIT 6

IN SCOPE MAXIMUMS

A. Total In Scope AccessLine Accounts in the Active Master File

Contract Year 1:	15,730,000
Contract Year 2-4:	17,303,000

B. Total In Scope RCR Clients

Contract Year 1:	16
Contract Year 2-4:	17

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EXHIBIT 7

HOURLY RATE SCHEDULE

1. Out-Of-Scope Services will use the follow hourly rates:

     a. Contract Year 1 —$151/hour

     b. Contract Year 2-4 — $166/hour

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EXHIBIT 8

REPORTS

I.	Monthly Reports
A.	Vendor shall provide the following monthly reports to Customer by the 15th day of each month.

1.	Overall TSO response time by period in the form attached to this Exhibit 8 as Appendix A.
2.	CICS/ESA monitor for all CICS regions — (WEST, EAST, Data Entry, LAC) in the form attached to this Exhibit 8 as Appendix A.
3.	A consolidated report, including status updates, with respect to each Change Request.
4.	Consolidated Service Level report, including a list of any Service Level Failures and Performance Credits incurred during such month.

II.	Daily Reports
A.	Vendor shall provide the CICS regions start time and all hardware and Third Party Software problems within the Vendor Service Location for the DPO Morning Report each day by 8:00 am (EST) via email to the Customer Contract Manager and all other Customer employees designated by the Customer Contract Manager.
III.	Other Reports
A.	Vendor shall provide the following reports as required:

1. Root Cause Analysis Report within 30 days of a Service Level failure

IV. Review of Reports

As part of their monthly meeting, the Contract Managers shall review and discuss all reports produced during such month.

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Appendix A

Form of Reports

TSO Response Time

OVERALL TSO RESPONSE TIME BY PERIOD - SLA	11:42 FRIDAY, JANUARY 14 , 2005       76
REPORT DATE AND TIME: FRI, JAN 14, 2005 11:49
FROM 09 JAN 05 < - - - - - - > 11 JAN 05

AVERAGE

ENDED

PERCENT

CPU TCB

IO

MEMORY

SYSTEM

RESPONSE

TRANSACTION

ENDED

SERVICE

SERVICE

SERVICE

IO

PERIOD

TIME

COUNT

TRANSACTION

UNITS

UNITS

UNITS

MVS2

1-QUICK < 1 SEC

0.29

129550

100.00

112,950,163

13,896,257

903,551,466

129550

100.00

112,950,163

13,896,257

903,551,466

CICS Response Time

DATE: 1/11/05	The CICS/ESA	PAGE 4
TIME: 00:27:12	SYSTEM TOTAL PAGE FOR WEST ON 01/10/05
	DATA IS FROM 01/10/05 AT 11:37 TO 01/10/05 AT 23:59

CICS SYSTEM ACTIVITY

RESPONSE TIME DISTRIBUTION

RESPONSE	TXNS		PCT			CUM %			0			1			2			3			4			5			6			7			8			9			0
0.0-1.0 SEC		104,819		98.3	%		98.3	%		%	%		%	%		%	%		%	%		%	%		%	%		%	%		%	%		%	%		%	%		%	%
1.0-2.0 SEC		1,049		.9	%		99.3	%
2.0-3.0 SEC		329		.3	%		99.6	%
3.0-4.0 SEC		134		.1	%		99.8	%
4.0-5.0 SEC		80		.0	%		99.8	%
5.0*** SEC		131		.1	%		100.0	%

TOTAL TRANSACTIONS EXECUTED	106.845
TRANSACTIONS EXCLUDED FROM HIGH TASK	3
ENDED TRANSACTIONS	106.542

CICS SYSTEM AVAILABILITY

SYSTEM AVAILABILITY PERCENTAGE	39.7	%
FROM TIME	00:00:00
TO TIME	24:00:00
SYSTEM OUTAGE	14:27:21

START TIME	END TIME	DURATION
11:35:00	21:07:39	09:32:38

HIGH WATER MARK INFORMATION

CATEGORY	TIME		TRANID
FILE WAIT		53.8298	T24O

CATEGORY	POOL SIZE		TRANID
USER24		8K	OC
USER31		257K	T24O
USER24		1K	CESN
USER31		23K	CENT

CPU ANALYSIS	CPU TIME		TOTAL DISPATCH
TOTAL ADDRESS SPACE CPU		43:29.5054
TCB		41:10.2619
SRB		2:19.2434
SUBTASK CPU		6:26.4391
DBCTL CONTROL TASK CPU		.0000
DBCTL THREAD		.0000
TMON SUBTASK		.0000
OTHER SUBTASKS		6:26.4391
APPLICATION TASKS CPU/DISP		34:43:8228		1:30:06.0693

