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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] 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: 0-24975
HEALTHEON/WEBMD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3236644
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
400 THE LENOX BUILDING, 3399 PEACHTREE ROAD 30326
NE, (ZIP CODE)
ATLANTA, GEORGIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE): (404) 495-7600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
(TITLE OF EACH CLASS)
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 [X] No [ ]
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 into Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of $59.00 on March 1, 2000, as
reported on the Nasdaq Stock Market's National Market, was approximately
$8,915,337,898. As of March 1, 2000, the Registrant had outstanding 180,401,890
shares of common stock.
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TABLE OF CONTENTS
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PART I
Item Business.................................................... 2
1.
Item Properties.................................................. 22
2.
Item Legal Proceedings........................................... 22
3.
Item Submission of Matters to a Vote of Security Holders......... 23
4.
PART II
Item Market for Registrant's Common Equity and Related
5. Stockholder Matters......................................... 24
Item Selected Financial Data..................................... 25
6.
Item Management's Discussion and Analysis of Financial Condition
7. and Results of Operations................................... 26
Item Quantitative and Qualitative Disclosures about Market
7A. Risks....................................................... 42
Item Financial Statements and Supplementary Data................. 43
8.
Item Changes and Disagreements with Accountants in Accounting and
9. Financial Disclosures....................................... 43
PART III
Item Directors and Executive Officers of the Registrant.......... 44
10.
Item Executive Compensation...................................... 44
11.
Item Security Ownership of Certain Beneficial Owners and
12. Management.................................................. 44
Item Related Party Transactions.................................. 44
13.
PART IV
Item Exhibits, Financial Statement Schedules and Reports on Form
14. 8-K......................................................... 45
Signatures............................................................ 49
Financial Statements.................................................. 50
Exhibits.............................................................. 75
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PART I
FORWARD-LOOKING STATEMENTS
Except for historical information, this annual report 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. These forward-looking statements involve risks and uncertainties,
including, among other things, statements regarding our pending acquisitions,
anticipated costs and expenses, revenue mix, product and service development and
relationships with strategic partners. These forward-looking statements include
declarations regarding our belief or current expectations of management, such as
statements indicating that "we expect," "we anticipate," "we intend," "we
believe" and similar language. Our actual results may differ significantly from
those projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's discussion and analysis of financial condition and
results of operations -- Factors that may affect future results of operations."
You should carefully review the risks described in our reports and registration
statements that we file from time to time with the Securities and Exchange
Commission. You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this annual report. We undertake
no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.
ITEM 1. BUSINESS
OVERVIEW
We provide web-based healthcare information and services to facilitate
connectivity and transactions among physicians, patients, payers and other
healthcare industry participants. Our Internet-based information and transaction
platform allows for the secure exchange of information among the disparate
information systems used by healthcare industry participants and supports our
administrative transaction services, including patient enrollment, eligibility
determination, referrals and authorizations, laboratory and diagnostic test
orders and results, clinical data retrieval and claims processing.
Our web site, WebMD.com, offers a single destination for the exchange of
healthcare information and supports a broad range of healthcare transactions
delivered over our secure, Internet-based platform. We design our service
offerings to help integrate and manage administrative, clinical, research and
information needs of healthcare industry participants. We believe that our
web-based solution has the potential to create significant improvements in the
way that information is used by the healthcare system, enabling improved
workflows, better decision-making and, ultimately, higher quality patient care
at a lower cost.
Through WebMD.com, physician subscribers can access WebMD Practice, our
provider destination, and consumers can access WebMD Health, our free consumer
destination. WebMD Practice provides physicians with administrative transaction
services, medical news and research, continuing medical education credits,
customized web sites and e-mail accounts, among other services. WebMD Health
provides consumers with health and wellness news and information, support
communities, interactive tools and opportunities to purchase health-related
products and services. Our communities allow consumers to participate in
real-time discussion and support networks over the Internet.
We currently provide services to over 250,000 physicians and approximately
11,000 dentists, 1,100 hospitals, 46,000 pharmacies, 650 payers and 6 laboratory
companies. In addition, nearly 80,000 physicians have subscriptions to WebMD
Practice, and over 850,000 consumers are enrolled in our support communities on
WebMD Health. In January 2000, WebMD.com attracted approximately 2.2 million
unique users, according to Media Metrix, and page views exceeded approximately
33.0 million, according to commercial software that we utilize.
We were incorporated in December 1995 and commenced operations in January
1996. In November 1999, we merged with WebMD, Inc., MedE America Corporation and
Greenberg News
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Networks, Inc., which is referred to as Medcast, and changed our name to
Healtheon/WebMD Corporation. We launched our integrated web site in November
1999 following the closing of these mergers.
RECENT EVENTS
Practice management system vendor strategic alliances. In January and
February 2000, we entered into strategic alliances with three leading practice
management system vendors, IDX Systems Corporation, InfoCure Corporation and
Medic Computer Systems, Inc. The completion of our alliance with IDX and its
subsidiary ChannelHealth is subject to regulatory approval. We have received a
request from the Department of Justice for additional information on our
proposed transaction with IDX. Under these agreements, we will provide
electronic transaction services and healthcare-related content to an aggregate
of approximately 250,000 physicians utilizing IDX, InfoCure and Medic
applications, some of which may already be using our services. We expect to
complete the integration of our services with these practice management system
applications and begin deploying these services in the third quarter of 2000.
Acquisition of Envoy. On January 22, 2000, we entered into a merger
agreement to acquire Envoy Corporation from Quintiles Transnational Corp. and
its subsidiary, QFinance, Inc., which together own all of the capital stock of
Envoy. Envoy is a leading provider of electronic data interchange, or EDI, and
transaction processing services to participants in the healthcare market. In
1999, Envoy's network processed over 1.4 billion transactions involving
approximately 250,000 physicians, 35,000 pharmacies, 47,000 dentists, 4,500
hospitals and 900 payers, including approximately 47 Blue Cross Blue Shield
plans, 59 Medicare plans and 40 Medicaid plans. Pursuant to the Envoy merger
agreement, we will issue 35.0 million shares of our common stock, which, if
issued as of March 1, 2000, would have represented approximately 16% of our
common stock outstanding as of that date, and pay $400.0 million in cash. These
shares will be subject to restrictions on their sale for two years after the
completion of the merger, except that up to one-third of these shares may be
sold at any time after the one-year anniversary of the completion of the merger
and up to two-thirds of these shares may be sold at any time after the 18-month
anniversary of the completion of the merger. Quintiles will issue us a warrant
to purchase up to 10.0 million shares of Quintiles common stock at $40 per
share, exercisable for four years. The acquisition of Envoy will be accounted
for as a purchase transaction. We expect that completion of the Envoy merger,
which is subject to regulatory approval and other customary closing conditions,
will occur in the second quarter of 2000. We filed the Envoy merger agreement
with the Securities and Exchange Commission in our report on Form 8-K on January
27, 2000.
News Corporation strategic alliance. On January 26, 2000, we completed the
transactions contemplated by our strategic alliance agreement with The News
Corporation Limited and Fox Entertainment Group, Inc., an entity which is
controlled through intermediaries by News Corporation. News Corporation is one
of the world's largest media companies with diversified global operations in the
U.S., Canada, the United Kingdom, Australia, Latin America and the Pacific
Basin.
Under our ten-year strategic alliance with News Corporation:
- News Corporation and its affiliates will provide us with $400.0 million
of media branding services domestically over the ten-year term.
- We acquired a 50% interest in The Health Network LLC and will jointly own
and operate with News Corporation a health-focused cable television
network, which we intend to re-launch as WebMD TV. After January 26,
2005, News Corporation has the option to require us to purchase, and we
have the option to require News Corporation to sell to us, the remaining
50% interest for up to 8,291,939 shares of our common stock.
- We formed WebMD International LLC as a joint venture with News
Corporation to launch our services worldwide, other than in the U.S. and
Japan. A subsidiary of News Corporation is obligated to contribute $100.0
million in cash to WebMD International in exchange for its 50% interest.
- News Corporation and its affiliates will provide WebMD International with
$300.0 million of media branding services internationally over the
ten-year term.
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- We each granted the other a worldwide license to use each other's
health-related content, including news feeds, over a five-year term. Our
license for News Corporation content is royalty-free, and News
Corporation will pay us license fees of an aggregate of $62.5 million
over a five-year term for our content.
- We acquired a 50% interest in thehealthnetwork.com, a health and fitness
web site, and have an option to purchase the remaining 50% for one
dollar.
We issued 155,951 shares of our Series A preferred stock, which shares vote
on an as if converted basis with our common stock, in consideration for the
transactions described above. Assuming conversion of all of the shares of Series
A preferred stock on March 1, 2000, the holders of the Series A preferred stock
would receive 21,282,645 shares, representing approximately 10% of our common
stock outstanding as of March 1, 2000. These shares are subject to restrictions
on their sale for three years. In addition, affiliates of Fox Entertainment
purchased 2.0 million shares of our common stock for an aggregate purchase price
of $100.0 million in cash. This complex transaction will be accounted for based
on its relative independently determined fair value of its components. We filed
our master strategic alliance agreement with the SEC in our report on Form 8-K
on December 10, 1999.
Investment by Janus. On January 27, 2000, Janus Capital Corporation,
through its managed mutual funds, purchased 15.0 million shares of our common
stock for $930.0 million in cash. We intend to use the proceeds to fund the cash
portion of our pending acquisition of Envoy and to provide working capital for
general corporate purposes. We filed the securities purchase agreement with
Janus with the SEC in our report on Form 8-K on January 28, 2000.
Acquisition of Kinetra. On January 31, 2000, we acquired all of the
outstanding membership interests of Kinetra LLC from Electronic Data Systems
Corporation, Eli Lilly and Company and Integrated Medical Systems, Inc., a
subsidiary of Eli Lilly, in exchange for an aggregate of 7,437,248 shares of our
common stock and $1,000 in cash. Kinetra, a joint venture between Electronic
Data Systems and Eli Lilly, is a leading provider of health information networks
and e-commerce services that enhance decision-critical information flow within
the healthcare field. We have begun to migrate Kinetra's integrated delivery
network, hospital and payer connectivity to our platform. We have accounted for
this acquisition as a purchase transaction. We filed our acquisition agreement
with Kinetra with the SEC in our report on Form 8-K on February 10, 2000.
Acquisition of Medical Manager and CareInsite. On February 13, 2000, we
entered into a merger agreement to acquire Medical Manager Corporation and its
publicly traded subsidiary, CareInsite, Inc. Medical Manager is a leading
supplier of practice management systems in the U.S. with an installed base of
approximately 33,000 sites, representing an estimated 185,000 physicians,
including its pending acquisition of Physician Computer Network. Medical Manager
Corporation operates three lines of business: the Medical Manager Health Systems
practice management systems business, the CareInsite business described below
and the development, manufacturing and distribution of porous and solid plastic
products business through its Porex Corporation subsidiary. CareInsite is
developing an Internet-based healthcare e-commerce network that links
physicians, payers, suppliers and patients and is designed to enable physicians
to conduct clinical and administrative transactions that deliver relevant
information at the point of care.
Pursuant to the Medical Manager and CareInsite merger agreements, we will
issue 1.65 shares of our common stock in exchange for each outstanding share of
Medical Manager stock and 1.3 shares of our common stock for each outstanding
share of CareInsite stock that is not owned directly or indirectly by Medical
Manager. The acquisition of each of Medical Manager and CareInsite will be
accounted for as a purchase transaction. We expect that completion of the
Medical Manager merger and the CareInsite merger, each of which is subject to
regulatory approval and other customary closing conditions, will occur mid-year
2000. Completion of the Medical Manager merger and CareInsite merger is subject
to approval by our stockholders, Medical Manager's stockholders, and
CareInsite's stockholders. In addition, the closings of the Medical Manager and
CareInsite mergers are conditioned on each other. We filed our merger agreements
with Medical Manager and CareInsite with the SEC in our report on Form 8-K/A on
February 24, 2000.
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Acquisition of OnHealth. On February 15, 2000, we entered into a merger
agreement to acquire OnHealth Network Company, a leading source of original,
informative, timely and trusted consumer-oriented health and wellness
information, products and services on the web. OnHealth.com was the single most
trafficked health web site with 3.2 million unique users in December 1999,
according to Media Metrix. Pursuant to the OnHealth merger agreement, we will
issue 0.189435 shares of our common stock for each outstanding share of OnHealth
stock. The acquisition of OnHealth will be accounted for as a purchase
transaction. We expect that completion of the OnHealth merger, which is subject
to regulatory approval and other customary closing conditions, will occur
mid-year 2000. In addition, the OnHealth merger is subject to approval by
OnHealth's stockholders. In connection with the OnHealth merger agreement, we
agreed to provide OnHealth with a line of credit of up to $30.0 million, of
which we have advanced $15.0 million for working capital needs. The loan is
secured by all of OnHealth's assets and is due on February 15, 2001. OnHealth
issued us a warrant to purchase 5.8 million shares of their common stock, which
warrant is exercisable until February 15, 2003 at $10.75 per share. In addition,
if the OnHealth merger agreement is terminated, we will receive warrants to
purchase up to an additional 500,000 shares of OnHealth's common stock at $0.01
per share, if the loan is not repaid 270 days after termination. We filed our
merger agreement with OnHealth with the SEC in our report on Form 8-K/A on
February 22, 2000.
OUR SERVICES
We offer a comprehensive suite of healthcare transaction and information
services to physicians, consumers and other healthcare industry participants
delivered over the Internet, private intranets and other networks.
Transaction services
Our transaction services currently include administrative, clinical
information, membership and pharmacy services. These network-based services are
provided through software applications operating on or interfacing with our
platform. These services are typically sold on a transaction or subscription fee
basis, which varies across customers and market segments.
The following chart summarizes the key transactions supported by us,
organized by business function:
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BUSINESS FUNCTION CUSTOMERS OR USERS TRANSACTIONS SUPPORTED
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Administrative services Payers and providers - Claims submission
- Patient eligibility
verification
- Referrals and authorizations
- Prescription transmissions
from physicians to pharmacies
- Confirmation of payment to
providers
- Patient statement billing
services
- Provider directories
- Formulary management and
reimbursement
- Provider files and directory
management and claims
repricing*
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Clinical information services Suppliers and providers - Lab test orders and results
- Patient identification and
encounter history
- Patient registration
- Text document and
transcription distribution
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BUSINESS FUNCTION CUSTOMERS OR USERS TRANSACTIONS SUPPORTED
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Membership services Consumers and payers - Enrollment in health plans
- Comparison and selection of
multiple health plans
- Provider search, selection
and change
- Benefits inquiries under
enrolled plans
- Messaging between consumers,
payers and employers
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Pharmacy services Providers - Prescription writing
- Pre-authorization of
prescription with pharmacy
benefit managers
- Prescription transmission
from physicians to pharmacies
via the Internet
- Refill requests and
authorizations
- Formularies and drug
utilization reviews
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* Under development
Some of these applications were recently acquired by us and are not yet
Internet-enabled. We intend to integrate many of these applications with our
platform and Internet-based WebMD Practice product and to consolidate our
transaction networks.
Administrative services. Our administrative services provide the
connectivity and EDI and transaction services needed for providers and payers in
the healthcare industry to communicate with each other. Through our transaction
network, we provide an electronic link, directly or indirectly through other
clearinghouses or vendors, or over the Internet, to healthcare providers in the
medical, dental and pharmacy markets and to third party payers. Our
administrative services include claims submission, eligibility and patient
benefit coverage verification, claims data capture and editing, remittance
processing, credit/debit card and check guarantee and formulary management.
These services are generally paid for by commercial payers and healthcare
providers on a transaction fee basis, although we may also charge a one-time
implementation fee. These fees vary depending on the type of transaction and the
customer's relationship with us. Our administrative services are currently
generating significant transaction volumes and revenues.
Providers include hospitals, physicians, dentists and pharmacies, some of
which access our services through their affiliations with integrated delivery
networks, clinics and physician practice management companies. Providers
initiate transactions with us over a dedicated network or the Internet.
Providers submit transactions to us over a modem connection or dedicated phone
line if the provider utilizes our software products which are installed or
operated on the provider's desktop and interface with the provider's practice
management system software, or over the Internet if the provider subscribes to
our Internet-based product WebMD Practice.
We maintain direct connections with many healthcare payers, including
Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and
commercial insurance companies. These direct connections typically consist of
dedicated networks between the payer and us. Most transactions are currently
transmitted to the payers using our proprietary software and dedicated telephone
lines, with some transactions transmitted via the Internet. We also have
contractual relationships with claims clearinghouses that maintain connections
with an additional payers. These intermediaries may charge us a fee for
transmitting our claims via their networks.
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Providers can use our products to verify patient eligibility and obtain
authorization for services from payers and for approval of referrals to other
providers at the point of care. Providers can submit real-time or batch claims
to us for processing and reimbursement by payers and inquire as to the status of
claims previously submitted. Batch claims are collected throughout the day and
submitted to us in bulk, which we then sort, format and edit to meet a
particular payer's requirements before transmission to the payer. Providers can
also receive electronic remittance advice which provides payer payment
information and an explanation of the settlement of a related claim.
In addition, we act as a clearinghouse for claims routed to us by other
processors and intermediaries for transmission to payers. These third parties
aggregate transactions from healthcare providers, but choose to use a
clearinghouse, such as us, to reach payers that they do not connect to directly.
These clearinghouse services are provided through a dedicated network that we
maintain consisting of dial-up connections, lines leased from common carriers
and computer networks, which may be accessed by other processors and
clearinghouses. We typically receive revenue from payers on these transactions
and may pay rebates to exclusive or preferred vendors as an inducement to use us
as their clearinghouse for these transactions.
We are currently developing our ProviderWorks product, with support from
one of our strategic partners, Beech Street Corporation. ProviderWorks will
support the creation and management of networks of providers by managing complex
provider directories and files, managing provider relationships and contracts
and performing claims repricing functions.
