Form of Nonqualified Stock Option Award Notice and Agreement for Employees under the 2019 Omnibus Plan

Dear <Participant Name>,

Congratulations, HMS Holdings Corp. (the “Company”) has granted you a stock option award under the Company’s 2019 Omnibus Incentive Plan, as it may be amended from time to time (the “Plan”). A stock option gives you the right to purchase a specific number of shares of the Company’s common stock at a fixed price, assuming that you satisfy the terms and conditions of the Plan and the attached implementing Nonqualified Stock Option Award Agreement (the “Award Agreement”). We would like you to have an opportunity to share in the success of the Company through this stock option award under the Plan. The following represents a brief description of your individual award.

 

HMS Holdings Corp. (the “Company”) has granted you, the individual named in the attached Nonqualified Stock Option Award Notice (the “Award Notice”), an option (the “Option”) to purchase from the Company a specific number of shares of the Company’s common stock (“Shares”) at a specified price per Share (the “Option Exercise Price”) under the HMS Holdings Corp. 2019 Omnibus Incentive Plan (as it may be amended from time to time) (the “Plan”), the terms of which are incorporated by reference herein in their entirety. The Option is subject in all respects to the applicable provisions of the Plan, the Award Notice and this Nonqualified Stock Option Award Agreement (the “Award Agreement”). Any term used in this Award Agreement that is not specifically defined herein or in the Award Notice shall have the meaning specified in the Plan.

Please refer to the attached Award Notice for individualized details regarding your stock Option award, including the Date of Grant, the total number of Shares covered by the Option granted to you (the “Option Shares”), the Option Exercise Price per Share, the schedule for Exercisability and applicable Exercisability Dates, and the latest date the Option will expire (the “Option Expiration Date”).

The Plan document and the Prospectus for the Plan are available on the Merrill Lynch website. The Company’s Registration Statement on Form S-8, the Company’s Annual Report on Form 10-K, and other filings the Company makes with the Securities and Exchange Commission are available for your review under the Investor Relations tab on the Company’s web site (http://investor.hms.com/financials.cfm). You may also obtain paper copies of these documents, without charge, upon request to the Company’s Corporate Secretary, 5615 High Point Drive, Irving, Texas 75038, telephone: 972 ###-###-####.

Neither the Company nor anyone else is making any representations or promises regarding the duration of your service, exercisability of the Option, the value of the Shares or of this Option, or the Company's prospects. The Company is not providing any advice regarding tax consequences to you or your decisions regarding the Option; you agree to rely only upon your own personal advisors.

In addition to the Plan’s terms and restrictions, the following terms and restrictions apply:

    

The Option will become vested and exercisable according to the schedule provided in the Award Notice assuming that you remain an employee of the Company or a member of the Company’s Board of Directors (the “Board”) through each Exercisability Date. For purposes of this Award Agreement, employment with the Company will include employment with any Affiliate whose employees are then eligible to receive awards under the Plan. Unless the Compensation Committee (the “Committee”) of the Board determines otherwise, if an entity employing you ceases to be an Affiliate, your employment with the Company will be treated as ended even though you continue to be employed by that entity.

Unless otherwise specified in your employment or separation agreement, if your employment or service ends as a result of your disability or death, the Option will become vested and fully exercisable on your termination of employment. For this purpose, “disability” means permanent and total disability as defined by Section 22(e)(3) of the Internal Revenue Code.

If your employment or service ends as a result of Retirement, you will be treated as continuing in service for vesting purposes and the vested portion of the Option shall remain exercisable until the earlier to occur of (i) the second anniversary of your Retirement and (ii) the Option Expiration Date (the “Retirement Period”). Unless determined by the Committee otherwise, any portion of the Option outstanding but not yet vested on the last day of the Retirement Period shall be forfeited. “Retirement” for the purpose of this Award Agreement means cessation of service on or after attaining age 60 and completing five years of service with the Company.

employment or separation agreement or your agreement does not define cause, “gross misconduct” shall mean the occurrence of one of the following events: (A) your conviction or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor) or with respect to your employment to any misdemeanor (other than a traffic violation), (B) theft or embezzlement of assets of the Company or an Affiliate, or (C) violation of the terms of any non-competition, non-disclosure or similar agreement with respect to the Company or any Affiliate to which the Plan participant is a party, including the terms of Appendix A.