I/O ACTIVITY	COUNT		AVG TIME		TOTAL TIME
FILE REQUESTS		3,583,109		.0028		2:51:43.6551
PROGRAM LOADS		285,635		.0001		34.2785
JOURNAL REQUESTS		0		.0000		.0000
TD REQUESTS		7		.0031		.0221
DL/I CALLS		0		.0000		.0000
DL/I WAITS		0		.0000		.0000
SOL CALLS TO DB2		0		.0000		.0000
NON-SOL CALLS TO DB2		0		.0000		.0000
USER DATA BASE CALLS		0		.0000		.0000
DB2 WAIT W/O THREAD		0	* NA *		* NA *
DB2 PLAN OVERFLOW		0	* NA *		* NA *

STORAGE ANALYSIS

DSA NAME	SIZE		IN USE		SOS		STG VIOLS
CDSA		1,024K		1,015K		0		0
ECDSA		5,192K		7,520K		0		0
ERDSA		16,432K		17,916K		0		0
ESDSA		1,024K		140K		0		0
EUDSA		3,072K		1,216K		0		0
RDSA		256K		232K		0		0
SDSA		256K		16K		0		0
UDSA		256K		16K		0		0

HIGHEST PAGING RATE PER SEC	1.273
HIGHEST WORKING SET (PAGE FRAMES)	5.500
HIGHEST OPSYS STORAGE LEVEL	0

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EXHIBIT 9

DATA SAFEGUARDS

Ø	At the Vendor Service Location(s), Vendor shall maintain restricted access to data center via existing security card access.
Ø	At the Vendor Service Location(s), Vendor shall be responsible for all building support, including, power, air conditioning and prevention from water damage.
Ø	Vendor shall comply with existing RACF security policies and procedures consistent with the support provided prior to Effective Date.
Ø	Vendor shall use access granted by Customer to the Customer Service Locations to perform the Services as set forth in the Agreement (including the Exhibits).
Ø	Vendor shall supply storage and security for customer tape, cartridge media and Vendor shall restrict access to such storage to only those Vendor employees or Vendor Agents requiring access.
Ø	Vendor shall ensure appropriate disposal of all Confidential Information including printed outputs DASD floppy disks tape and cartridge.
Ø	Customer may initiate, with Vendor’s cooperation, ad hoc security review audits to assess security risks to the Customer Data — no more frequent than quarterly.
Ø	Vendor shall issue security alerts and warnings to the Customer Contract Manager if Vendor becomes aware of any breach of (1) these data safeguard procedures, or (2) any other security policies and procedures in effect at the Vendor Service Location(s) or Customer Service Locations.
Ø	Any and all additional safeguards as may be required in the Business Associate Agreement.

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EXHIBIT 10

CHANGE CONTROL PROCEDURES

I. CHANGE REQUESTS

Either Party may request, orally or in writing, a Change to this Agreement. Upon either Party’s receipt of request for Change, the Parties shall work together to prepare a written change request containing the general information set forth below and in Appendix A to this Exhibit regarding the proposed Change (a “Change Request”).

II. ORIGINATING THE CHANGE REQUEST

Using the Change Request Form attached hereto as Appendix A, the Party requesting the Change shall provide a description of the proposed Change(s) and specify the reason for the Change. Vendor shall assign a unique number to the Change Request, and the Parties shall complete the Change Request by including the following information in the Change Request Form:

1.	List the documents and solution components that will need to be updated when the Change in implemented
2.	Estimate the impact of the Change (minimal (8 hrs or less), moderate (9-40 hours) or major (over 40 hours))
3.	Indicate whether a full evaluation of the Change impact is required and, if so, estimating the time needed for evaluation and assigning a resource to perform the evaluation.

The Vendor shall then enter the Change Request into the Change Control Log.

All completed Change Requests shall be forwarded to a Vendor designated evaluator for evaluation. Vendor shall complete its evaluation of each Change Request within 30 days of receipt of a complete Change Request and forward such Change Request, with its recommendations, to the Contract Managers for approval. Vendor shall log the status of the Change Request and keep Customer informed of the status of each Change Request.

III. APPROVAL

Upon receipt of the Change Request and the recommendations of the Vendor evaluator, the Contract Managers shall review the Change Request and shall, within 30 days of receipt of such Change Request, either approve or not approve such Change Request. No Change shall be made to any Services or to this Agreement unless it has been approved by the Customer Contract Managers and the Vendor Contract Manager.