Clinical information services. We provide clinical information services
through our SCAN product and our Internet-based Dx and Clinical Reports products
that are available through WebMD Practice. Our SCAN product supports ordering
and distribution of clinical tests and test results between SmithKline Beecham
Clinical Laboratories, Inc, recently acquired by Quest Diagnostics Incorporated,
and providers using SmithKline Labs's services. In addition, we provide
teleprinter services to transmit and print these lab tests results. SCAN is
deployed on approximately 5,300 installed workstations serving physicians
throughout the U.S. and is currently generating significant transaction volumes
and revenues. SCAN is not Internet-enabled. Dx provides the same SCAN functions
allowing physicians to order lab tests and obtain results over the Internet from
national and regional laboratories. We have begun to transition the SmithKline
Lab sites to our Dx product. Clinical Reports is a document distribution system
that allows physicians to choose how they receive clinical reports through
secure e-mail, fax, network printer, pager notification or on demand from the
document repository.
Membership services. We provide our membership services through our
Benefit Central product available on WebMD Health, which is provided to
employees by their employers or health plan administrators. Benefit Central
allows employees to compare employer-sponsored plans, search provider
directories and electronically enroll in benefits. Benefit Central also allows
benefits administrators to manage employee benefit data, generate reports and
send employee enrollment information to health plans and insurance carriers over
the Internet. We currently provide membership services directly and through
aggregators to approximately 200 companies covering over 320,000 lives.
Other services. We also provide comprehensive consulting and
implementation and information technology, or IT, management services to enable
our customers to take full advantage of our platform. These services are
typically sold on a fixed fee or time and materials basis. We are currently
generating significant revenues from these services.
Pharmacy services. We have completed the initial development of our Rx
online pharmacy service, which will provide physicians access to online
prescription services, including prescription writing and routing services,
pre-authorization services and access to formularies and drug utilization
reviews through WebMD Practice. We are currently in beta testing for this
product.
WebMD.com web site
WebMD.com provides access to subscription-based services for physicians
through WebMD Practice and a free healthcare destination for consumers through
WebMD Health.
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WebMD Practice. A subscription to WebMD Practice provides online access to
multiple areas, including:
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CONTENT OR SERVICE FEATURES
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Today's medical news - Provides original, daily medical
news stories written by our staff of
journalists, as well as reports on
the business of practice
administration and summaries of
current consumer health issues of
interest to patients
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Continuing medical education, or CME - Provides access to over 700
accredited CME courses free of charge
in a variety of specialty areas and
allows physicians to track their CME
credits against state and
association requirements
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Medical community - Allows physicians to share ideas
with colleagues in peer forums and
daily polls
- Provides news from over 50 medical,
educational and government
associations and organizations and
links to other useful web sites
- Provides information on the latest
medical meetings
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Medical library - Offers access to our online version
of the Scientific American Medicine
medical reference
- Provides searchable access to
comprehensive physician journals and
newsletters from well-recognized
sources, including access to:
- over 9 million abstracts from
medical journals available in the
National Library of Medicine's
MEDLINE database
- a medical dictionary
- Clinical Pharmacology drug database
- Provides access to disease-specific
information about diagnoses and
treatment
- Offers access to audio clips and
archives of interviews with medical
experts
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Career center - Allows physicians to search, apply
for and post permanent and temporary
job positions and provides access to
a variety of career-related
resources, such as state licensure
guidelines and relocation
information
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CONTENT OR SERVICE FEATURES
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For your patients - Provides access to patient education
databases and interactive, animated
patient presentations that explain
common health conditions and
diseases
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Secure mail - Allows physicians to send and
receive e-mail, including sending
encrypted messages to other
subscribers
- Supports other optional WebMD
Practice services, including clinical
reports and dictation and
transcription services
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Practice enhancements - Allows physicians or practices to
create their own customized web site,
including information such as e-mail
address, office hours, telephone
numbers, office locations and
directions, hospital affiliations
and links to patient education
information
- Provides access to a fee schedule
analyzer, which allows physicians to
compare their fees with
reimbursement rates in their
specific geographic market
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Purchasing - Provides online access to ordering
of medical and surgical supplies and
medical textbooks
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World news and sports - Provides access to news and sports
information from CNN, Fox News and
Fox Sports, The New York Times and
CBS Sportsline
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Finance and leisure - Provides convenient access to
financial services and products,
including stock information and
insurance at discounted rates, as
well as non-medical information that
may be of interest to physicians
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Healthcare organizations - Provides links to web sites of our
hospital and integrated delivery
network partners for which we have
enrolled a minimum number of
affiliated physician subscribers
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Our current base subscription fee for WebMD Practice is $29.95 per month,
typically for a 12-month service period. Most of our subscription revenues
consist of WebMD Practice subscriptions for physicians paid for by Microsoft
Corporation and E.I. du Pont de Nemours and Company. For a more complete
description of these sponsorships, see the section entitled
"Business -- Strategic relationships."
In addition, our administrative services and clinical services available on
WebMD Practice provide physicians online access to our Internet-enabled
transaction services for additional transaction or monthly fees. Subscribers can
currently utilize the following transaction services on WebMD Practice:
- administrative services, including claims processing, eligibility
verification and referrals and authorizations
- clinical information services, including Dx and Clinical Reports through
some of our laboratory strategic partners
For a more complete description of these services, see the section entitled
"Transaction services."
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WebMD Practice also provides physicians access to the following optional
services for additional transaction or one-time implementation fees:
- dictation and transcription services, which provide physicians with
electronic delivery and accessibility of transcribed reports dictated via
the telephone
- WebMD OnCall, which offers physician-only answering services that utilize
experienced professionals to assist both physicians and patients during
physicians' off hours
- coding compliance monitor, which allows physicians to compare their
coding practices against peer group benchmarks and payer standards
- Virtual Receptionist, which integrates web-based communication and
information services, including, e-mail, voice mail and fax messaging,
paging, conference calling, long distance and active message notification
- additional CME courses available through our strategic partners
We have not generated significant revenue from these optional services to
date.
WebMD Health. Consumers have free online access to multiple areas on WebMD
Health, including:
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CONTENT OR SERVICE FEATURES
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Today's news - Offers original, daily health and
wellness news articles written by
our staff of journalists
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WebMD live events - Offers daily scheduled live chat
events with healthcare experts and
celebrity guests discussing relevant
health issues, with archives from
each show added to our searchable
database
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Member to member - Provides access to chat rooms,
message boards and posted member
columns focused on chronic health
conditions and relevant health
topics
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Living better - Offers access to original content
covering various wellness topics,
including diet and nutrition and
emotional wellness
- - - - - ------------------------------------------------------------------------------
Condition centers - Provides access to over 50 support
communities allowing consumers to
share experiences and exchange
information with other members with
their health condition or concern
- - - - - ------------------------------------------------------------------------------
Sports and fitness - Offers access to information
relating to recreational fitness
activities and sports medicine
topics
- - - - - ------------------------------------------------------------------------------
Find a physician - Allows consumers to search for a
physician, dentist, mammography or
maternity center in their area
- - - - - ------------------------------------------------------------------------------
Resource center - Provides information on emergencies,
medical associations and government
agencies
- Allows consumers to research
features of their health plan
- - - - - ------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
CONTENT OR SERVICE FEATURES
<S> <C>
Health-E-Meters - Provides access to interactive tools
to assess or demonstrate health
topics, including an ovulation
calendar, weight gain estimator,
kid's height predictor, dessert
wizard and target heart rate
calculator
- - - - - -------------------------------------------------------------------------------
Medical library - Provides searchable access to
easy-to-read health and wellness
content, including:
- clinical trials and research study
information
- drug and herb references from
Clinical Pharmacology and Physician's
Desk Reference
- an overview of health topics
currently in the news
- articles in our self-care advisor
- our ask our experts service, where
consumers can post their health
questions for our physicians
- health topics A-Z, an alphabetical
listing of articles on specific
health conditions and concerns
- a medical encyclopedia
- a patient's guide to medical tests
- interactive, animated presentations
that explain common health conditions
and diseases
- - - - - -------------------------------------------------------------------------------
MyHealthRecord - Allows members to establish and
maintain a record of their family's
health in a single, secure place
- Allows members to print out health
reports and medical emergency
identification cards for their
family
- - - - - -------------------------------------------------------------------------------
Shopping - Allows consumers access through our
online e-commerce strategic partners
to:
- fill pharmacy prescriptions and
purchase a wide range of health,
beauty and wellness products
- purchase sports and fitness
equipment
- - - - - -------------------------------------------------------------------------------
E-Newsletters - Allows consumers to receive e-mail
newsletters on general health and
personalized newsletters targeted to
their health concerns
- - - - - -------------------------------------------------------------------------------
</TABLE>
In addition, our quick search feature offers site-wide search capability,
which allows subscribers to target and sort their searches against sections
within WebMD Practice and consumers to target and sort their searches against
sections within WebMD Health.
Our web site also provides physicians and consumers with access to content
provided by some of our strategic sponsors. This content is located in a
separate area on WebMD Practice and WebMD Health and is identified as sponsor
content so our users will not confuse it with our original content.
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Our editorial and production team, currently consisting of over 100
individuals, includes board-certified physicians, Masters and Ph.D. level
medical editors, writers, illustrators and reporters who produce our original,
daily medical news from our national news center in Atlanta, Georgia, with a
bureau located in the National Press Building in Washington, D.C. We have
assembled a medical advisory board, which consists of expert representatives
from different specialties, who advise us on current news content topics.
STRATEGIC RELATIONSHIPS
In the ordinary course of our business, we enter into strategic
relationships with leading online and media distribution and healthcare
partners. We believe that our strategic relationships will enable us to enhance
our brand, increase the number of transactions processed over our platform,
generate traffic on our web site and capitalize on additional distribution and
revenue opportunities.
Our principal strategic relationships with parties that are currently
related to us or were related to us in 1999 are described below.
Microsoft. We have entered into a five-year strategic alliance with
Microsoft which provides that:
- We distribute our content and services over MSN, MSNBC and WebTV. We
develop, host, maintain on our servers and provide all of the content for
the health channels on MSN, MSNBC and WebTV. We consider ourselves to
essentially be the exclusive provider of health-related content and
services on MSN because a minimum of 80% of all health-related content
and services on MSN must be derived from the MSN health channel which is
developed, hosted and maintained by us. Microsoft may reduce this amount
to 50%, however, if WebMD Health does not maintain specified consumer
health web site rankings or if the MSN health channel does not maintain a
certain number of average page views per unique user per month, as
determined by Media Metrix. In addition, we have agreed to promote each
others' services in the following manner:
- Microsoft must maintain a link to the MSN health channel from
MSN.com's home page.
- Microsoft must provide a joint credit promoting us on each page of the
MSN health channel.
- We must maintain a link from all pages of WebMD Health to MSN.com's
home page.
- Microsoft has agreed to promote the MSN health channel in a manner
equivalent to all major MSN topic specific offerings and in this
regard has committed to provide at least 125.0 million impressions per
year to promote the health channel from its house advertising
inventory.
- Each party has committed to spend $50.0 million to co-market our
services over the first two years of our alliance.
We have agreed to pay Microsoft an aggregate of $162.0 million in
carriage fees over the term of our alliance, $4.0 million of which we
recognized as sales and marketing expense in 1999, for the distribution of
our consumer health content and services on Microsoft's health channels.
The carriage fees are payable as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- - - - - ---- ------
<S> <C>
1......................................................... $29.0 million
2......................................................... 31.5 million
3......................................................... 34.0 million
4......................................................... 32.5 million
5......................................................... 35.0 million
</TABLE>
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We incurred a nominal amount of web site development costs associated
with these health channels, which was expensed as incurred.
In connection with our strategic alliance, WebMD issued Microsoft a
warrant to purchase shares of its common stock, which we assumed in our
merger with WebMD. This warrant now represents the right to purchase
13,676,389 shares of our common stock and has an exercise price of $30.16.
We have accounted for the acquisition of our rights under the Microsoft
alliance by having the relationship independently valued in connection
with accounting for our merger with WebMD. This value is recorded as
"prepaid content and services -- related parties." We amortize this cost
over the remaining term of the alliance on a straight line basis, which is
approximately 4.5 years at December 31, 1999.
- We receive advertising and e-commerce revenue from Microsoft's health
channels. Microsoft must pay us 100% of net revenue from banner and
other advertising and e-commerce transactions generated on the health
channels or advertising that Microsoft places on our web site each year
during the term until we have received an amount equal to that portion of
the $162.0 million carriage fee that was payable during that year.
Microsoft has guaranteed that we will receive at least the following
amounts during each year of the term:
<TABLE>
<CAPTION>
YEAR MINIMUM AMOUNT
- - - - - ---- --------------
<S> <C>
1......................................................... $22.5 million
2......................................................... 22.5 million
3......................................................... 20.0 million
4......................................................... 17.5 million
5......................................................... 17.5 million
</TABLE>
Each year, after we have received advertising equal to that portion of
the $162.0 million carriage fee that was payable during that year,
Microsoft will share 50% of any additional revenue with us. We pay
Microsoft a 25% commission on that portion of the revenue received up to
the annual guaranteed minimum amount for its services in selling and
placing advertising on the Microsoft health channels or our web site
either directly or through its agents.
We recognize this advertising revenue when we are notified by Microsoft
that the advertisements have been placed on the health channels and billed
by Microsoft, not based on the guaranteed minimum payments. In 1999, we
recognized approximately $1.6 million of revenue from advertising
generated from Microsoft's health channels, which was recorded net of the
commissions due to Microsoft and is included as "service revenue from
related parties."
Microsoft is entitled to satisfy its guaranteed minimums by purchasing
or placing advertising on our web site. We have agreed to make sufficient
advertising space available to Microsoft for this purpose. We will
recognize revenue only from third-party advertising placed by Microsoft on
our web site, and we did not recognize any of this type of revenue in
1999. Payments received from Microsoft in satisfaction of its guaranteed
minimums will reduce the carrying amount of "prepaid content and
services -- related parties." We did not reduce the carrying amount of
this item at December 31, 1999 because the first year of the term of our
alliance does not end until May 2000, and we could not determine the
amount, if any, that Microsoft would pay relating to its guaranteed annual
minimum.
- Microsoft pays us for physician subscriptions to WebMD
Practice. Microsoft will sponsor up to 5.0 million subscriber months of
physician subscriptions to WebMD Practice over the term of our alliance.
These sponsored subscriptions are subject to specified annual maximum
amounts and require Microsoft to pay us $29.95 per month, less a $5 per
month commission that we must pay to Microsoft or any third party that
places the subscription for Microsoft. In order to recognize subscription
revenue from Microsoft, we must place a subscription with a physician
through our own sales force or through one of our distributors, enroll
the physician and connect them to WebMD Practice. Subscription agreements
are entered into between us and the physician and have
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<PAGE> 15
a term of at least one year. We have committed to make available training
funds of $50 for each Microsoft-sponsored subscriber and have expensed
these training costs as incurred as they are typically performed at the
time of subscriber enrollment. If a physician with a Microsoft-sponsored
subscription fails to access WebMD Practice at least once every four
months, then Microsoft will no longer be required to pay us for this
subscription, and we are allowed to replace this subscriber with another
physician.
In 1999, we recognized approximately $1.8 million in revenue for
subscriptions sponsored by Microsoft, which was recorded net of the
commissions due Microsoft and is included in "service revenue from related
parties."
- We will share with Microsoft advertising and e-commerce revenue from
Microsoft- and DuPont-sponsored physician subscriptions to WebMD
Practice. We will share with Microsoft 50% of net revenue from banner
and other advertising generated by subscriptions to WebMD Practice paid
for by either Microsoft or DuPont until Microsoft has received the amount
it has expended for its sponsored subscriptions. Thereafter, we will
share 25% of this revenue with Microsoft. We will also share with
Microsoft 15% of net revenue from e-commerce transactions and optional
services not included in the basic subscription to WebMD Practice,
including net revenue from our Internet-based transaction services on
WebMD Practice, that are generated from these Microsoft-sponsored and
DuPont-sponsored subscriptions. We will recognize e-commerce revenue when
a subscriber of WebMD Practice utilizes our Internet-based transaction
services or purchases goods or services through our web site. We will
recognize revenue from our optional services when a subscriber utilizes
one or more of these services for fees in addition to the base
subscription fees for WebMD Practice. In 1999, we did not recognize any
of these types of revenue that we were required to share with Microsoft.
- We will share with Microsoft transaction revenue generated by Microsoft's
health channels. We will share with Microsoft 15% of net revenue from
the fees we receive from our healthcare transaction services generated
from the Microsoft health channels. To date, we have not recognized any
transaction fees from the Microsoft health channels.
- Other terms of our strategic alliance with Microsoft. Our strategic
alliance with Microsoft also provides that:
- We will use Microsoft operating systems and other technologies,
including Microsoft Windows, Microsoft Office, Microsoft BackOffice,
Microsoft Commerce Server and Microsoft Visual Studio, to operate and
maintain the health channels and our web site.
- We will promote Microsoft and Microsoft-authorized independent software
vendors in a healthcare technology sector of our web site and integrate
the applications of the independent software vendors for transaction
processing on WebMD Practice.
- Microsoft and its affiliates will be the sole providers of some
non-healthcare related content and services on our web site and the sole
provider of Internet access to those WebMD Practice subscribers who
purchase Internet access from us.
- We will not provide health-related content or services to, or license
co-branded or third party-branded web sites with, specified entities,
including some Internet and healthcare companies, without Microsoft's
consent in some cases, or without providing Microsoft with notice and
offering the same content or services on the health channels or allowing
Microsoft to provide its products or services on the web site in other
cases.
- Microsoft can terminate our strategic alliance for a limited period of
time after the announcement of our intent to build or acquire specified
types of healthcare software applications if we cannot identify and
resolve conflicts that may arise as a result of these acquisitions with
Microsoft.
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<PAGE> 16
We recently began discussions with Microsoft regarding the operating
platforms and other technologies that would be utilized by Medical Manager and
CareInsite following our completion of these pending acquisitions. We have
agreed with Microsoft that for a 60-day period following our acquisitions of
Medical Manager and CareInsite we will work with Microsoft to identify and
resolve any conflicts that we may have as a result of these acquisitions.