Unless otherwise specified in your employment or separation agreement, exercisable portions of the Option remain exercisable until the first to occur of the following (the “Final Exercise Date”), each as defined further in the Plan or this Award Agreement:

The Committee can override the expiration provisions of this Award Agreement as provided in Section 6(b) of the Plan (including without limitation as a result of a legal prohibition on exercise or an applicable “black-out period” or “lock-up” agreement).

Cashless    through an approved cashless exercise method, including directing

Exercise     the Company to send the stock certificates (or other acceptable evidence     of ownership) to be issued under the Option to a licensed broker     acceptable to the Company as your agent in exchange for the broker’s     tendering to the Company cash (or acceptable cash equivalents) equal     to the Option Exercise Price and, if you so elect, any required tax     withholdings;

any combination of the above permitted forms for payment.

its completing or amending any securities registration or qualification of the Option Shares or its or your satisfying any exemption from registration under any Federal or state law, rule, or regulation;

its receiving proof it considers satisfactory that a person seeking to exercise the Option after your death is entitled to do so;

your complying with any requests for representations under the Plan; and/or

your complying with any Federal, state, or local tax withholding obligations.

represent to the Company, in a manner satisfactory to the Company’s counsel, that you are acquiring the Option Shares for your own account and not with a view to reselling or distributing the Option Shares; and

agree that you will not sell, transfer, or otherwise dispose of the Option Shares unless:

a registration statement under the Act is effective at the time of disposition with respect to the Option Shares you propose to sell, transfer, or otherwise dispose of; or

the Company has received an opinion of counsel or other information and representations it considers satisfactory to the effect that, because of Rule 144 under the Act or otherwise, no registration under the Act is required.

acquired under the Option, and must promptly repay such amounts to the Company. You agree that the Committee may require you to promptly repay to the Company any amount in excess of what you should have received under the terms of the Option for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error). Furthermore, to the extent required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of NASDAQ or any other securities exchange or inter-dealer quotation service on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, the Option shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements.

  

    In consideration of the terms of this Option and your access to Proprietary Information (as defined below), you agree to the following Restrictive Covenants:

You have or will be given access to and provided with sensitive, confidential, proprietary and/or trade secret information (collectively, “Proprietary Information”) in the course of your employment. Examples of Proprietary Information include inventions, new product or marketing plans, business strategies and plans, merger and acquisition targets, financial and pricing information, software of the Company in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including “library subroutines” and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases of the Company, analytical models, customer/client lists and information, and supplier and vendor lists and information. You agree not to disclose or use Proprietary Information, either during or after your employment with the Company, except as necessary to perform your duties or as the Company may consent in writing. In addition, you agree that you will make full and prompt disclosure to the Company of all inventions, creations, improvements, ideas, discoveries, trade secrets, secret processes, technology, methods, developments, software and works of authorship or other creative works, whether patentable or not, that are created, made, conceived or reduced to practice by you or under your direction or jointly with others during you employment by the Company, whether or not during normal working hours or on the premises of the Company. Nothing in the Award Agreement or this Appendix A otherwise prohibits you from reporting possible violations of state or federal law or regulation to any government agency, regulator, or legal authority, or making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation.  You are not required to notify the Company that you have made any such reports or disclosures; provided, however, that nothing herein authorizes the disclosure of information you obtained through a communication that was subject to the attorney-client privilege, unless disclosure of the information would otherwise be permitted by an applicable law or rule.  Further, pursuant to the Defend Trade Secrets Act: “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret as defined in the Economic Espionage Act that (A) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.”

As an employee of the Company, you agree that while the Company employs you and for a period of twelve months after your employment ends for any reason, you will not directly or indirectly (whether as an owner, partner, officer, employee, director, investor, lender, consultant, independent contractor or otherwise) do any of the following:

(i)Solicit Clients, Customers, or Accounts. You will not, either alone or in association with others, actually or attempt to solicit, divert, or take away the business or patronage of any of the Company’s clients, customers, or accounts, or prospective clients, customers, or accounts, that the Company contacted, solicited, or served while you were employed by the Company or about which you have Proprietary Information, provided that this provision does not prevent you from soliciting clients, customers, or accounts (if you are not using Proprietary Information to do so) for purposes that are not in actual or potential competition with the Company;