IV. IMPLEMENTATION

Vendor shall manage the implementation of an approved Change Request. Vendor shall track progress of the Change, apprise Customer Contract Managers of the status of the Change Request

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during implementation (not less than once a week), and make any adjustments in Services as needed.

V. CLOSURE

When Vendor successfully implements a Change Request, Vendor shall update the status of the Change Request in the Change Control Log, archive the Change Request related documentation, notify Customer of the implementation and close the Change Request.

VI. REPORTING

A consolidated report, including status updates with respect to each Change Request, shall be included in a monthly report.

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APPENDIX A

Sample Change Request Form

Accordis Holding Corp.

Change Request Form

				Requested
Customer	Request	Phone	Request	Completion
Contact	Number	Number	Date	Date

Change Description:

Reason for Change:

Specific Tasks:

Assigned to: Rate:

Total Change Order:
Hours: Cost: $

Change Request Completion Date: Attachments:

Customer Approval:	Approval Date:
Accordis Holding Corp.
Vendor Approval:	Approval Date:
HMS

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EXHIBIT 11

DISASTER RECOVERY TRANSITION PROCEDURES

• Vendor shall notify the Customer Contract Manager of an existing, pending or potential event that would require Vendor to deploy its DRP and provide the Services by means of the Disaster Recovery Vendor.

• Customer shall supply a list of Customer Service Locations for which back-up connectivity to the Disaster Recover Vendor would be necessary in the event a disaster is declared. Vendor will arrange for implementation, maintenance and management of the back-up data lines and Customer will be responsible for the installation and ongoing line costs for these back-up data lines, as described in Exhibit I, Section IV.

• Upon the occurrence of an event requiring Vendor to deploy its DRP and provide the Services by means of the Disaster Recovery Vendor, Vendor shall:

• notify telecommunication vendors to switch all network lines to the Disaster Recovery Vendor site;

• notify Iron Mountain to send all backup tapes to the Disaster Recovery Vendor;

• ensure that all necessary supplies and tapes are sent from the Vendor Service Location(s) to the Disaster Recovery Vendor; and

• The Disaster Recovery Vendor is:

SUNGARD RECOVERY SERVICES

401 North Broad Street

Suite 600

Philadelphia, PA 19102

Contract Number: 93068100-37050-44932

• The Iron Mountain facility used by the Vendor is located at 203 Moonachie Road, Moonachie, NJ 07074.

53

Execution Version

EXHIBIT 12

BUSINESS ASSOCIATE AGREEMENT

[Attached separately]

EX-10.13.(II)

EXHIBIT 10.13(ii)

AMENDMENT TO DATA SERVICES AGREEMENT

     This Amendment (this “Amendment”) is made and entered into as of October 16, 2008, by and between HMS Business Services, Inc. (“Vendor”), a New York corporation with offices at 401 Park Avenue South, New York, NY 10016, and Apollo Health Street, Inc, a corporation having offices at 225 Washington Street, Suite 250, Conshohocken, PA 19428 (“Customer”).

WITNESSETH:

     WHEREAS, Vendor and Zavata, Inc. and Zavata’s wholly owned subsidiary Accordis, Inc. (collectively, “Zavata”) are parties to a Data Services Agreement dated July 31, 2007 (the “Data Services Agreement”) pursuant to which Vendor provides to Zavata certain data processing, data storage and data management and other services;

     WHEREAS, Customer has acquired Zavata (the “Acquisition”) and assumed all of the rights and obligations of Zavata pursuant to the Data Services Agreement;

     WHEREAS, Vendor and Customer desire to update certain pricing understandings pursuant to the Data Services Agreement and to formally acknowledge the assumption by Customer of all the rights and obligations of Zavata under the Data Services Agreement;

     NOW THEREFORE, in consideration of the mutual covenants and conditions herein contained, and intending to be legally bound hereby, Vendor and Customer mutually agree as follows:

1. DEFINITIONS. Capitalized terms used but not defined herein shall have the meaning set forth in the Data Services Agreement.

2. ASSUMPTION BY CUSTOMER. Customer hereby agrees that, effective as of the Acquisition, Customer hereby assumes all of the rights and obligations of Zavata pursuant to the Data Services Agreement. Customer acknowledges that Customer shall be responsible for all obligations of Zavata under the Data Services Agreement, even where arising prior to the Acquisition.

3. CORRECTIONS TO EXHIBIT 2; REMOVAL OF SOFTWARE.

     (a) Customer and Vendor each hereby agree and acknowledge that Dyl 260/280 is hereby added to the list of “Third Party Software Other Than IBM Products” on Exhibit 2. This correction shall be deemed effective from the Effective Date of the Data Services Agreement.