Microsoft has agreed to vote its shares in favor of our acquisitions of
Medical Manager and CareInsite. Moreover, we believe that the 60-day period
following the acquisitions provides ample time to resolve the details of our
relationship with Microsoft as it pertains to the software businesses of Medical
Manager and CareInsite. However, if we cannot resolve any potential conflicts
with Microsoft after the closing of these acquisitions, Microsoft could
terminate our strategic alliance. If Microsoft terminates our relationship, we
would seek to replace it with a comparable one. If Microsoft terminates its
strategic alliance with us and we are unable to replace it with a comparable
relationship on terms as favorable to us as the Microsoft relationship, the
termination could result in a material reduction in our subscription and
advertising revenue.
Microsoft is one of our principal stockholders and is entitled to designate
one member of our board of directors.
News Corporation. We have entered into various agreements in connection
with our strategic alliance with News Corporation and its affiliates. Affiliates
of News Corporation beneficially own approximately 10.5% of our common stock
outstanding as of March 1, 2000, assuming conversion of all their preferred
stock into common stock as of that date. For more information regarding our
strategic alliance with News Corporation, see "Business -- Recent events."
SmithKline Labs. SmithKline Labs, which was recently acquired by Quest
Diagnostics, has agreed to promote us as its preferred vendor for laboratory
electronic connectivity services under December 1997 and January 1999 service
agreements which are effective through December 2002 and January 2004,
respectively. We provide lab order and results to SmithKline Labs' providers
through our SCAN product and teleprinter services, as well as our
Internet-enabled Dx product. Although SmithKline Beecham was one of our
principal stockholders during 1999, its holdings no longer constitute more than
5% of our common stock.
UnitedHealth Group. UnitedHealth Group has agreed to utilize us as its
preferred vendor of EDI services, through our ProviderLink and WebMD Practice
products, to UnitedHealth Group's managed care providers and customers over the
five-year term of our agreement. We receive a monthly fee for each user site
enrolled and a fee per transaction for EDI and transaction processing services.
This agreement superceded our prior agreement with UnitedHealth Group. Dr.
William McGuire, Chief Executive Officer and Chairman of UnitedHealth Group, was
one of our directors until his resignation in January 2000.
DuPont. DuPont has agreed to sponsor an aggregate of approximately 6.15
million subscriber months of WebMD Practice for physicians over the five-year
term of our alliance and provide life sciences content to WebMD.com. We share
advertising, carriage fees and e-commerce revenues with DuPont generated from
our web site ranging from 15% to 50%, depending on the type of revenue. Although
DuPont was one of our principal stockholders immediately after the WebMD merger,
its holdings no longer constitute more than 5% of our common stock.
In addition, we have entered into strategic alliances with portals and
other web sites to broaden distribution of our WebMD Health consumer content and
to provide us with e-commerce revenue opportunities. Through these
relationships, our content is available on co-branded web sites, channels on our
strategic partners' web sites or direct links from each others' web sites. We
are often the exclusive or preferred provider of consumer healthcare-related
content on our strategic partners' health channels over terms ranging from three
to five years. These partners have typically agreed to provide us with a
guaranteed minimum number of impressions and to share net advertising revenues
generated by these health channels with us in exchange for our payment of
carriage fees over the terms of the agreements. In addition, our e-commerce
strategic partners typically agree to share e-commerce revenues generated by co-
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<PAGE> 17
branded web sites with us over the terms of these agreements. Our agreements
with our online and media partners generally provide for co-branding of each
others' services, which may include online and offline branding, such as
television, newspaper, magazine, radio and in-store advertising.
We intend to continue to evaluate and enter into additional strategic
relationships with both publicly owned and privately held companies in the
ordinary course of our business and we may, as we have in the past, make
investments in or issue our securities to some of our strategic partners in
connection with these relationships. Although we view our strategic
relationships as a key factor in our overall business strategy, our strategic
partners may not view their relationships with us as significant to their own
business and may reassess their commitment to us in the future.
SALES AND MARKETING
Our national sales force targets significant potential customers in each
market segment by region. We market our services through direct sales contacts,
participation in trade shows, articles in industry publications and by
leveraging our existing customer base. We support our sales force with technical
and sales support personnel. As of December 31, 1999, we employed 275 employees
in sales and marketing.
In addition, we utilize the sales and marketing organizations of our
strategic partners. For example, we have entered into agreements with practice
management service and other healthcare solution vendors to integrate our
services with their applications and leverage their existing customer bases of
providers and payers. We have begun these integration efforts and expect to
begin deploying these services in the third quarter of 2000. We believe that
these alliances will enable us to more rapidly deploy our services to physicians
and increase our transaction volume.
We are currently engaged in a significant branding and advertising campaign
to increase awareness of the WebMD brand as a trusted and comprehensive source
of healthcare information and services on the web. We use a combination of
print, online, television and radio advertising and other marketing and
promotional efforts aimed at defining a desirable online destination for
physicians and consumers, attracting new customers, increasing traffic on our
web site and developing additional revenue opportunities. We promote our
services through traditional print media, including trade journals, newspapers
and magazines targeted at healthcare professionals and participate in trade
shows, conferences and speaking engagements as part of our ongoing public
relations program. In addition, we have entered into several strategic alliances
to promote the WebMD brand online and offline with leading online distribution
partners and traditional media companies. In addition, we will re-launch The
Health Network, a health-focused cable television network, as WebMD TV in
connection with our strategic alliance with News Corporation. We plan to
continue to allocate significant resources to marketing our services.
CUSTOMER SUPPORT
We believe that a high level of customer support is necessary to attract
and retain customers. We provide a wide range of customer support through a
staff of customer service personnel, multiple call centers and an e-mail help
desk. We also offer web-based support services that are available 24 hours a
day, seven days a week, as well as toll-free telephone support to our physician
customers from 8:00 a.m. to 8:00 p.m., Eastern time, Monday through Friday. We
also employ technical support personnel who work directly with our direct sales
force and customers. As of December 31, 1999, we employed 500 employees and
independent contractors in customer support functions, including network
services, provider services and customer support services.
OUR PLATFORM
Our platform is a distributed application framework, combined with software
tools that are designed to ensure security, scalability, availability,
reliability and manageability, on which transaction-intensive applications can
be delivered over the Internet or over other distributed environments. Our
platform is deployed on a server complex at our data center in Santa Clara,
California, with additional operations in
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<PAGE> 18
three other facilities in the U.S., which consists of SUN Solaris, Stratus and
Windows NT servers in a fault tolerant configuration and redundant or fault
tolerant network components. Our platform features:
Security. Our platform is designed to ensure the privacy and integrity of
data and communications by using a combination of security methodologies to
provide multiple lines of defense. All Internet communications between us and
our users employ the Secure Sockets Layer protocol. In addition, we utilize
server digital certificates and username and password schemes to authenticate
users. Each user has a unique user identification and has one or more roles that
define the types of functionality and data access available. All of our
applications record logging information, creating an audit trail, and protect
privacy by encrypting sensitive data. We also use a multi-layered firewall
complex to secure our network infrastructure. In addition, network vulnerability
scanners are used on a regular basis to actively monitor security status. Our
physical security systems at our Santa Clara facility consist of comprehensive
physical controls and multi-layered authentication, dual-level access points and
multiple alarm systems.
Scalability. Our platform utilizes CORBA-based middleware, which enables a
highly scalable distributed applications infrastructure and enables an
application to run simultaneously on multiple host systems, allowing for large
numbers of simultaneous users while at the same time optimizing network
performance and resource utilization. In addition, our platform has been
designed to transparently deploy new services and hardware while existing
applications remain operational. Finally, our platform reduces communications
bottlenecks resulting from limited numbers of connections to database servers
through intelligent management of database connections and object caches that
reduce the need to query database servers for frequently used data.
Rapid application development and integration. Our platform is designed to
enable rapid application development and integration. It supports
object-oriented programming, which accelerates the design process through object
reuse. We maintain a comprehensive set of object libraries, called core
services, that allows developers to build complex applications rapidly. Our
platform also allows applications developed by third parties to be deployed with
relative ease. The platform interfaces with legacy systems by accepting industry
standard ANSI X.12 and HL7 electronic data interchange formats.
High availability. Our platform architecture is designed to ensure high
availability through the replication of applications and other software
services, failure detection and automatic restart of failed services and
applications. Running multiple copies of a service or application removes any
single point of failure within the system and ensures that at least some copies
of a service will be available while others may have failed. In addition, the
servers that host our applications are duplicated to provide redundancy. We use
duplicate fiber optic cable connections to Sprint and MCI/WorldCom to ensure
highly available access to the Internet. Our platform uses a mix of
fault-tolerant hardware, redundant equipment and back-up power systems.
Manageability. Our management framework provides a single image view of
all of our services, thus simplifying administration in a distributed
environment. Our services can be managed from a web-based management station.
Our management and administration framework monitors service performance and
generates event notifications of system abnormalities.
Disaster recovery plans. Although we believe our operations facilities are
highly resistant to systems failure and sabotage, we have developed, and are in
the process of implementing, a disaster recovery and contingency operations
plan. In addition, all of our services are linked to advance storage systems
that provide data protection through techniques such as replication. We also
maintain on-site backup power systems.
Audits. Our information technology department periodically performs, and
retains accredited third parties to perform, audits of its operational
procedures under both internally developed audit procedures and externally
recognized standards.
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DEVELOPMENT AND ENGINEERING
We have developed internally and acquired through acquisitions our
applications and services. We will also continue to work closely and engage in
joint development efforts with some of our strategic partners. We have several
significant projects currently in development. These projects include the
continued enhancement of our platform architecture, the development of our
ProviderWorks product, the integration of our services with Medic's practice
management systems applications, and the continued integration of ActaMed's and
MedE America's platform, network and transaction services. As of December 31,
1999, we employed 900 employees in development and engineering.
Our development and engineering expense, which excludes development
expenses included in cost of operations, totaled $29.7 million in 1999, $19.0
million in 1998 and $12.3 million in 1997. We believe that timely development
and deployment of new and enhanced applications and technology is necessary to
remain competitive. Accordingly, we intend to continue to make investments in
development and engineering and to recruit and hire experienced development
personnel. However, we cannot guarantee that we will be successful in developing
and deploying new applications and services that respond to competitive and
technological developments and changing customers needs.
COMPETITION
The market for healthcare information services is intensely competitive,
rapidly evolving and subject to rapid technological change. Many of our
competitors have greater financial, technical, product development, marketing
and other resources than we have. These organizations may be better known and
have more customers than we have. Many of our competitors have also announced or
introduced Internet strategies that will compete with our applications and
services. We may be unable to compete successfully against these organizations.
We have many competitors, including:
- healthcare information software vendors
- healthcare electronic data interchange companies
- large information technology consulting service providers
- online services or web sites targeted to the healthcare industry,
physicians and healthcare consumers generally
- publishers and distributors of traditional offline media, including those
targeted to healthcare professionals, many of which have established or
may establish web sites
- general purpose consumer online services and portals and other
high-traffic web sites which provide access to healthcare-related content
and services
- public sector and non-profit web sites that provide healthcare
information without advertising or commercial sponsorships
- vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging
We expect that major software information systems companies and others
specializing in the healthcare industry will offer competitive applications or
services. Some of our customers and strategic partners may also compete with us.
Our reputation and brand name could be adversely affected if we experience
difficulties in introducing new services, if our services are not accepted by
physicians or consumers, if we are required to discontinue existing services or
if our services do not offer desirable features or function properly.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Our business is and will continue to be subject to government regulation.
Existing and new laws and regulations could adversely affect our business. Laws
and regulations may be adopted with respect to the Internet or other online
services covering issues such as:
- user privacy and patient confidentiality
- pricing
- content
- copyrights and patents
- distribution
- characteristic and quality of products and services
We cannot predict whether these laws will be adopted and how they will
affect our business.
Regulation regarding privacy and patient confidentiality
Internet user privacy has become an issue both in the U.S. and abroad.
Whether and how existing privacy or consumer protection laws in various
jurisdictions apply to the Internet is uncertain and may take years to resolve.
Any legislation or regulations of this nature could affect the way we conduct
our business, particularly in our collection or use of personal information, and
could harm our business. Further, activities on or using the Internet have come
under increased scrutiny, including increased investigation in the healthcare
arena by the Federal Trade Commission and heightened media attention.
Similar to many other Internet healthcare companies, we have recently
received a request for information from the FTC concerning our web site privacy
policies and practices. While we believe we are in compliance with all
applicable laws, all third party contractual commitments and our published
privacy commitments, government inquiries such as this inquiry can divert
management's attention from other matters and create unfavorable publicity.
Numerous state and federal laws govern the collection, dissemination, use,
access to and confidentiality of patient health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the federal Department of Health and Human
Services has proposed regulations implementing the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, concerning standards for electronic
transactions, security and electronic signatures and privacy of individually
identifiable health information. The proposed regulations, among other things,
would require companies to develop security standards for all health information
that is used electronically. The proposed regulations would impose significant
obligations on companies that send or receive electronic health information. The
application of these laws to the personal information we collect could create
potential liability under these laws. We have designed our services to comply
with these proposed regulations. However, we cannot predict when these proposed
regulations will be finalized and whether they will be changed before they are
finalized. Any changes could cause us to use additional resources to revise our
platform and services.
Additional legislation governing the distribution of medical records exists
and has been proposed at both the state and federal levels. We will be subject
to extensive regulation relating to the confidentiality and release of patient
records, and it may be expensive to implement security or other measures to
comply with new legislation and final regulations. Further, we may be restricted
or prevented from maintaining or delivering patient records electronically. Such
a restriction may have an adverse effect on our business.
Federal and state regulation of healthcare relationships
There are federal and state laws that govern patient referrals, physician
financial relationships and inducements to beneficiaries of federal healthcare
programs. The federal Anti-Kickback Law prohibits any
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person or entity from offering, paying, soliciting or receiving anything of
value, directly or indirectly, for the referral of patients covered by Medicare,
Medicaid and other federal healthcare programs or the leasing, purchasing,
ordering or arranging for or recommending the lease, purchase or order of any
item, good, facility or service covered by these programs. The Anti-Kickback Law
is broad and may apply to some of our activities. Penalties for violating the
Anti-Kickback Law include imprisonment, fines and exclusion from participating,
directly or indirectly, in Medicare, Medicaid and other federal healthcare
programs. Many states also have similar anti-kickback laws that are not
necessarily limited to items or services for which payment is made by a federal
healthcare program. We carefully review our practices with regulatory experts to
ensure that we comply with all applicable laws. However, the laws in this area
are both broad and vague and it is often difficult or impossible to determine
precisely how the laws will be applied, particularly to new services such as
ours. Any determination by a state or federal regulatory agency that any of our
practices violate any of these laws could subject us to civil or criminal
penalties and require us to change or terminate certain portions of our
business.
We currently provide billing services and intend to provide repricing
services to providers and, therefore, may be subject to state and federal laws
that govern the submission of claims for medical expense reimbursement. These
laws generally prohibit an individual or entity from knowingly presenting or
causing to be presented a claim for payment from Medicare, Medicaid or other
third party payers that is false or fraudulent, or is for an item or service
that was not provided as claimed. These laws also provide civil and criminal
penalties for noncompliance. We have designed our current transaction services
and will design any future services to place the responsibility for compliance
with these laws on our customers. However, we cannot guarantee that state and
federal agencies will regard billing errors processed by us as inadvertent and
not in violation of these laws.
Regulation by the Food and Drug Administration
Some computer applications and software are considered medical devices and
are subject to regulation by the United States Food and Drug Administration, or
the FDA. FDA regulations are broadly worded and its guidance in these areas is
outdated, leaving uncertainty in how these regulations apply. We have attempted
to design our services so that our computer applications and software are not
considered to be medical devices. However, the FDA may take the position that
our services are subject to FDA regulation. In addition, we may expand our
services in the future to areas that subject us to FDA regulation. We have no
experience in complying with FDA regulations. We believe that complying with FDA
regulations may be time-consuming, burdensome and expensive and could delay our
introduction of new applications or services.
Regulation of transaction services
State and federal statutes and regulations governing transmission of claims
may affect our operations. For example, Medicaid rules require certain
processing services and eligibility verification to be maintained as separate
and distinct operations. We believe that our practices are in compliance with
applicable state and federal laws. These laws, though, are complex and changing,
and the government may take positions that are inconsistent with our practices.
Professional regulation
The practice of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states prohibit business
entities from practicing medicine, which is referred to as the prohibition
against the corporate practice of medicine. We have attempted to structure our
web site, strategic relationships and other operations to avoid violating these
state licensing and professional practice laws. A state, however, may determine
that some portion of our business violates these laws and may seek to have us
discontinue those portions or subject us to penalties or licensure requirements.
We employ and contract with physicians who provide only medical information to
consumers, and we have no intent to provide medical care or advice. We do not
maintain professional liability insurance because we believe we
20
<PAGE> 22
are not a healthcare provider. Any determination that we are a healthcare
provider and acted improperly as a healthcare provider may result in liability
for which we are not insured.
INTELLECTUAL PROPERTY
We rely upon a combination of patent, trade secret, copyright and trademark
laws, license agreements, confidentiality procedures, employee and client
nondisclosure agreements and technical measures to protect our intellectual
property.
We have several trademarks in the U.S. and internationally. We have applied
for federal registration of our service marks "WebMD," "Web-MD," "Health has a
Homepage," "WebMD Practice," "WebMD Health," "Healtheon" and "WebMD OnCall,"
among others. Our Web-MD application was published in the U.S. Patent and
Trademark Office Official Gazette on February 22, 2000. Any party interested in
opposing registration of our Web-MD mark will have 30 days from publication to
file either a notice of opposition or a request for extension of time to file
opposition. If no such document is timely filed, our Web-MD application should
mature to registration in due course. Our WebMD application is being prosecuted,
and we anticipate that a second office action will be received in the next three
months. We have also applied for registration of the service marks WebMD and
Health has a Homepage, among others, in approximately 75 foreign jurisdictions.