(ii)Solicit or Hire Company Employees and Independent Contractors. You will not, either alone or in association with others, actually or attempt to (x) solicit, recruit or induce any Company employee or independent contractor to leave the Company’s service or (y) solicit, recruit, hire or engage as an employee or independent contractor any individual whom the Company employed or engaged at any time while you were employed by the Company, except for an individual whose employment or other service relationship with the Company ended at least six months before the date of your action; and/or

(iii)Disclose or Utilize Product Development. You will not, either alone or in association with others, disclose to, or utilize for the benefit of, any entity other than the Company, any systems or product development ideas, concepts, or strategies that you or others in communication with you explored, generated, initiated, or discussed for potential implementation during your employment with the Company, even if the Company has not implemented such ideas, concepts, or strategies by the time your employment with the Company ends.

For the purposes of subsection (i) “Solicit Clients, Customers, or Accounts”, the terms “customer,” “client,” or “account” as applied to governmental agencies will mean the agency or department for which any of the products or services of the Company are sold or performed during the applicable period, any related program office, and any agency, department, or office that succeeds to the functions of any agency, department, or office to which the Company then provides or within the preceding twelve months provided goods or services (to the extent that the successor replaces part or all of the customer or client to which the Company provided goods or services).

To the extent you and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, you and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein, and that the terms of these Restrictive Covenants do not supersede or amend any others currently in place, or any such future terms, unless otherwise specified by the Company in writing. By accepting the Option reflected in the Award Agreement, you agree the provisions of this Restrictive Covenants section (and the related Restrictive Covenants Clawback section below) are reasonable and necessary to protect the legitimate interests of the Company.

The laws of the State of Texas will govern all matters relating to Appendix A without regard to the principles of conflict of laws.

If the Board or the Committee determines, in its sole discretion, that you violated or are violating any of the Restrictive Covenants set forth above in this Appendix A, the Option will immediately terminate without regard to whether it has already become exercisable or “vested” in whole or in part. In addition, the Board or the Committee may, in its sole discretion, require from you payment or transfer to the Company of the Gain from the Option, where the “Gain” consists of the greatest of (i) the value of the Option Shares on the date, within the Recovery Measurement Period, on which you exercised the Option with respect to such Option Shares, (ii) the value of the Option Shares received upon exercise during the Recovery Measurement Period, as determined on the date of the request by the Committee to pay or transfer, (iii) the gross (before tax) proceeds you received from any sale of the Option Shares during the Recovery Measurement Period, and (iv) if transferred without sale during the Recovery Measurement Period, the value of the Option Shares when so transferred. The Board or the Committee may determine the recoupment method in its sole discretion for any portion of the Option transferred (where permitted) before being exercised. The “Recovery Measurement Period” means the twelve months before the date of the determination of violation. The provisions in this section are essential economic conditions to the Company’s grant of the Option to you. By acknowledging receipt of the grant of the Option hereunder, you agree that the Company may deduct from any amounts it owes you from time to time (such as any severance or other payments owed following a termination of employment, as well as any other amounts owed to you by the Company, as permitted by applicable law) to the extent of any amounts you owe the Company under this Restrictive Covenants Clawback section.

You acknowledge that you would not be receiving the Option described herein but for your agreement to comply with the Restrictive Covenants. Likewise, you acknowledge that you would be unjustly enriched if you violate the Restrictive Covenants, while being able to retain some or all of the Option Shares or the gain associated with it. Furthermore, you acknowledge and agree that the damages for your breach of the Restrictive Covenants are not subject to calculation and that the remedies set forth in this Restrictive Covenants Clawback section, therefore, will only reimburse the Company for a portion of the damage done. For this reason, the Company shall be entitled to recover from you any and all damages the Company has suffered and, in addition, the Company will be entitled to injunctive relief. The parties agree that the forfeiture of the Option and payments described in this section are expressly not the Company’s exclusive or sole remedy.

This remedy is in addition to any other remedies that the Company may have available in law or equity with respect to breaches of the Restrictive Covenants above. It is also in addition to, and not in substitution for, the clawback provisions in the Award Agreement to which this Appendix A is attached.

Payment is due in cash or cash equivalents within ten days after the Board or the Committee provides notice to you that it is enforcing this clawback. Payment will be calculated on a gross basis, without reduction for taxes or commissions. The Company may, but is not required to, accept retransfer of shares in lieu of cash payments.