     (b) Upon Vendor’s receipt of written notice from Customer that Customer is ceasing its use of (i) Tablebase, (ii) DB2 UDB for Z/OS and (iii) Dyl 260/280 (the “Cessation Notice Date”), each of Tablebase, DB2 UDB for Z/OS and Dyl 260/280 shall be automatically and permanently deleted from Exhibit 2.

4. REDUCTION OF DESIGNATED FEES. The second sentence of the introductory paragraph of Exhibit 4 is hereby amended and restated to read as follows: “The Designated Fees for the Designated Services are $166,666 per month during Contract Years 2 through 4; provided that (i) the monthly Designated Fees for Contract Year 3 shall be reduced to One Hundred and Three Thousand ($103,000) for each month of Contract Year 3 which commences after the Cessation Notice Date (as defined in the Amendment dated October 16, 2008), if any, and (ii) the monthly Designated Fees for Contract Year 4 shall be reduced to Ninety Nine Thousand ($99,000) for each month of Contract Year 4 which commences after the Cessation Notice Date.” No other changes are made to Exhibit 4 hereunder.

5. AGREEMENT REMAINS IN EFFECT. Except as amended hereby, the Data Services Agreement shall continue in full force and effect according to their terms.

     IN WITNESS WHEREOF, the Parties have executed this Amendment as of the day and year first written above.

HMS BUSINESS SERVICES, INC.		APOLLO HEALTH STREET[, LTD.]
By:	/s/ Walter D. Hosp	By:	/s/ Andrew DeVoe
Name:	Walter D. Hosp	Name:	Andrew DeVoe
Title:	Sr VP, CFO	Title:	President and CEO

EX-21

EXHIBIT 21

HMS HOLDINGS CORP.

LIST OF SUBSIDIARIES

	State Of
Subsidiary	Incorporation
Health Management Systems, Inc.	New York
401 Park Avenue South
New York, NY 10016
HMS Business Services Inc.	New York
401 Park Avenue South
New York, NY 10016
Reimbursement Services Group Inc.	New York
401 Park Avenue South
New York, NY 10016
Permedion Inc.	New York
401 Park Avenue South
New York, NY 10016

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
HMS Holdings Corp.:

We consent to the incorporation by reference in the registration statements (Nos. 333-149836, 333-108436, 333-108445, 33-95326-99 and 333-139025) on Form S-8 and in the registration statement (No. 333-138875) on Form S-3 of HMS Holdings Corp. of our reports dated March 10, 2009, with respect to the consolidated balance sheets of HMS Holdings Corp. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008, the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 Annual Report on Form 10-K of HMS Holdings Corp.

/s/ KPMG LLP

New York, New York

March 10, 2009

EX-31.1

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William C. Lucia, certify that:

1.	I have reviewed this report on Form 10-K of HMS Holdings Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or other persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 10, 2009

/s/ William C. Lucia

William C. Lucia

Chief Executive Officer, Director

EX-31.2

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Walter D. Hosp, certify that:

1.	I have reviewed this report on Form 10-K of HMS Holdings Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or other persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 10, 2009

/s/ Walter D. Hosp

Walter D. Hosp

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Annual Report on Form 10-K of HMS Holdings Corp. for the year ended December 31, 2008, I, William C. Lucia, Chief Executive Officer, Director of HMS Holdings Corp., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)	such Annual Report on Form 10-K for the year ended December 31, 2008, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in such Annual Report on Form 10-K for the year ended December 31, 2008, fairly presents, in all material respects, the financial condition and results of operations of HMS Holdings Corp.

/s/ William C. Lucia William C. Lucia

Chief Executive Officer, Director

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to HMS Holdings Corp. and will be retained by HMS Holdings Corp. and furnished to the Securities and Exchange Commission or its Staff upon request.

March 10, 2009

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Annual Report on Form 10-K of HMS Holdings Corp. for the year ended December 31, 2008, I, Walter D. Hosp, Chief Financial Officer of HMS Holdings Corp., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)	such Annual Report on Form 10-K for the year ended December 31, 2008, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in such Annual Report on Form 10-K for the year ended December 31, 2008, fairly presents, in all material respects, the financial condition and results of operations of HMS Holdings Corp.

/s/ Walter D. Hosp Walter D. Hosp

Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to HMS Holdings Corp. and will be retained by HMS Holdings Corp. and furnished to the Securities and Exchange Commission or its Staff upon request.

March 10, 2009