Although some of these applications have matured to registration, we cannot
guarantee that any of the remaining applications will do so. In any jurisdiction
where common law rights are acquired by being the first entity to adopt, use and
continue to use a particular mark in connection with certain goods or services,
we will be able to assert our common law rights against any third-party
infringer until such time as we can also assert our national registration, if at
all. In addition to our service mark applications, we have also registered the
domain name "webmd.com" and numerous other domain names that either are or may
be relevant to conducting our business. Our inability to protect our marks
adequately would hurt us in establishing and maintaining our brand.
We also rely on a variety of intellectual property rights that we license
from third parties, including our Internet server software and healthcare
content used on our WebMD web site. These third party licenses may not continue
to be available to us on commercially reasonable terms. Our loss of or inability
to maintain or obtain upgrades to any of these licenses could significantly harm
us. In addition, because we license a majority of our content from third
parties, our exposure to copyright infringement actions may increase because we
must rely upon such parties for information as to the origin and ownership of
such licensed content.
The steps we have taken to protect our proprietary rights may not be
adequate, and we may not be able to secure trademark or service mark
registrations for marks in the U.S. or in foreign countries. Third parties may
infringe upon or misappropriate our copyrights, trademarks, service marks and
similar proprietary rights. In addition, effective copyright and trademark
protection may be unavailable or limited in many foreign countries, and the
global nature of the Internet makes it impossible to control the ultimate
destination of our services. It is possible that competitors or others will
adopt product or service names similar to our names, which could impede our
efforts to build brand identity and possibly lead to customer confusion.
Moreover, because domain names derive value from the individual's ability to
remember such names, our domain name will lose its value if, for example, users
begin to rely on mechanisms other than domain names to access online resources.
Our inability to protect our marks and domain names adequately would hurt our
ability to establish our brand. In the future, litigation may be necessary to
enforce and protect our trade secrets, copyrights and other intellectual
property rights. Litigation would divert management resources and be expensive
and may not effectively protect our intellectual property.
Substantial litigation regarding intellectual property rights exists in the
software industry, and we expect that software products may be increasingly
subject to third-party infringement claims as the number of competitors in our
industry grows and the functionality of products overlaps. Although we believe
that our products do not infringe on the intellectual property rights of others,
we cannot assure that such a claim will not be asserted against us in the
future, or that a license or similar agreement will be available on reasonable
terms in the event of an unfavorable ruling on any such claim.
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<PAGE> 23
We have several patents covering our software technology. Due to the nature
of our application software, we believe that patent protection is less
significant than our ability to further develop, enhance and modify our current
services and products. However, any infringement or misappropriate of our
proprietary software and databases could disadvantage us in our efforts to
attract and retain customers in a highly competitive market and could cause us
to lose revenues or incur substantial litigation expense. Moreover, in recent
years, there have been a large number of patents issued in general and numerous
patents issued related to Internet business methods. While we are unaware of any
that would impact our ability to conduct our business, defense of a patent
infringement claim against us could divert management and monetary resources and
an adverse judgment in any such matter may negatively impact our ability to
conduct our business in the manner we desire.
EMPLOYEES
As of December 31, 1999, we employed a total of 1,825 employees and
independent contractors, of whom 500 were employed in customer, network and
provider services, 900 were employed in development and engineering, 275 were
employed in sales and marketing and 150 were employed in administrative,
financial, legal, human resources and executive functions. None of our employees
is represented by a labor union, and we have never experienced a work stoppage.
We believe our relationship with our employees is good.
ITEM 2. PROPERTIES
We maintain two principal executive offices, our corporate headquarters
located in Atlanta, Georgia and our technology headquarters located in Santa
Clara, California. We lease our Atlanta office consisting of an aggregate of
approximately 63,000 square feet of space pursuant to leases which expire in
February 2002 and November 2004. We lease our Santa Clara office, which shares
approximately 50,000 square feet of space with some of our development and
network operations, pursuant to a lease which expires in March 2008.
The following chart summarizes some of our additional facilities:
<TABLE>
<CAPTION>
APPROXIMATE OWNED/LEASED
LOCATION SQUARE FOOTAGE AND EXPIRATION DATE OPERATIONS
- - - - - -------- ----------------- ---------------------- -----------------------
<S> <C> <C> <C>
Twinsburg and Bethel, Ohio 50,000 aggregate Owned Primary medical and
pharmacy data center
Minneapolis, Minnesota 50,000 Leased -- April 2006 Sales, engineering and
support operations
Atlanta, Georgia 41,000 Leased -- July 2001 Sales, development and
network operations
</TABLE>
We believe that our existing facilities and offices are adequate for our
current operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be a party to legal proceedings incidental to our
business. We do not believe that any of these proceedings will have a material
adverse effect on our business or financial condition.
22
<PAGE> 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting of stockholders held on November 11, 1999, our
stockholders voted with respect to the following matters:
- To approve the issuance of 1.796 shares of our common stock for each
share of outstanding WebMD common stock in the merger of WebMD with and
into a wholly owned subsidiary of Healtheon/WebMD. By voting in favor of
the WebMD merger, stockholders also voted to elect the following as
directors of Healtheon/WebMD upon consummation of the WebMD merger: W.
Michael Long, James H. Clark, L. John Doerr, William W. McGuire, M.D.,
Jeffrey T. Arnold, Eric J. Gleacher, William P. Payne, U. Bertram Ellis,
Jr. and Laura Jennings
<TABLE>
<S> <C>
Votes for: 59,744,532
Votes against: 119,367
Abstentions: 29,908
Broker non-votes: 804,998
</TABLE>
- To approve an amendment to our certificate of incorporation to change our
corporate name from Healtheon Corporation to Healtheon/WebMD Corporation
and to increase the authorized number of shares of common stock from
150,000,000 to 600,000,000 shares, in each case if the WebMD merger was
completed
<TABLE>
<S> <C>
Votes for: 59,466,154
Votes against: 1,207,833
Abstentions: 24,818
Broker non-votes: 0
</TABLE>
- To elect James H. Clark, L. John Doerr and C. Richard Kramlich as Class I
directors to serve three year terms ending in 2002, such election to be
effective in the event that the WebMD merger did not close before
December 16, 1999
<TABLE>
<S> <C>
Votes for James H. Clark: 60,661,234
Votes against James H Clark: 37,571
Votes for L. John Doerr: 60,661,234
Votes against L. John Doerr: 37,571
Votes for C. Richard Kramlich: 60,656,234
Votes against C. Richard Kramlich: 42,571
</TABLE>
- To amend our bylaws to provide that directors can be removed only for
cause and to modify the advance notice and provisions for board
nominations and other stockholder proposals
<TABLE>
<S> <C>
Votes for: 58,428,096
Votes against: 1,419,116
Abstentions: 46,595
Broker non-votes: 804,998
</TABLE>
- To amend our 1996 stock plan, if the WebMD merger was completed, to
increase the number of shares reserved for issuance from 19,107,321
shares to 29,107,321 shares
<TABLE>
<S> <C>
Votes for: 58,373,586
Votes against: 1,479,236
Abstentions: 40,985
Broker non-votes: 804,998
</TABLE>
23
<PAGE> 25
- To amend our 1998 employee stock purchase plan to increase the number of
shares of common stock reserved under the plan from 1,000,000 shares to
2,000,000 shares and to change the formula for annually increasing the
number of shares available to be issued under the plan
<TABLE>
<S> <C>
Votes for: 59,594,266
Votes against: 260,484
Abstentions: 39,057
Broker non-votes: 804,998
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
We completed the initial public offering of our common stock on February
10, 1999. Our common stock has been traded on the Nasdaq National Market under
the symbol "HLTH" since February 11, 1999. Prior to that date, there was no
public market for our common stock and, therefore, no quoted market prices for
our common stock are available for the year ended December 31, 1998.
The high and low closing prices for each quarterly period of 1999 are as
follows:
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
First quarter (beginning February 11, 1999)............... $ 49.38 $21.75
Second quarter............................................ 105.00 39.94
Third quarter............................................. 77.63 30.06
Fourth quarter............................................ 51.50 31.50
</TABLE>
On March 1, 2000, there were 954 holders of record of our common stock.
Because many of such shares are held by brokers and other institutions on behalf
of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.
The market price of our common stock has fluctuated since the date of our
initial public offering and is likely to fluctuate in the future. Factors that
may have a significant effect on the market price of our common stock include:
- actual or anticipated quarterly variations in our operating results
- changes in expectations of future financial performance or changes in
estimates of securities analysts
- announcements of technological innovations
- announcements relating to strategic relationships and acquisitions
- customer relationship developments
- perceived changes in our business strategy
- conditions affecting the Internet or healthcare industries, in general
The trading price of our common stock may continue to be volatile. The
stock market in general, and the market for technology and Internet-related
companies in particular, has experienced extreme volatility that often has been
unrelated to the operating performance of particular companies. These broad
market and industry fluctuations many adversely affect the trading price of our
common stock, regardless of our actual operating performance.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to us, litigation would be expensive and
would divert management's attention.
24
<PAGE> 26
We have never declared or paid any cash dividends on our common, and we do
not anticipate paying cash dividends in the foreseeable future. We intend to
retain earnings to finance the expansion of our operations. Our Series A
payment-in-kind convertible preferred stock pays a 10.5% annual dividend
quarterly in additional shares of Series A preferred stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's discussion and analysis of financial condition
and results of operations" and with the consolidated financial statements and
notes thereto, which are included elsewhere in this annual report. Our financial
information presented reflects our combined financial position and results of
operations with ActaMed for all dates and periods presented and reflects the
results of operations for WebMD, MedE America and Medcast from the closing date
of these mergers, November 12, 1999, forward. All of these acquisitions were
accounted for as purchases, except for ActaMed, which was accounted for as a
pooling of interests. All financial information has been restated to reflect the
combined operations of Healtheon and ActaMed. The consolidated statements of
operations data for the three-year period ended December 31, 1999 and the
consolidated balance sheet data at December 31, 1999 and 1998 are derived from,
and are qualified by reference to, the audited consolidated financial statements
included elsewhere in this annual report. The consolidated statements of
operations data for the two-year period ended December 31, 1996 and the
consolidated balance sheet data at December 31, 1997, 1996 and 1995 are derived
from, and are qualified by reference to, audited consolidated financial
statements that are not included in this report. The consolidated statements of
operations and balance sheet data as of and for the year ended December 31, 1995
are derived solely from the ActaMed statements of operations and balance sheets
for such periods because we did not commence operations until January 1996. See
notes 1 and 2 of notes to consolidated financial statements for a discussion of
the accounting for our acquisition of ActaMed. We do not believe that our
historical operating results are necessarily indicative of our future results.
See note 1 of notes to consolidated financial statements for an explanation of
the determination of the shares used in computing basic and diluted net loss per
common share.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Service revenue................................. $ 57,421 $ 27,102 $ 4,301 $ 1,795 $ 458
Service revenue from related parties............ 37,210 20,956 7,309 4,237 --
Software licenses............................... 7,518 780 1,780 4,981 1,717
---------- -------- -------- -------- -------
Total revenue................................... 102,149 48,838 13,390 11,013 2,175
Operations costs and expenses:
Cost of operations:
Cost of revenue................................. 58,267 26,907 3,910 1,590 1,573
Cost of revenue from related parties............ 30,309 16,107 6,536 4,919 --
Cost of software licenses....................... -- -- -- 160 343
---------- -------- -------- -------- -------
Total cost of operations.......................... 88,576 43,014 10,446 6,669 1,916
Development and engineering....................... 29,669 19,002 12,267 8,332 2,446
Sales, general and administrative................. 82,315 24,715 10,096 8,400 1,749
Depreciation and amortization..................... 193,067 16,055 6,004 4,153 --
---------- -------- -------- -------- -------
Total operating costs and expenses................ 393,627 102,786 38,813 27,554 6,111
---------- -------- -------- -------- -------
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Loss from operations.............................. (291,478) (53,948) (25,423) (16,541) (3,936)
Interest income................................. 4,013 1,262 611 539 208
Interest expense................................ (527) (472) (323) (56) (6)
Other........................................... -- (890) (2,870) (2,548) (724)
---------- -------- -------- -------- -------
Net Loss.......................................... $ (287,992) $(54,048) $(28,005) $(18,606) $(4,458)
========== ======== ======== ======== =======
Basic and diluted net loss per common share..... $ (3.58) $ (1.54) $ (3.88) $ (2.83) $ (.85)
========== ======== ======== ======== =======
Weighted-average shares outstanding used in
computing basic and diluted net loss per common
share........................................... 80,367 34,987 7,223 6,583 5,246
========== ======== ======== ======== =======
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments..................................... $ 291,286 $ 36,817 $ 21,804 $ 7,539 $ 9,386
Working capital................................... 216,304 27,934 14,790 2,505 7,244
Total assets...................................... 4,242,462 79,940 53,747 34,407 10,801
Long-term obligations, net of current portion..... 121,489 2,984 932 1,210 --
Convertible redeemable preferred stock............ -- -- 50,948 39,578 16,029
Stockholders' equity (net capital deficiency)..... 3,973,672 59,413 (9,930) (14,553) (7,698)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide web-based healthcare information and services to facilitate
connectivity and transactions among physicians, patients, payers and other
healthcare industry participants. Our Internet-based information and transaction
platform allows for the secure exchange of information among the disparate
information systems used by healthcare industry participants and supports our
administrative transaction services, including patient enrollment, eligibility
determination, referrals and authorizations, laboratory and diagnostic test
orders and results, clinical data retrieval and claims processing.
Our web site, WebMD.com, offers a single destination for the exchange of
healthcare information and supports a broad range of healthcare transactions
delivered over our secure, Internet-based platform. We design our service
offerings to help integrate and manage administrative, clinical, research and
information needs of the healthcare industry. We believe that our web-based
solution has the potential to create significant improvements in the way that
information is used by the healthcare system, enabling improved workflows,
better decision-making and, ultimately, higher quality patient care at a lower
cost.
We were incorporated in December 1995 and commenced operations in January
1996. In November 1999, we merged with WebMD, MedE America and Medcast, and we
changed our name to Healtheon/WebMD. We launched our integrated web site in
November 1999 following the closing of these mergers.
We have rapidly and significantly expanded our operations through
acquisitions. We have completed the following acquisitions prior to the year
ended December 31, 1999:
<TABLE>
<CAPTION>
SHARES OF OUR OPTIONS AND
COMPANY ACQUIRED DATE ACQUIRED COMMON STOCK ISSUED WARRANTS ASSUMED CASH PAID
- - - - - ---------------- ------------- ------------------- ---------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
WebMD............................ November 1999 63,932,659 49,012,168 --
MedE America..................... November 1999 10,404,454 468,584 --
Medcast.......................... November 1999 2,528,465 164,036 $2,336
Metis, LLC....................... August 1998 1,600,000 -- 620
ActaMed Corporation.............. May 1998 23,271,355 3,383,011 --
</TABLE>
26
<PAGE> 28
All of these acquisitions were accounted for as purchases, except for
ActaMed which was accounted for as a pooling of interests. Our financial
information presented reflects our combined financial position and results of
operations with ActaMed for all dates and periods presented and reflects the
results of operations for WebMD, MedE America and Medcast from the closing date
of these mergers, November 12, 1999, forward.
As a result of our purchases of WebMD, MedE America and Medcast, we
recorded total intangible assets of $3.7 billion, consisting primarily of $116.9
million of trademarks, $84.1 million of customer lists, $40.8 million of
acquired technology and $3.4 billion of goodwill, which will be amortized over
estimated useful lives of three to four years.
In addition, we completed our acquisition of Kinetra and entered into
merger agreements to acquire Envoy, Medical Manager, CareInsite and OnHealth in
the first quarter of 2000. For a more complete description of these
acquisitions, see the section entitled "Business -- Recent events."
Because we have only recently completed the November 1999 mergers and
expect to complete all of our pending mergers by the third quarter of 2000, it
is difficult to evaluate our business and prospects. Our revenue and income
potential is unproven and our business model is still emerging. As a result, we
believe that our historical financial information may not be an indicator of our
future operating results. We have incurred significant operating and net losses
since we began operations and, as of December 31, 1999, we had an accumulated
deficit of $391.4 million. We plan to continue to invest heavily in
acquisitions, strategic relationships, sales and marketing and infrastructure
and applications development. As a result, we expect that we will continue to
incur losses for at least the next 12 months, and we may never achieve or
sustain profitability.
Our revenue to date has been derived primarily from revenue from
non-Internet, network-based transaction services, development, consulting and IT
management services, software license fees and advertising and subscription
revenue from our web site.
We provide our network- and Internet-based administrative transaction
services to healthcare payers and providers generally on a transaction fee
basis, although we may charge for this service on a monthly basis. These fees
vary depending on the type of transaction and the customer's relationship with
us. We provide development and consulting services, as well as IT management and
operations services to some of our customers, which are typically sold on a
fixed fee or time and materials basis. We have also licensed our software to two
of our customers. However, we do not expect that a significant amount of revenue
will be earned from software license fees in the foreseeable future. We are
currently generating significant revenue from our development, consulting and IT
services. In addition, we do not anticipate that revenue from these services
will increase as a percentage of our total revenue in the future as some of
these current customers begin to utilize our transaction and subscription
services.
We also derive revenue from advertising and sponsorships, subscriptions,
e-commerce, content license fees and carriage fees generated from our web site
and co-branded web sites. Our advertising and e-commerce revenues are typically
generated from revenue sharing arrangements with our online strategic partners.
Most of our subscription revenue consists of sponsorship of WebMD Practice
subscriptions for physicians by Microsoft and DuPont. These sponsorships require
Microsoft and DuPont to pay us our current WebMD Practice base subscription fee
of $29.95 per month, typically for a 12-month service period. For a more
complete description of these sponsorships, see the section entitled "Related
party transactions." Subscribers can also access our Internet-based transaction
services and optional services on WebMD Practice for additional transaction or
one-time implementation fees. For a complete description of these services, see
the section entitled "Business -- WebMD Practice." During 1999, we did not
generate significant revenue from our Internet-based transaction services or
optional services. If we are successful in migrating provider and payer
customers to our transaction services available on WebMD Practice, building our
subscriber base and increasing traffic on our web site, we expect that our
Internet-based transaction, advertising and subscription revenue to increase as
a percentage of total revenue.
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<PAGE> 29
We recognize revenue as our services are performed or our products are
delivered. We earn revenue on our network-based fees from fixed fee subscription
arrangements, which are recognized ratably over the term of the applicable
agreement, and from our administrative services, which are priced on a
per-transaction or per-user basis and recognized as the services are performed.
Revenue from our development, consulting and IT management services is
recognized as these services are performed. We recognize revenue related to
software license fees when a customer enters into a noncancelable license
agreement, the software product covered by the license agreement has been
delivered, there are no uncertainties surrounding product acceptance, there are
no significant future performance obligations, the license fees are fixed or
determinable and collection of the license fees is considered probable.
Revenue from advertising is recognized as advertisements are run on our web
site or on co-branded web sites. Our subscription revenue, including
subscription revenue from sponsorship arrangements, is recognized as
subscriptions are placed with physicians. We do not allocate subscription
revenue among our various service offerings included as part of the base
subscription fee. Revenue from fixed fee content license or carriage fees are
recognized ratably over the term of the applicable agreement. We recognize
e-commerce revenue when a subscriber or consumer utilizes our Internet-based
services or purchases goods or services through our web site or a co-branded web
site with one of our strategic partners. We recognize revenue from our optional
services when we provide one or more of these services for fees in addition to
the base subscription fees for WebMD Practice.
Three of our customers, SmithKline Labs, which was recently acquired by
Quest Diagnostics, Beech Street and UnitedHealth Group, each accounted for more
than 10% of our revenue in 1999, and together accounted for approximately 57.9%
of our revenue for the same period. We expect that these three customers,
together with Microsoft, will account for a significant but smaller portion of
our revenue for 2000.
Cost of operations consist of costs related to services we provide to
customers and costs associated with the operation and maintenance of our
networks. These costs include salaries and related expenses for consulting and
development personnel, network operations personnel and customer support
personnel, telecommunication costs, maintenance of network equipment,
amortization of certain intangible assets, a portion of facilities expenses, and
leased personnel and facilities costs. Given our limited operating history,
changes in revenue mix, limited history of Internet-based network services,
recent investments in personnel, recently completed and pending acquisitions,
amortization of infrastructure investments and evolving business model, we
believe that analysis of historical cost of operations as a percentage of
revenue is not meaningful. We anticipate that our total cost of operations will
increase in absolute dollars in the future.
Development and engineering expense, which excludes development expenses
that are included in cost of operations, consists primarily of salaries and
related expenses associated with the development of applications and services.
Expenses include compensation paid to engineering personnel, fees to outside
contractors and consultants, a portion of facilities expenses and the
maintenance of capital equipment used in the development process. We believe our
success is partially dependent upon our ability to introduce new applications in
a relatively short period of time. Accordingly, we intend to continue to make
investments in development and engineering and to recruit and hire experienced
engineering personnel. We expect that development and engineering expenses will
continue to increase in absolute dollars. Currently, all development and
engineering expenses are expensed as incurred.
Sales and marketing expense consists primarily of advertising, product and
brand promotion, salaries and related expenses for sales, account management and
marketing personnel, commissions, costs and expenses for marketing programs and
trade shows, and fees for professional marketing and advertising services. We
anticipate these expenses will continue to increase in absolute dollars as we
add sales and marketing personnel, increase our advertising, marketing and
promotional activities and incur costs related to promoting the WebMD brand.
General and administrative expense consists primarily of salaries and
related expenses for administrative, finance, legal, human resources and
executive personnel, fees for professional services, costs
28
<PAGE> 30
of general insurance and costs of accounting and internal control systems to
support our operations. We anticipate that general and administrative expense
will continue to increase in absolute dollars as we add administrative,
financial, legal, human resources and executive personnel, increase the size of
our organization and incur costs relating to operating a public company, such as
professional fees and directors' and officers' liability insurance premiums.
RESULTS OF OPERATIONS
The following table sets forth certain data expressed as a percentage of
total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenue:
Service revenue....................................... 56.2% 55.5% 32.1%
Service revenue from related parties.................. 36.4 42.9 54.6
Software licenses..................................... 7.4 1.6 13.3
------- ------- -------
Total revenue................................. 100.0 100.0 100.0
Operating costs and expenses:
Cost of operations:
Cost of operations.................................... 57.0 55.1 29.2
Cost of operations from related parties............... 29.7 33.0 48.8
------- ------- -------
Total cost of operations...................... 86.7 88.1 78.0
Development and engineering............................. 29.0 38.9 91.6
Sales and marketing..................................... 53.4 18.9 45.6
General and administrative.............................. 27.2 31.7 29.9
Depreciation and amortization........................... 189.0 32.9 44.8
------- ------- -------
Total operating costs and expenses............ 385.3 210.5 289.9
------- ------- -------
Loss from operations.................................... (285.3) (110.5) (189.9)
Interest income......................................... 3.9 2.6 4.6
Interest expense........................................ (0.5) (1.0) (2.4)
Other................................................... -- (1.8) (21.4)
------- ------- -------
Net loss.............................................. (281.9%) (110.7%) (209.1%)
======= ======= =======
</TABLE>
Years ended December 31, 1999 and 1998
Revenue. Our total revenue increased to $102.1 million in the year ended
December 31, 1999 from $48.8 million in the year ended December 31, 1998.
Revenue from services increased to $57.4 million in the year ended December
31, 1999 from $27.1 million in the year ended December 31, 1998. This increase
results primarily from the growth of our transaction services and network-based
services. Of this increase, $9.8 million relates to revenue generated by
acquired companies from the merger date, November 12, 1999 through the end of
the year.
Revenue from services to related parties consists primarily of services we
provided to SmithKline Labs, UnitedHealth Group and Microsoft. For a description
of these arrangements, see the section entitled "Business -- Strategic
relationships." Revenue from these related parties increased to $37.2 million in
the year ended December 31, 1999, compared to $21.0 million in the year ended
December 31, 1998. Increased transaction-based services to UnitedHealth Group
and SmithKline Labs, which was phased in during the first quarter of 1999, and
revenues from subscriptions and advertising from Microsoft
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contributed to the significant increases in revenue. The SmithKline Labs revenue
ceased being related party revenue on August 16, 1999, when SmithKline Labs was
sold to Quest Diagnostics.
Cost of operations. Cost of operations increased to $88.6 million in the
year ended December 31, 1999 from $43.0 million in the year ended December 31,
1998. These increases resulted mainly from higher personnel and network
operation costs, the cost to acquire exclusive arrangements to provide consumer
healthcare-related content to other web sites and other costs required to
support these increased service revenues. Of the increase in cost of operations,
$12.0 million is a result of expenses incurred by the acquired companies from
the merger date, November 12, 1999, through the end of the year.
Development and engineering. Development and engineering expense was $29.7
million in the year ended December 31, 1999 and $19.0 million in the year ended
December 31, 1998. The increase was the result of a significant increase in the
number of engineers engaged in the development of our applications and services.
Sales and marketing. Sales and marketing expense increased to $54.6
million in the year ended December 31, 1999 from $9.2 million in the year ended
December 31, 1998. The primary reason for the increase resulted from salaries
and related costs of added sales and marketing personnel and advertising and
promotion costs to increase awareness of the WebMD brand. Of the increase in
sales and marketing expense, $28.1 million is a result of expenses incurred by
the acquired companies from the merger date, November 12, 1999, through the end
of the year.
General and administrative. General and administrative expense increased
to $27.8 million in the year ended December 31, 1999 from $15.5 million in the
year ended December 31, 1998. The amortization of deferred stock compensation
expense was $7.6 million in the year ended December 31, 1999, compared to $3.4
million in the prior year. The remainder of the increase resulted from salaries
and related costs of office space and facilities as we added administrative
personnel and executive management. Of the increase in general and
administrative expense, $5.7 million is a result of expenses incurred by the
acquired companies from the merger date, November 12, 1999, through the end of
the year.
Deferred stock compensation represents the difference between the purchase
or exercise price of some stock option and restricted stock grants and the
deemed fair value of our common stock at the time of those grants. We recorded
deferred stock compensation of $7.6 million in 1999, $8.2 million in 1998 and
$2.7 million in 1997. The deferred stock compensation balance at December 31,
1999 was $5.1 million. The deferred stock compensation balance is being
amortized based on a graded vesting method over the vesting period, generally
four years, of the option or restricted stock grants. Amortization is estimated
to total $3.3 million in 2000, $1.4 million in 2001 and $0.4 million for 2002.
Depreciation and amortization. Depreciation and amortization was $193.1
million in the year ended December 31, 1999 and $16.1 million in the year ended
December 31, 1998. Property and equipment is being depreciated over the
estimated useful life of the related assets, generally three to seven years for
equipment and 20 to 25 years for buildings. All of the intangible assets are
being amortized over expected lives of one to four years. The increase is due
primarily to the completion of the merger with WebMD and the acquisition of MedE
America and Medcast on November 11, 1999. Amortization charges on these and
other previously completed transactions are estimated to be $1.2 billion in
2000, $1.2 billion in 2001, $1.0 billion in 2002, and $84.7 million in 2003
assuming no impairment of the remaining unamortized intangible asset balances
and no additional acquisitions of intangible assets. See Notes 2, 3 and 6 of
notes to our consolidated financial statements. The consummation of the purchase
transactions announced in the first quarter of 2000 will add significant
additional charges in future periods. See note 15 to our consolidated financial
statements.
Interest income and expense. Interest income has been derived primarily
from cash investments. Interest expense results primarily from our borrowings
and from capitalized lease obligations for equipment purchases. Net interest
income was $3.5 million in year ended December 31, 1999 and $0.8 million in the
year ended December 31, 1998. The increase for the 1999 period was due to higher
average cash balances resulting from the proceeds of our $46.1 million preferred
stock financing in October 1998, the net
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proceeds of $41.4 million from our initial public offering in February 1999 and
cash balances that were acquired in the acquisitions in November 1999.
Income taxes. At December 31, 1999, we had net operating loss
carryforwards for federal income tax purposes of approximately $591.0 million
and federal tax credits of approximately $6.2 million, both expiring from 2009
through 2014. Of these net operating losses, approximately $19.9 million relates
to a consolidated subsidiary and is available only to offset future taxable
income of that subsidiary. Because of the "change of ownership" provisions of
the tax code, a portion of our net operating loss carryforwards and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods. Thus, a portion of these carryforwards
may expire before becoming available to reduce future income tax liabilities.
Years ended December 31, 1998 and 1997
Revenue. Total revenue increased to $48.8 million in 1998 from $13.4
million in 1997. The significant increase in revenue in these periods was
principally due to new contracts for the management and operation of two of our
customers' IT infrastructures beginning in late 1997. To provide these services,
we utilized our own personnel, outside contractors and personnel and facilities
of the customers that are leased to us. The cost of these leased customer
personnel and facilities are included as part of the total costs of the IT and
development services that we billed to the customers. We recognized revenue for
IT services of $15.1 million in 1998 and $2.1 million in 1997. Revenue for IT
services included costs of leased personnel and facilities of $11.8 million in
1998 and $1.9 million in 1997. These amounts are also included in cost of
services. In addition, we recognized revenue related to development services of
$6.5 million in 1998 and $.2 million in 1997.
Revenue from related parties increased to $21.0 million in 1998 from $7.3
million in 1997. The increase was primarily due to the additional revenue from
SmithKline Labs to provide laboratory and test order and results services.
Cost of operations. Total cost of operations was $43.0 million in 1998 and
$10.4 million in 1997. Cost of revenue increased to $26.9 million in 1998 from
$3.9 million in 1997. The increases included costs of leased personnel and
facilities utilized to provide IT services totaling $11.8 million in 1998 and
$1.9 million in 1997, as well as costs related to development services of $6.5
million in 1998 and $0.2 million in 1997. The remainder of the increase resulted
from increased personnel and expansion of our network infrastructure to support
current customers and future business activities.
Cost of revenue to related parties was $16.1 million in 1998 and $6.5
million in 1997. The increase in 1998 over 1997 was due to higher personnel and
network operation costs required to support increased transactions from our
services provided to SmithKline Labs.
Development and engineering. Development and engineering expense was $19.0
million in 1998 and $12.3 million in 1997. The increase was the result of a
significant increase in the number of engineers engaged in the development of
our applications and services.
Sales and marketing. Sales and marketing expense increased to $9.2 million
in 1998 from $6.1 million in 1997. Substantially all of the increase resulted
from salaries and related support costs for added sales and marketing personnel.
General and administrative. General and administrative expense increased
to $15.5 million in 1998 from $4.0 million in 1997. In October 1998, we withdrew
a planned initial public offering of our common stock and wrote off the
accumulated costs related thereto totaling $1.6 million. Additionally, the
amortization of deferred stock compensation expense accounted for $2.8 million
of the increase in 1998 and $0.8 million of costs related to our acquisition of
ActaMed. Substantially all of the remainder of the increase resulted from
salaries and related support costs for added executive management.
Depreciation and amortization. Depreciation and amortization of intangible
assets was $16.1 million in 1998 and $6.0 million in 1997. The intangible assets
include those arising from ActaMed's acquisition of
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EDI Services, Inc. in March 1996 and our acquisition of Metis in August 1998, as
well as from intangible assets related to the technology rights acquired from
SmithKline Labs in December 1997. Property and equipment is being depreciated
over the estimated useful lives of the related assets, generally three to seven
years, while the intangible assets are generally being amortized over a
three-year life. Although our agreement with UnitedHealth Group has a five-year
term, we determined that a three-year amortization period was appropriate for
the EDI-related assets due to the price renegotiation required by this
agreement, the probability that the purchased technology and software would be
replaced within three years and the uncertain profitability of the agreement
after the price renegotiation. Similarly, although our agreement with SmithKline
Labs has a five-year term, we determined that a three-year amortization period
was appropriate for the SCAN-related assets due to the price renegotiation
required by this agreement, the probability that the purchased technology and
software would be replaced within three years and the uncertain profitability of
the agreement after the price renegotiation. See Notes 2, 3 and 6 of notes to
our consolidated financial statements.
Interest income and expense. Interest income has been derived primarily
from the investment of excess cash. Interest expense results primarily from our
borrowings and from capitalized lease obligations for equipment purchases. Net
interest income was $0.8 million in 1998 compared to $0.3 million in 1997. The
1998 increase was due to higher average cash balances resulting from the
proceeds of our $25.0 million preferred stock financing in October 1997 and our
$46.1 million preferred stock financing in October 1998.
LIQUIDITY AND CAPITAL RESOURCES
In February 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $41.4
million. Prior to this offering, we had funded our operations since inception
primarily through the private placement of equity securities. We had also
financed our operations through equipment lease financing and bank borrowings.
As of December 31, 1999, we had outstanding equipment lease liabilities of $5.6
million. As of December 31, 1999, we had approximately $291.3 million of cash,
cash equivalents and short-term investments and working capital of $216.3
million.
Cash used in operating activities was $75.9 million in 1999 compared to
$26.6 million in 1998 and $16.2 million in 1997. The cash used during these
periods was primarily attributable to net operating losses of $288.0 million in
1999, $54.0 million in 1998 and $28.0 million in 1997, offset in part by
depreciation and amortization. These losses were principally related to
increased expenses as more fully described in the section entitled "-- Results
of operations." Our losses were principally related to increased sales and
marketing expenses to promote the WebMD brand, development and engineering
expenses and general and administrative expenses.
Cash provided by investing activities was $281.2 million in 1999 compared
to cash used in investing activities of $19.1 million in 1998 and $9.3 million
in 1997. Cash provided in 1999 primarily related to $298.0 million in net cash
acquired when we merged with WebMD, MedE America and Medcast. Investments in
property and equipment, excluding equipment acquired under capital leases, and
internally developed software were $27.0 million in 1999, $6.3 million in 1998
and $2.8 million in 1997. In 1999, we purchased an additional $24.0 million of
short-term investments and realized $35.7 million in cash from maturities of our
short-term investments. In 1998, we purchased an additional $22.5 million of
short-term investments and realized $10.4 million in cash from maturities of our
short-term investments. In 1997, we used $5.3 million of cash to purchase
short-term investments and had no maturities of short-term investments. We
invest our excess cash in short-term investments and will continue to do so in
the future. We are not assured of having excess cash balances in the future, so
purchases of short-term investments cannot be assured.
Cash provided by financing activities was $61.1 million in 1999, primarily
from the net proceeds of our initial public offering of $41.4 million, as well
as proceeds from exercises of employee stock options, partially offset by
repayments totaling $1.4 million of line of credit borrowings and bridge notes.
Financing
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activities provided $48.6 million of cash in 1998, resulting primarily from
proceeds from the issuance of our preferred and common stock, offset in part by
payments on capital lease obligations. Cash provided by financing activities was
$34.4 million in 1997, resulting primarily from the sale of our preferred and
common stock, net proceeds from the exercise of stock options and to a lesser
extent, from a bank line and bridge note financing.
As of December 31, 1999, we did not have any material commitments for
capital expenditures. Our principal commitments at December 31, 1999 consisted
of obligations under operating and capital leases, notes payable and guaranteed
payments under our strategic agreements. In January 2000, Janus, through its
managed mutual funds, purchased 15.0 million shares of our common stock for
$930.0 million in cash. Also in January 2000, affiliates of Fox Entertainment
purchased 2.0 million shares of our common stock for $100.0 million in cash in
connection with our News Corporation strategic alliance. We intend to use the
proceeds from these investments to pay the $400.0 million cash portion of our
acquisition of Envoy from Quintiles, to fund any additional advances to OnHealth
of up to $15.0 million pursuant to their line of credit, to provide working
capital and for general corporate purposes. For a more complete description of
the News Corporation strategic alliance and pending acquisition of OnHealth, see
the section entitled "Business -- Recent events."
At December 31, 1999, we estimate that we will make the following aggregate
guaranteed payments under our current relationships with our strategic partners:
<TABLE>
<CAPTION>
Year Ended December 31, Amount
- - - - - ----------------------- -------------
<S> <C>
2000................................................... $72.0 million
2001................................................... 75.1 million
2002................................................... 42.4 million
2003................................................... 34.4 million
2004................................................... 8.8 million
</TABLE>
Most of our current strategic relationships contain revenue sharing
arrangements which generally provide for us to share advertising, sponsorship or
transaction net revenues, ranging from 15% to as much as 100%, with the
strategic partner. In addition, some strategic partner agreements and
promotional arrangements require payments on a per-subscriber basis. We may
enter into additional promotional arrangements with current and future strategic
partners that may require us to pay consideration in amounts that significantly
exceed the amounts we are required to pay under our current arrangements. These
guaranteed payments and promotional and other arrangements may require us to
incur significant expenses. We cannot guarantee that we will generate sufficient
revenues to offset these expenses.
We may need to raise additional funds to support expansion, develop new or
enhanced applications and services, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities. However, with the completion of the merger with WebMD and the
investments by Janus and affiliates of New Corporation, we believe that we will
have sufficient cash resources to meet our presently anticipated working capital
and capital expenditure requirements for at least the next 12 months. In
addition, we expect to incur operating losses for at least the next 12 months.
We believe that our future liquidity and capital requirements will depend upon
numerous factors, including the success of our existing and new application and
service offerings and competing technological and market developments. We may be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements.
YEAR 2000 COMPLIANCE
Our business is dependent on the operation of numerous systems that could
have potentially been impacted by Year 2000 related problems. Those systems
include, among others, hardware and software systems used by us to deliver
services to our customers, including our proprietary software systems as well as
hardware and software supplied by third parties, communications networks, such
as the Internet and private intranets, which we depend on to provide electronic
transactions to our customers, the internal
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systems of our customers and suppliers, the hardware and software systems we use
internally in the management of our business, and non-information technology
systems and services we use in our business, such as telephone and building
systems.
With the assistance of an independent consulting firm specializing in Year
2000 issues, we completed a formal assessment of our Year 2000 exposure and the
remediation of all our applications, internal IT systems, and non-IT systems in
the fourth quarter of 1999. An independent Year 2000 audit was performed with
the objective of achieving Year 2000 certification by an industry leading expert
group. As a result of these efforts, we did not experience any significant
problems related to Year 2000, and we do not expect any to arise in the future.
In addition, no further material expenditures related to the Year 2000 issue are
expected.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities." We are required to adopt SFAS No. 133 for
the year ending December 31, 2001. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because we currently
hold no derivative financial instruments and do not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
our financial condition or results of operations.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101, or
SAB 101. SAB 101 summarizes specific areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We believe that our current revenue recognition principles comply
with SAB 101.
In January 2000, the Emerging Issues Task Force of the FASB reached
consensus on Issue 99-17 "Accounting for Advertising Barter Transactions", or
EITF 99-17. EITF 99-17 establishes accounting and reporting standards for barter
transactions which involve nonmonetary exchanges of advertising. It requires
that an entity recognize revenues and expenses from advertising barter
transactions at the fair value of the advertising surrendered only when an
entity has a historical practice of receiving cash for similar transactions. We
do not believe that the adoption of EITF 99-17 will have a material impact on
our financial condition or results of operations.
In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. It requires that an entity capitalize costs during the web application
and infrastructure and graphics development stages of development. The consensus
is effective for all costs incurred beginning after June 30, 2000, although
earlier adoption is encouraged. We are currently evaluating the adoption of EITF
00-2 and its potential impact on our financial condition or results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATION
We have incurred and will continue to incur substantial losses
We began operations in January 1996 and have incurred net losses from
operations in each fiscal period since our inception. As of December 31, 1999,
we had accumulated losses of approximately $391.4 million. In addition, we
currently intend to invest heavily in pending acquisitions, infrastructure
development, applications development and sales and marketing in order to deploy
our services to a growing number of potential customers and strategic partners.
The purchase price of acquisitions we have recently completed will be, and the
purchase price of acquisitions which we may undertake in the future may be,
amortized over the useful life of the tangible and intangible assets. As of
December 31, 1999, we had approximately $3.2 billion of unamortized goodwill and
other intangible assets reflected on our financial statements as a result of
acquisitions. We currently anticipate that this amortization will cause us
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to incur significant net losses for the next several years. We expect that we
will incur increasing net operating losses and negative cash flows for the
foreseeable future and may never be profitable.
The business of providing services over the Internet is difficult to evaluate
and our business model is unproven
Because we recently began operations, it is difficult to evaluate our
businesses and prospects. Our revenue and income potential is unproven and our
business model is emerging. We derive a substantial portion of our revenue from
non-Internet network services, from development and consulting services and from
managing and operating our customers' information technology infrastructures. We
may never achieve favorable operating results or profitability.
Our quarterly operating results may vary, which could affect the market price
of our common stock
Our operating results have varied on a quarterly basis during our limited
operating history, and we expect to experience significant fluctuations in
future quarterly operating results. These fluctuations have been and may in the
future be caused by numerous factors, many of which are outside of our control,
including, but not limited to:
- market acceptance of and demand for our products and services
- our ability to attract and retain customers and subscribers
- operating expenses relating to acquisitions and strategic partnerships
- usage of the Internet and our ability to maintain and increase traffic on
our web site
- our ability to continue to develop and extend our brand
- our ability to effectively integrate the operations and technologies of
acquired businesses with our operations
- introduction and timing of new products and services or enhancements by
us or our competitors
- capacity constraints and dependencies on computer infrastructure
- economic conditions affecting the Internet or healthcare industries
- general economic conditions
Fluctuations in our quarterly results could adversely affect the market
price of our common stock in a manner unrelated to our long-term operating
performance. We expect to increase activities and spending in substantially all
operational areas and will base our expense levels in part upon our expectations
concerning future revenue, and these expense levels will be relatively fixed in
the short term. If we have lower revenue, we may not be able to reduce spending
in the short term in response. Any shortfall in revenue would have a direct
impact on our results of operations. As a result, we believe that
period-to-period comparisons of our results of operations will not necessarily
be meaningful and should not be relied upon as an indicator of future
performance. For these and other reasons, it is likely that in some future
quarter or quarters we may not meet the earnings estimates of securities
analysts or investors, which would materially and adversely affect our stock
price.
Our business will suffer if we fail to successfully integrate any acquired
businesses and technologies in the future
We have in the past acquired, and may in the future acquire, businesses,
technologies, services, product lines or content databases. For example, we
completed our mergers with WebMD, MedE America and Medcast in November 1999 and
have entered into agreements in the first quarter of 2000 to acquire Envoy,
Medical Manager, CareInsite and OnHealth.
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We are in the process of completing the integration and consolidation of
the operations, products and services, technologies and personnel of WebMD, MedE
America and Medcast, and we will need to integrate and consolidate the
operations, products and services, technologies and personnel of Envoy, Medical
Manager, CareInsite and OnHealth upon our completion of these pending mergers.
We cannot guarantee that any acquired businesses will be successfully integrated
with our operations in a timely manner, or at all. The successful integration of
the acquired businesses into our operations is critical to our future
performance. Failure to successfully integrate acquired businesses or to achieve
operating synergies would have a material adverse effect on our business,
financial condition and results of operation. Integrating any newly acquired
organizations and technologies in the future could be expensive, time consuming
and may strain our resources. Our pending and any future acquisitions could
divert management's attention from other business concerns and expose us to
unforeseen liabilities or risks associated with entering new markets. In
addition, we may lose key employees while integrating these new companies. We
may also lose our current strategic partners and customers if any acquired
companies have relationships with competitors of our strategic partners or
customers.
Challenges to the successful integration of acquired businesses include,
but are not limited to:
- centralization and consolidation of financial, operational and
administrative functions
- integration of platforms, networks and service centers
- cross-selling of products and services to our existing customer base and
customer bases of acquired companies
- integration and retention of personnel
- potential conflicts in customer, strategic, sponsor or advertising
relationships
- need to coordinate geographically diverse organizations
- compliance with regulatory requirements
Consequently, we may not be successful in integrating acquired businesses or
technologies and may not achieve anticipated revenue and cost benefits. We also
cannot guarantee that these acquisitions will result in sufficient revenues or
earnings to justify our investment in, or expenses related to, these
acquisitions or that any synergies will develop. The healthcare technology
industry is consolidating and we expect that we will face intensified
competition for acquisitions. If we fail to execute our acquisition strategy
successfully for any reason, our business will suffer significantly.
Managing our growth through acquisitions may strain our administrative,
technical and financial resources
We have rapidly and significantly expanded our operations recently and
expect to continue to do so. Our growth has been accomplished primarily through
acquisitions, including our mergers with WebMD, MedE America and Medcast. This
growth has placed a significant strain on our managerial, operational, financial
and other resources and is expected to continue to strain our resources. If we
are unable to respond to and manage this expected growth, then the quality of
our services and our results of operations could be materially adversely
affected.
Our current platforms, information systems, procedures and controls may not
continue to support our operations, and may hinder our ability to exploit the
market for healthcare applications and services. We are in the process of
evaluating and implementing our accounting and management information systems.
We could experience interruptions to our business while we transition to new
systems. We cannot guarantee that our systems, procedures and controls will be
adequate to support expansion of our operations.
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Our business could suffer if we fail to complete our pending acquisitions
In the first quarter of 2000, we entered into merger agreements providing
for our acquisition of Envoy, Medical Manager, CareInsite and OnHealth. The
completion of each is subject to regulatory approval, including approval from
state and federal antitrust agencies, and other customary closing conditions.
The Medical Manager and CareInsite mergers are subject to the approval of our
stockholders, Medical Manager's stockholders and CareInsite's stockholders and
the OnHealth merger is subject to approval by OnHealth's stockholders. In
addition, the closing of the Medical Manager and CareInsite mergers are
conditioned on each other. We cannot guarantee that regulatory approvals will be
received, or that we will not be required to make changes in our business in
order to receive regulatory approvals, or that other closing conditions of any
of our pending mergers will be satisfied in a timely manner, or at all. Failure
to complete these mergers in a timely manner would have a material effect on our
business, results of operations and stock price.
Future stock issuances will dilute our stockholders and could result in
adverse accounting consequences
We intend to pay for some of our acquisitions and branding and advertising
services by issuing additional common stock which would dilute our stockholders.
We may also use cash to acquire companies or technologies and may need to incur
debt to pay for these acquisitions. Acquisition financing may not be available
on favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would materially increase our operating expenses.
Our ability to generate revenues will suffer if we do not quickly expand our
suite of applications and service offerings
We currently offer a limited number of applications on our Internet-based
platform and some of our service offerings are not fully developed or launched.
We must quickly introduce new applications and services, improve the
functionality of our existing services and successfully launch these services in
a timely manner in order to attract and retain subscribers. We expect that our
advertising and sponsorship revenues will be dependent on the level of usage of
our services by subscribers and consumers, and believe that levels of usage will
not increase unless we improve functionality. We rely on a combination of
internal development, strategic relationships, licensing and acquisitions to
develop these applications and services. Each of our applications, regardless of
how it was developed, must be integrated and customized to operate with existing
customer legacy computer systems and our platform. We are currently in the
process of migrating many of our acquired applications and products and services
to our Internet-based platform. Developing, integrating and customizing these
applications and services will be time consuming, and these applications and
services may never achieve market acceptance, which could also cause our
business to suffer.
We will be dependent on strategic relationships to generate some of our
revenue
Our ability to generate revenues will suffer if we cannot establish and
maintain strategic relationships. We must establish and maintain strategic
relationships with leaders in a number of healthcare and Internet industry
segments. For a more complete description of our strategic relationships, see
the section entitled "Business -- Strategic relationships," and for a
description of our revenues resulting from these relationships, see the section
entitled "Factors that may affect future results of operations -- Our revenues
will be concentrated in a few customers and our ability to generate revenue
would suffer if we lost any of these customers." Our strategic relationships are
critical to our success because we believe that these relationships will provide
additional subscribers and consumers to our web site and will generate
acceptance of our platform, applications and services. We may not be able to
establish commercial acceptance of our platform, applications and services
unless we maintain our existing strategic relationships and establish and
maintain additional strategic relationships in the future.
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We may compete with potential strategic partners. Some of our current and
future strategic partners may compete with us and some strategic relationships
or acquisitions may put us in competition with existing strategic partners or
customers. For example, Medical Manager, which we have agreed to acquire,
competes with some of our strategic partners, including Medic. In addition, we
may not be able to maintain or establish relationships with key participants in
the healthcare and Internet industries if we have already established
relationships with competitors of these key participants.
We have granted exclusive rights to strategic partners. We have agreed
that some of our strategic partners will be our exclusive providers of some of
our applications and content. For example, we have entered into strategic
agreements with exclusive online pharmacy and medical supplies and equipment
e-commerce partners and providers of various categories of content and services.
These agreements may limit our access to other applications and content we might
otherwise be able to make available to our customers. Our inability to offer
such applications and content could cause our business to suffer.
Our revenues will be concentrated in a few customers, and our ability to
generate revenue would suffer if we lost any of these customers
Currently, we receive a significant amount of our revenue from three
customers. SmithKline Labs, which was recently acquired by Quest Diagnostics,
Beech Street and UnitedHealth Group, each accounted for more than 10% of our
revenue for the year ended December 31, 1999, and together accounted for
approximately 57.9% of our revenue for the same period. We expect that these
three customers, together with Microsoft, will account for a significant amount
of our revenue for 2000. Microsoft will have the right to terminate its
strategic alliance with us if we acquire Medical Manager and CareInsite and
within 60 days thereafter we cannot resolve with Microsoft any conflicts that
may be created by our ownership of those companies. For details regarding our
relationship with Microsoft, see the section entitled "Business -- Strategic
relationships -- Microsoft." If we do not generate as much revenue from these
customers as we expect, or if we lose any of these customers, our revenue will
be significantly reduced which would harm our business and results of
operations.
Our ability to generate revenues will suffer if we cannot attract and retain
subscribers
We must attract and retain subscribers to WebMD Practice in order to
generate subscription revenues. In addition, our ability to generate advertising
and sponsorship revenues and transaction revenues will be dependent on the
number of subscribers and level of usage by those subscribers. We cannot
guarantee that we will be able to attract new or retain existing subscribers. In
particular, we cannot guarantee that we will retain subscribers whose
subscriptions are initially paid for by our strategic partners once those
subscribers are required to pay for their subscriptions themselves or that these
subscribers will actually use our services.
Our business will suffer if healthcare participants do not accept Internet
solutions
Our business model depends on the adoption of Internet solutions by
healthcare participants. Our ability to generate revenues could suffer
dramatically if Internet solutions are not accepted or not perceived to be
effective.
The Internet infrastructure may be unable to support the demands placed on
it by continued growth and use of the Internet. The adoption of Internet
solutions by healthcare participants will require the acceptance of a new way of
conducting business and exchanging information. To maximize the benefits of our
platform, healthcare participants must be willing to allow sensitive information
to be stored in our databases and to conduct healthcare transactions over the
Internet.
Performance problems with our systems could damage our business
Our customer satisfaction and our business could be harmed if we or our
customers experience system delays, failures or loss of data. We currently
process substantially all our customer transactions and data at our facilities.
Although we have a contingency plan for emergencies, we have limited backup
facilities to
38
<PAGE> 40
process information if these facilities are not functioning. The occurrence of a
major catastrophic event or other system failure at any of our facilities could
interrupt data processing or result in the loss of stored data. While we have
general liability insurance that we believe is adequate, including coverage for
errors and omissions, we may not be able to maintain this insurance on
reasonable terms in the future. In addition, our insurance may not be sufficient
to cover large claims and our insurer could deny coverage on claims. If we are
liable for an uninsured or underinsured claim or if our premiums increase
significantly, our financial condition could be materially harmed.
Performance problems with the systems of our service and content providers
could harm our business
We depend on service and content providers to provide information and data
feeds on a timely basis. Our web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information. In addition, our customers depend on Internet
service providers, online service providers and other web site operators for
access to our web sites. All of these providers have experienced significant
outages in the past and could experience outages, delays and other difficulties
in the future due to system failures unrelated to our systems. Any significant
interruptions in our services or increases in response time could result in a
loss of potential or existing customers, strategic partners, advertisers or
sponsors and, if sustained or repeated, could reduce the attractiveness of our
services.
If our systems experience security breaches or are otherwise perceived to be
insecure, our reputation will suffer
A material security breach could damage our reputation or result in
liability. We retain confidential customer and patient information in our
processing centers. We may be required to spend significant capital and other
resources to protect against security breaches or to alleviate problems caused
by breaches. Any well-publicized compromise of Internet security could deter
people from using the Internet or from conducting transactions that involve
transmitting confidential information, including confidential healthcare
information. Therefore, it is critical that these facilities and infrastructure
remain secure and are perceived by the marketplace to be secure. Despite the
implementation of security measures, this infrastructure may be vulnerable to
physical break-ins, computer viruses, programming errors, attacks by third
parties or similar disruptive problems.
Our business will be harmed if we are unsuccessful in responding to rapid
technology changes in our markets
Healthcare information exchange and transaction processing is a relatively
new and evolving market. The pace of change in our markets is rapid and there
are frequent new product introductions and evolving industry standards. We may
be unsuccessful in responding to technological developments and changing
customer needs. In addition, our applications and services offerings may become
obsolete due to the adoption of new technologies or standards.
Our platform infrastructure and scalability are not proven and we may fail to
respond to new growth
To date, we have processed a limited number and variety of transactions
over our platforms. Similarly, a limited number of healthcare participants use
these platforms. Our systems may not accommodate increased use while maintaining
acceptable overall performance. We must continue to expand and adapt our network
infrastructure to accommodate additional users, increased transaction volumes
and changing customer requirements. This expansion and adaptation will be
expensive and will divert our attention from other activities.
If we are unable to generate significant advertising revenues, our future
results of operations will be materially adversely affected
We derive a portion of our revenues from advertising on our web sites. We
may not be able to continue to generate significant advertising revenues. No
standards have been widely accepted to measure
39
<PAGE> 41
the effectiveness of web advertising. If no standards develop, existing
advertisers may not continue their current level of web advertising, and
advertisers that have traditionally relied on other advertising media may be
reluctant to advertise on the web. Advertisers that already have invested
substantial resources in other advertising methods may be reluctant to adopt a
new strategy. Our business would be adversely affected if the market for web
advertising fails to develop or develops more slowly than expected. Different
pricing models are used to sell advertising on the web. It is difficult to
predict which, if any, will emerge as the industry standard. This makes it
difficult to project future advertising revenues. The level of subscriber and
consumer usage for our services is likely to be a factor in determining
advertising rates, and we cannot predict whether those subscribers whose
subscriptions are paid for by our strategic partners will actually use our
services. Moreover, filter software programs that limit or prevent advertising
from being delivered to a web user's computer are available. Widespread adoption
of this software could adversely affect the commercial viability of web
advertising.
We plan to generate a portion of our revenue from healthcare transactions on
our web site, and our future revenues will be materially adversely affected if
we do not significantly increase the number of transactions that occur on our
web site
We cannot guarantee that we will be able to generate significant
transaction revenues in the future. We have developed relationships with service
providers to offer healthcare products and services through direct links from
our web site to their web sites. However, there is no established business model
for the sale of healthcare products or services over the Internet. Accordingly,
we have no significant experience in the sale of products or services online and
the development of relationships with providers of such products and services,
nor can we predict the rate at which our customers will elect to engage in this
form of commerce or the compensation that we will receive for enabling these
transactions.
Lengthy sales and implementation cycles for our solutions could adversely
affect our revenue growth
A key element of our strategy is to market our solutions directly to large
healthcare organizations. We will be unable to control many of the factors that
will influence our customers' buying decisions. We expect that the sales and
implementation process will be lengthy and will involve a significant technical
evaluation and commitment of capital and other resources by our customers. The
sale and implementation of our solutions are subject to delays due to our
customers' internal budgets and procedures for approving large capital
expenditures and deploying new technologies within their networks.
We will need to expend substantial resources to integrate our applications
with the existing legacy and client-server architectures of large healthcare
organizations. We have limited experience in integrating our applications with
large, complex architectures, and we may experience delays in the integration
process. These delays would, in turn, delay our ability to generate revenue from
these applications and could adversely affect our results of operations.
We will face significant competition
The market for healthcare information services is intensely competitive,
rapidly evolving and subject to rapid technological change. Many of our
competitors have greater financial, technical, product development, marketing
and other resources than we have. These organizations may be better known and
have more customers than we have. Many of our competitors have also announced or
introduced Internet strategies that will compete with our applications and
services. We may be unable to compete successfully against these organizations.
Some of our large customers may also compete with us. For more information about
our competitors, see the section entitled "Business -- Competition."
Our business could be adversely affected as a result of political, regulatory,
economic or other changes in the healthcare industry
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare
40
<PAGE> 42
organizations. Changes in current healthcare financing and reimbursement systems
could cause us to make unplanned modifications of applications or services, or
result in delays or cancellations of orders or in the revocation of endorsement
of our applications and services by healthcare participants. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in our applications and services. We do not know what effect any
proposals would have on our business.
Government regulation could adversely affect our business
Our business is and will continue to be subject to government regulation.
Existing and new laws and regulations could adversely affect our business. Laws
and regulations may be adopted with respect to the Internet or other online
services covering issues such as:
- user privacy and patient confidentiality
- pricing
- content
- copyrights and patents
- distribution
- characteristic and quality of products and services
We cannot predict whether these laws will be adopted and how they will
affect our business. For more information regarding government regulation to
which we are or may be subject, see the section entitled "Business -- Government
regulation and legal uncertainties."
Complying with antitrust regulations may delay completion of our pending
acquisitions
The FTC, Department of Justice or other federal or state regulatory
agencies charged with enforcement of the antitrust laws may review our future
acquisitions or business activities. We believe that our business activities,
contractual relationships and pending acquisitions comply with all applicable
antitrust laws.
In the course of reviewing our pending acquisitions and strategic
relationships, it is possible that governmental agencies may seek to require us
to modify our pending acquisitions or business activities. If governmental
agencies seek modifications, it could delay our completion of these
transactions. If the governmental agencies were successful in requiring
modifications, it could have an adverse effect on our operations.
Third parties may bring claims against us as a result of content provided on
our web site, which may be expensive and time consuming to defend
We could be subject to third party claims based on the nature and content
of information supplied on our web site by us or third parties, including
content providers, medical advisors or users. We could also be subject to
liability for content that may be accessible through our web site or third party
web sites linked from our web sites or through content and information that may
be posted by users in chat rooms or bulletin boards. Even if these claims do not
result in liability to us, investigating and defending against these claims
could be expensive and time consuming and could divert management's attention
away from operating the business.
41
<PAGE> 43
Our intellectual property may be subjected to infringement claims or may be
infringed upon
Our intellectual property is important to our business. We could be subject
to intellectual property infringement claims as the number of our competitors
grows and the functionality of our applications overlaps with competitive
offerings. These claims, even if not meritorious, could be expensive and divert
management's attention from our operations. If we become liable to third parties
for infringing their intellectual property rights, we could be required to pay a
substantial damage award and to develop noninfringing technology, obtain a
license or cease selling the applications that contain the infringing
intellectual property. We may be unable to develop noninfringing technology or
obtain a license on commercially reasonable terms, or at all. In addition, we
may not be able to protect against misappropriation of our intellectual
property. Third parties may infringe upon our intellectual property rights. If
we do not detect any unauthorized use, we may be unable to enforce our rights.
Our business will be adversely affected if we cannot attract and retain key
personnel
Our future operating results will substantially depend on the ability of
our officers and key employees to manage changing business conditions and to
implement and improve our technical, administrative, financial control and
reporting systems. We need to attract, integrate, motivate and retain highly
skilled technical people. In particular, we need to attract experienced
professionals capable of developing, selling and installing complex healthcare
information systems. We face intense competition for these people. Our executive
management team, including Jeffrey T. Arnold, our Chief Executive Officer, and
W. Michael Long, our Chairman and Chief Operating Officer, are critical to our
success.
Our business could be adversely affected as a result of our international
expansion
One element of our strategic alliance with News Corporation is the
formation of WebMD International as a joint venture with News Corporation to
launch our services worldwide, other than in the U.S. and Japan. In addition, we
have entered into an agreement with one of our strategic partners to form an
international joint venture in Japan. We have extremely limited experience in
developing localized versions of our products and services. WebMD International
and any future international ventures may not be successful in launching our
services into foreign markets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE SENSITIVITY
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we have
invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk, we maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, other
non-government debt securities and money market funds. In general, money market
funds are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. In addition, we invest in
relatively short-term securities. As of December 31, 1999, all of our
investments mature in less than three months. See note 1 of notes to
consolidated financial statements.
The following table presents the amounts of our cash equivalents and
short-term investments that are subject to market risk by range of expected
maturity and weighted-average interest rates as of
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<PAGE> 44
December 31, 1999. This table does not include money market funds because those
funds are not subject to market risk.
<TABLE>
<CAPTION>
MATURING IN THREE
MONTHS OR LESS FAIR VALUE
----------------- ----------
(Dollars in thousands)
<S> <C> <C>
Included in cash and cash equivalents............. $ 4,773 $ 4,773
Weighted-average interest rates................. 6.06%
Included in short-term investments................ $ 5,667 $ 5,667
Weighted-average interest rates................. 5.90%
</TABLE>
EXCHANGE RATE SENSITIVITY
Currently, the majority of our sales and expenses are denominated in U.S.
dollars and as a result we have experienced no significant foreign exchange
gains and losses to date. We conducted only limited transactions in foreign
currencies during 1999, and we do not anticipate that foreign exchange gains or
losses will be significant in the forseeable future. We have not engaged in
foreign currency hedging activities to date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Our financial statements required by this item are submitted as a separate
section of this Form 10-K. See Item 14(a)(1) for a listing of financial
statements provided.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
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<PAGE> 45
PART III
Information required by Items 10, 11, 12 and 13 of Part III is omitted from
this annual report and will be filed in a definitive proxy statement or by an
amendment to this annual report not later than 120 days after the end of the
fiscal year covered by this annual report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We will provide information that is responsive to this Item 10 regarding
our directors and executive officers in our definitive proxy statement or in an
amendment to this annual report not later than 120 days after the end of the
fiscal year covered by this annual report, in either case under the caption
"Directors and Executive Officers," and possibly elsewhere therein. That
information is incorporated in this Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
We will provide information that is responsive to this Item 11 regarding
compensation paid to our executive officers in our definitive proxy statement or
in an amendment to this annual report not later than 120 days after the end of
the fiscal year covered by this annual report, in either case under the caption
"Executive Compensation," and possibly elsewhere therein. That information is
incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We will provide information that is responsive to this Item 12 regarding
ownership of our securities by some beneficial owners and our directors and
executive officers in our definitive proxy statement or in an amendment to this
annual report not later than 120 days after the end of the fiscal year covered
by this annual report, in either case under the caption "Security Ownership of
Certain Beneficial Owners and Management," and possibly elsewhere therein. That
information is incorporated in this Item 12 by reference.
ITEM 13. RELATED PARTY TRANSACTIONS
We will provide information that is responsive to this Item 13 regarding
transactions with related parties in our definitive proxy statement or in an
amendment to this annual report not later than 120 days after the end of the
fiscal year covered by this annual report, in either case under the caption
"Related Party Transactions," and possibly elsewhere therein. That information
is incorporated in this Item 13 by reference.
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<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS, FILED AS PART OF THIS REPORT
- Report of Independent Auditors
- Consolidated Balance Sheets As of December 31, 1999 and 1998
- Consolidated Statements of Operations for the Years Ended December
31, 1999, 1998 and 1997
- Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency) for the Years Ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997
- Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because the information called
for is not required or is shown either in the consolidated financial statements
or the notes thereto.
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - - - ----------- -----------
<C> <S>
2.1(a) Agreement and Plan of Merger dated as of February 13, 2000,
between Registrant and Medical Manager Corporation
2.2(a) Agreement and Plan of Merger dated as of February 13, 2000,
among Registrant, Avicenna Systems Corporation and
CareInsite, Inc.
2.3(b) Agreement and Plan of Reorganization dated as of May 20,
1999, as amended, by and among Registrant, WebMD, Inc.,
Water Acquisition Corp.
2.4(b) Agreement and Plan of Reorganization dated as of April 20,
1999, as amended, by and among Registrant, Merc Acquisition
Corp. and MedE America Corporation
2.5(b) Agreement and Plan of Merger dated as of June 30, 1999, as
amended, among Registrant, WebMD, Inc., Healtheon/WebMD
Corporation, GNN Merger Corp. and Greenberg News Networks,
Inc.
2.6(c) Agreement and Plan of Reorganization, dated as of February
24, 1998, by Registrant, MedNet Acquisition Corp. and
ActaMed Corporation
2.7(c) Agreement and Plan of Merger, dated as of March 1, 1996, by
and among Act Corporation, EDI Acquisition, Inc., UHC Green
Acquisition, Inc. and United HealthCare Corporation,
including amendment
2.8(c) Asset Purchase Agreement, dated June 25, 1998, among
Registrant, Metis Acquisition Corp. and Metis, LLC
2.9(d) Purchase Agreement dated as of December 20, 1999, by and
among Electronic Data Systems Corporation, Eli Lilly and
Company, Integrated Medical Systems, Inc., Kinetra LLC and
Registrant
2.10(e) Agreement and Plan of Merger dated as of January 22, 2000,
among Registrant, Envoy Corporation, Quintiles Transnational
Corporation and QFinance, Inc.
2.11(f) Agreement and Plan of Merger dated as of February 15, 2000,
among Registrant, Tech Acquisition Corporation and OnHealth
Network Company
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - - - ----------- -----------
<C> <S>
3.1(g) Amended and Restated Certificate of Incorporation of
Registrant, as currently in effect
3.2(h) Bylaws of Registrant, as currently in effect
4.1(c) Specimen Common Stock certificate
10.1(c) Form of Indemnification Agreement to be entered into by
Registrant with each of its directors and officers
10.2(c) Healtheon Corporation 1996 Stock Plan and form of Stock
Option Agreement
10.3(c) ActaMed Corp. 1997 Stock Option Plan
10.4(c) ActaMed Corp. 1996 Stock Option Plan
10.5(c) ActaMed Corp. 1995 Stock Option Plan
10.6(c) ActaMed Corp. 1994 Stock Option Plan
10.7(c) ActaMed Corp. 1993 Class B Common Stock Option Plan
10.8(c) ActaMed Corp. 1992 Stock Option Plan
10.9(c) ActaMed Corp. 1996 Director Stock Option Plan, as amended
10.10(c) Amended and Restated Investors' Rights Agreement dated as of
January 28, 1998 among Healtheon Corporation and certain of
Registrant's security holders
10.11(c) Lease Agreement, dated December 2, 1997, between Larvan
Properties and Registrant, including addenda
10.12*(c) Services Agreement, dated as of December 31, 1997, as
amended, between ActaMed Corporation and SmithKline Beecham
Clinical Laboratories, Inc.
10.13*(c) Assets Purchase Agreement, dated as of December 31, 1997, as
amended, between ActaMed Corporation and SmithKline Beecham
Clinical Laboratories, Inc.
10.14*(c) License Agreement, dated as of December 31, 1997, between
ActaMed Corporation and SmithKline Beecham Clinical
Laboratories, Inc.
10.15*(c) Development Agreement, dated as of October 31, 1997, between
ActaMed Corporation and SmithKline Beecham Clinical
Laboratories, Inc.
10.16(c) Amended and Restated Securities Purchase Agreement dated as
of August 15, 1996, between Registrant and investors
10.17(c) Amended and Restated Series B Preferred Stock Purchase
Agreement dated October 31, 1996, between Registrant and
investors
10.18(c) Form of Series B Preferred Stock Purchase Warrant between
Registrant and certain of Registrant's investors
10.19(c) Series C Preferred Stock Purchase Agreement dated July 25,
1997, between Registrant and investors
10.20(c) Series D Preferred Stock Purchase Agreement dated October
13, 1997, between Registrant and investors
10.21(c) Full Recourse Promissory Note dated as of July 11, 1997,
between Registrant and W. Michael Long
10.22(c) W. Michael Long Employment Agreement
10.23(c) Healtheon 1998 Employee Stock Purchase Plan
10.24(c) Series A Preferred Stock Purchase Agreement, dated as of
October 31, 1998, between Registrant and investors
10.25*(i) Asset Purchase Agreement, dated December 31, 1998, between
Registrant and SmithKline Beecham Clinical Laboratories,
Inc.
10.26*(i) Services Agreement dated January 19, 1999, between
Registrant and SmithKline Beecham Clinical Laboratories,
Inc.
10.27*(j) Distribution and Cross Promotion Agreement dated May 6, 1999
between Microsoft Corporation, WebTV Networks, Inc., MSNBC
Interactive News, L.L.C. and WebMD, Inc.
10.28*(j) Agreement, dated May 19, 1999, between Registrant, WebMD,
Inc. and Microsoft Corporation
10.29 Letter Agreement dated March 27, 2000 between Registrant and
Microsoft Corporation
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - - - ----------- -----------
<C> <S>
10.30(j) Agreement dated September 1, 1999, between Registrant,
WebMD, Inc., Healtheon/ WebMD, Inc., McKesson HBOC, Inc.,
HBO & Company, Access Health, Inc. and National Health
Enhancements Systems, Inc.
10.31(k) Investment Agreement dated May 12, 1999, between WebMD,
Inc., Microsoft Corporation and each of the other persons
listed on Schedule I thereto
10.32(k) Services Agreement dated January 27, 1999 between WebMD,
Inc. and Gleacher NatWest, Inc., currently known as Gleacher
& Co., LLC
10.33(l) Master Strategic Alliance Agreement dated December 6, 1999
among Registrant, The News Corporation Limited and Fox
Entertainment Group, Inc.
10.34* Master Services, Development and License Agreement dated
November 12, 1999 between Registrant and Beech Street
Corporation
10.35* Services and License Agreement dated as of October 24, 1999
between Registrant and United HealthCare Services, Inc.
10.36 Letter Agreement dated January 28, 1999 between WebMD, Inc.
and E.I. du Pont de Nemours & Company
10.37* Collaboration Agreement dated March 30, 1999 between WebMD,
Inc. and E.I. du Pont de Nemours & Company
10.38 Letter Agreement dated March 30, 1999 between WebMD, Inc.
and E.I. du Pont de Nemours & Company
10.39 Warrant to purchase shares of Series D Common Stock of
WebMD, Inc. dated March 30, 1999 issued to E. I. du Pont de
Nemours & Company
10.40* Second Amendment to Collaboration Agreement dated as of May
28, 1999 between WebMD, Inc. and E. I. du Pont de Nemours &
Company
10.41 Employment Agreement dated as of September 30, 1998 between
WebMD, Inc. and Jeffrey T. Arnold
10.42 Letter Agreement dated May 20, 1999 between Registrant and
Jeffrey T. Arnold
10.43 Warrant to purchase shares of common stock of Registrant
dated March 9, 2000 issued to Gleacher & Co. LLC
10.44 Warrant to purchase shares of common stock of Registrant
dated March 9, 2000 issued to Eric J. Gleacher
10.45 Sublease Agreement between Premiere Technologies, Inc. and
WebMD, Inc. dated December 15, 1997
10.46(m) WebMD, Inc. 1997 Amended and Restated Stock Incentive Plan,
as amended
10.47(m) Director Stock Option Plan of WebMD, Inc.
10.48(m) Direct Medical Knowledge, Inc. 1997 Stock Option/Stock
Issuance Plan
10.49(m) Sapient Health Network, Inc. 1996 Stock Incentive Plan
10.50(m) Greenberg News Networks, Inc. 1997 Stock Option Plan
10.51(m) MedE America Corporation and its Subsidiaries Stock Option
and Restricted Stock Purchase Plan
10.52(m) MedE America Corporation and its Subsidiaries 1998 Stock
Option and Restricted Stock Purchase Plan
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney (see page 49)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- - - - - ---------------
* Confidential treatment was received, or is requested, with respect to
certain portions of this document. Such portions were omitted and filed
separately with the Securities and Exchange Commission.
(a) Incorporated by reference to Registrant's Report on Form 8-K/A filed
February 24, 2000
(b) Incorporated by reference to Registrant's Registration Statement on Form
S-4 filed October 19, 1999
(c) Incorporated by reference to Registrant's Registration Statement on Form
S-1 filed January 14, 1999
47
<PAGE> 49
(d) Incorporated by reference to Registrant's Report on Form 8-K filed February
10, 2000
(e) Incorporated by reference to Registrant's Report on Form 8-K filed January
27, 2000
(f) Incorporated by reference to Registrant's Report on Form 8-K/A filed
February 22, 2000
(g) Incorporated by reference to Registrant's Report on Form 8-K filed February
8, 2000
(h) Incorporated by reference to Registrant's Report on Form 8-K filed November
29, 1999
(i) Incorporated by reference to Registrant's Amendment No. 1 to its
Registration Statement on Form S-1 filed February 4, 1999
(j) Incorporated by reference to Registrant's Registration Statement on Form
S-4 filed September 7, 1999
(k) Incorporated by reference to Registrant's Registration Statement on Form
S-4 filed September 30, 1999
(l) Incorporated by reference to Registrant's Report on Form 8-K filed December
10, 1999
(m) Incorporated by reference to Registrant's Registration Statement on
Form S-8 filed November 12, 1999
(B) REPORTS ON FORM 8-K
During the last quarter of the fiscal year ending December 31, 1999,
Registrant filed the following reports on Form 8-K:
- Report on Form 8-K filed on November 29, 1999, pursuant to which the
Registrant reported the completion of its merger with WebMD, Inc. and
its acquisitions of MedE America Corporation and Greenberg News
Networks, Inc.
- Report on Form 8-K filed on December 10, 1996, pursuant to which the
Registrant reported the execution of a Master Strategic Alliance
Agreement with The News Corporation Limited and Fox Entertainment Group,
Inc.
48
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereto duly authorized, on the 30th day of
March, 2000.
HEALTHEON/WEBMD CORPORATION
By: /s/ Jeffrey T. Arnold
-----------------------------------
Jeffrey T. Arnold
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, John L. Westermann
III and Jack Dennison, and each one of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchanges Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Jeffrey T. Arnold Chief Executive Officer and Director March 30, 2000
- - - - - ------------------------------------ (principal executive officer)
Jeffrey T. Arnold
/s/ John L. Westermann III Executive Vice President, Chief March 30, 2000
- - - - - ------------------------------------ Financial Officer, Treasurer and
John L. Westermann III Secretary (principal financial
officer)
/s/ James H. Clark Director March 30, 2000
- - - - - ------------------------------------
James H. Clark
/s/ L. John Doerr Director March 30, 2000
- - - - - ------------------------------------
L. John Doerr
/s/ U. Bertram Ellis, Jr. Director March 30, 2000
- - - - - ------------------------------------
U. Bertram Ellis, Jr.
/s/ Eric J. Gleacher Director March 30, 2000
- - - - - ------------------------------------
Eric J. Gleacher
/s/ W. Michael Long Director March 30, 2000
- - - - - ------------------------------------
W. Michael Long
/s/ William P. Payne Director March 30, 2000
- - - - - ------------------------------------
William P. Payne
</TABLE>
49
<PAGE> 51
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Healtheon/WebMD Corporation
We have audited the accompanying consolidated balance sheets of
Healtheon/WebMD Corporation (formerly Healtheon Corporation) as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, (net capital deficiency) and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Healtheon/WebMD
Corporation at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 29, 2000
50
<PAGE> 52
HEALTHEON/WEBMD CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 285,619 $ 19,389
Short-term investments.................................... 5,667 17,428
Accounts receivable, net of allowance for doubtful
accounts of $2,681 in 1999 and $152 in 1998............ 39,977 4,594
Accounts receivable from related parties.................. 11,534 3,360
Current portion prepaid content and services -- related
parties................................................ 3,881 --
Current portion prepaid content and services.............. 1,555 --
Other current assets...................................... 15,372 706
---------- ---------
Total current assets.............................. 363,605 45,477
Property and equipment, net................................. 48,384 12,285
Prepaid content and services -- related parties............. 171,715 --
Prepaid content and services................................ 101,323 --
Goodwill, net............................................... 3,230,412 4,147
Intangible assets, net...................................... 317,147 15,721
Other assets................................................ 9,876 2,310
---------- ---------
$4,242,462 $ 79,940
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ -- $ 1,213
Accounts payable.......................................... 77,288 5,178
Accrued merger costs...................................... 8,246 --
Accrued compensation...................................... 10,994 2,424
Other accrued liabilities................................. 43,601 4,559
Deferred revenue.......................................... 4,891 1,874
Current portion of capital lease obligations.............. 2,281 2,295
---------- ---------
Total current liabilities......................... 147,301 17,543
Deferred tax liability...................................... 118,794 --
Other long-term liabilities................................. 2,695 2,984
Commitments
Stockholders' equity:
Convertible preferred stock, $.0001 par value, issuable in
series; 1999: 5,000,000 authorized, no shares issued or
outstanding; 1998: 8,285,007 shares authorized,
7,683,341, shares issued and outstanding; at amounts
paid in (aggregate liquidation preference $46,101 at
December 31, 1998)..................................... -- 46,101
Common stock, $.0001 par value; 1999: 600,000,000 shares
authorized; 153,569,296 shares issued and outstanding;
1998: 150,000,000 shares authorized; 54,463,097 shares
issued and outstanding................................. 16 5
Additional paid-in capital................................ 4,370,165 123,670
Deferred stock compensation............................... (5,089) (6,935)
Accumulated deficit....................................... (391,420) (103,428)
---------- ---------
3,973,672 59,413
---------- ---------
$4,242,462 $ 79,940
========== =========
</TABLE>
See accompanying notes.
51
<PAGE> 53
HEALTHEON/WEBMD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Service revenue..................................... $ 57,421 $ 27,102 $ 4,301
Service revenue from related parties................ 37,210 20,956 7,309
Software licenses................................... 7,518 780 1,780
---------- ---------- ----------
Total revenue....................................... 102,149 48,838 13,390
Operating costs and expenses:
Cost of operations:
Cost of operations............................... 58,267 26,907 3,910
Cost of operations from related parties.......... 30,309 16,107 6,536
---------- ---------- ----------
Total cost of operations............................ 88,576 43,014 10,446
Development and engineering......................... 29,669 19,002 12,267
Sales and marketing................................. 54,556 9,249 6,088
General and administrative.......................... 27,759 15,466 4,008
Depreciation and amortization....................... 193,067 16,055 6,004
---------- ---------- ----------
Total operating costs and expenses.................. 393,627 102,786 38,813
---------- ---------- ----------
Loss from operations.................................. (291,478) (53,948) (25,423)
Interest income..................................... 4,013 1,262 611
Interest expense.................................... (527) (472) (323)
Other............................................... -- (890) (2,870)
---------- ---------- ----------
Net loss.............................................. $ (287,992) $ (54,048) $ (28,005)
========== ========== ==========
Basic and diluted net loss per common share........... $ (3.58) $ (1.54) $ (3.88)
========== ========== ==========
Weighted-average shares outstanding used in computing
basic and diluted net loss per common share......... 80,366,695 34,986,660 7,223,158
========== ========== ==========
</TABLE>
See accompanying notes.
52
<PAGE> 54
HEALTHEON/WEBMD CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- --------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ------- ----------- ------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 14,170,947 $39,578 13,285,000 $11,607 8,652,422 $ 1 $ 1,523
Net loss and comprehensive loss.... -- -- -- -- -- -- --
Issuance of common stock for
options and restricted stock
exercises by employees............ -- -- -- -- 1,397,844 -- 297
Repurchase of employee common
stock............................. -- -- -- -- (613,542) -- (31)
Issuance of Series A and Series B
convertible preferred stock for
services.......................... -- -- 45,000 55 -- -- --
Issuance of Series B convertible
preferred stock for cash.......... -- -- 15,000 30 -- -- --
Issuance of Series B convertible
preferred to officer for note
receivable........................ -- -- 250,000 500 -- -- --
Issuance of Series B stock warrants
in connection with bridge
financing......................... -- -- -- 64 -- -- --
Issuance of Series C convertible
preferred stock for cash and
conversion of bridge note......... -- -- 2,600,000 6,500 -- -- --
Issuance of Series D convertible
preferred stock for cash.......... -- -- 4,807,692 25,000 -- -- --
Issuance of Series D convertible
redeemable preferred stock for
asset purchase.................... 2,317,913 8,500 -- -- -- -- --
Repayment of note receivable from
officer........................... -- -- -- -- -- -- --
Dividends accrued on convertible
redeemable preferred stock........ -- 2,870 -- -- -- -- --
Deferred stock compensation........ -- -- -- -- -- -- 2,713
Amortization of deferred stock
compensation...................... -- -- -- -- -- -- --
----------- ------- ----------- ------- ----------- --- -----------
Balance at December 31, 1997....... 16,488,860 50,948 21,002,692 43,756 9,436,724 1 4,502
Net loss and comprehensive loss.... -- -- -- -- -- -- --
Issuance of common stock for
options and restricted stock
exercises by employees............ -- -- -- -- 3,532,731 -- 5,849
Repurchase of employee common
stock............................. -- -- -- -- (714,896) -- (2,176)
Issuance of Series B convertible
preferred stock for warrant
exercise.......................... -- -- 1,017,229 2,034 -- -- --
Issuance of Series D convertible
redeemable preferred stock for
asset purchase.................... 763,548 2,800 -- -- -- -- --
Dividends accrued on convertible
redeemable preferred stock........ -- 890 -- -- -- -- --
Conversion of redeemable preferred
and preferred stock to common
stock............................. (17,252,408) (54,638) (22,019,921) (45,790) 39,272,329 4 94,115
Issuance of Series A convertible
preferred stock................... -- -- 7,683,341 46,101 -- -- --
Issuance of common stock for asset
purchases......................... -- -- -- -- 2,936,209 -- 13,220
Repayment of note receivable from
officer........................... -- -- -- -- -- -- --
Deferred stock compensation........ -- -- -- -- -- -- 8,160
Amortization of deferred stock
compensation...................... -- -- -- -- -- -- --
----------- ------- ----------- ------- ----------- --- -----------
Balance at December 31, 1998....... -- -- 7,683,341 46,101 54,463,097 5 123,670
Net loss and comprehensive loss.... -- -- -- -- -- -- --
Issuance of common stock for
options exercises by employees.... -- -- -- -- 5,501,438 1 14,884
Repurchase of employee common
stock............................. -- -- -- -- (147,201) -- (608)
Issuance of common stock under
employee stock purchase plan...... -- -- -- -- 635,201 -- 4,319
Issuance of common stock for
warrant exercise.................. -- -- -- -- 976,489 -- 2,716
Issuance of common stock in
connection with initial public
offering, net of issuance costs of
$4,602............................ -- -- -- -- 5,750,000 1 41,398
Conversion of preferred stock to
common stock in connection with
initial public offering........... -- -- (7,683,341) (46,101) 7,683,341 1 46,100
Issuance of common stock for
services.......................... -- -- -- -- 8,020 -- 48
Issuance of common stock for asset
purchase.......................... -- -- -- -- 1,833,333 -- 11,000
Issuance of common stock and
assumption of options and warrants
in connection with the 1999
Mergers........................... -- -- -- -- 76,865,578 8 4,120,851
Deferred stock compensation........ -- -- -- -- -- -- 6,261
Adjustment to deferred stock
compensation for terminations..... -- -- -- -- -- -- (474)
Amortization of deferred stock
compensation...................... -- -- -- -- -- -- --
----------- ------- ----------- ------- ----------- --- -----------
Balances at December 31, 1999...... -- $ -- -- $ -- 153,569,296 $16 $ 4,370,165
=========== ======= =========== ======= =========== === ===========
<CAPTION>
TOTAL
NOTE STOCKHOLDERS'
RECEIVABLE DEFERRED EQUITY
FROM STOCK ACCUMULATED (NET CAPITAL
OFFICER COMPENSATION DEFICIT DEFICIENCY)
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... $ -- $ -- $ (27,684) $ (14,553)
Net loss and comprehensive loss.... -- -- (28,005) (28,005)
Issuance of common stock for
options and restricted stock
exercises by employees............ -- -- -- 297
Repurchase of employee common
stock............................. -- -- -- (31)
Issuance of Series A and Series B
convertible preferred stock for
services.......................... -- -- -- 55
Issuance of Series B convertible
preferred stock for cash.......... -- -- -- 30
Issuance of Series B convertible
preferred to officer for note
receivable........................ (500) -- -- --
Issuance of Series B stock warrants
in connection with bridge
financing......................... -- -- -- 64
Issuance of Series C convertible
preferred stock for cash and
conversion of bridge note......... -- -- -- 6,500
Issuance of Series D convertible
preferred stock for cash.......... -- -- -- 25,000
Issuance of Series D convertible
redeemable preferred stock for
asset purchase.................... -- -- -- --
Repayment of note receivable from
officer........................... 151 -- -- 151
Dividends accrued on convertible
redeemable preferred stock........ -- -- -- --
Deferred stock compensation........ -- (2,713) -- --
Amortization of deferred stock
compensation...................... -- 562 -- 562
------ ------- --------- ----------
Balance at December 31, 1997....... (349) (2,151) (55,689) (9,930)
Net loss and comprehensive loss.... -- -- (54,048) (54,048)
Issuance of common stock for
options and restricted stock
exercises by employees............ -- -- -- 5,849
Repurchase of employee common
stock............................. -- -- -- (2,176)
Issuance of Series B convertible
preferred stock for warrant
exercise.......................... -- -- -- 2,034
Issuance of Series D convertible
redeemable preferred stock for
asset purchase.................... -- -- -- --
Dividends accrued on convertible
redeemable preferred stock........ -- -- -- --
Conversion of redeemable preferred
and preferred stock to common
stock............................. -- -- 6,309 54,638
Issuance of Series A convertible
preferred stock................... -- -- -- 46,101
Issuance of common stock for asset
purchases......................... -- -- -- 13,220
Repayment of note receivable from
officer........................... 349 -- -- 349
Deferred stock compensation........ -- (8,160) -- --
Amortization of deferred stock
compensation...................... -- 3,376 -- 3,376
------ ------- --------- ----------
Balance at December 31, 1998....... -- (6,935) (103,428) 59,413
Net loss and comprehensive loss.... -- -- (287,992) (287,992)
Issuance of common stock for
options exercises by employees.... -- -- -- 14,885
Repurchase of employee common
stock............................. -- -- -- (608)
Issuance of common stock under
employee stock purchase plan...... -- -- -- 4,319
Issuance of common stock for
warrant exercise.................. -- -- -- 2,716
Issuance of common stock in
connection with initial public
offering, net of issuance costs of
$4,602............................ -- -- -- 41,399
Conversion of preferred stock to
common stock in connection with
initial public offering........... -- -- -- --
Issuance of common stock for
services.......................... -- -- -- 48
Issuance of common stock for asset
purchase.......................... -- -- -- 11,000
Issuance of common stock and
assumption of options and warrants
in connection with the 1999
Mergers........................... -- -- -- 4,120,859
Deferred stock compensation........ -- (6,261) -- --
Adjustment to deferred stock
compensation for terminations..... -- 474 -- --
Amortization of deferred stock
compensation...................... -- 7,633 -- 7,633
------ ------- --------- ----------
Balances at December 31, 1999...... $ -- $(5,089) $(391,420) $3,973,672
====== ======= ========= ==========
</TABLE>
See accompanying notes.
53
<PAGE> 55
HEALTHEON/WEBMD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (287,992) $(54,048) $(28,005)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of intangibles............................. 183,357 13,382 7,564
Depreciation............................................ 9,710 6,198 1,755
Amortization of deferred stock compensation............. 7,633 3,376 562
Other................................................... -- 890 2,989
Changes in operating assets and liabilities:
Accounts receivable................................... (20,653) (3,510) (806)
Other assets.......................................... (9,051) 769 (73)
Accounts payable...................................... 13,418 2,857 751
Accrued compensation and other liabilities............ 18,509 4,996 345
Prepaid content and services.......................... 6,066 -- --
Deferred revenue...................................... 3,017 (1,522) (1,285)
---------- -------- --------
Net cash used in operating activities..................... (75,986) (26,612) (16,203)
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments........................ (23,954) (22,529) (5,300)
Maturities of short-term investments...................... 35,715 10,401 --
Increase in restricted cash............................... -- -- (867)
Purchases of property and equipment....................... (27,045) (6,340) (2,817)
Cash acquired in business combination, net of cash paid... 298,013 (652) --
Cash acquisition costs.................................... (1,563) -- --
Capitalized internally developed software costs........... -- -- (291)
---------- -------- --------
Net cash provided by (used in) investing activities....... 281,166 (19,120) (9,275)
---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings and bridge
notes................................................... -- -- 5,395
Payment of line of credit borrowings and bridge notes..... (1,428) (2,212) --
Proceeds from line of credit borrowings from related
party................................................... -- 1,000 --
Payments of line of credit borrowings from related
party................................................... -- (1,000) --
Proceeds from issuance of preferred stock................. -- 48,135 29,530
Proceeds from issuance of common stock in connection with
initial public offering, net of issuance costs.......... 41,399 -- --
Proceeds from issuance of common stock, net of
repurchases............................................. 21,312 3,673 266
Principal payments of capital lease obligations........... (233) (979) (748)
---------- -------- --------
Net cash provided by financing activities................. 61,050 48,617 34,443
---------- -------- --------
Net increase in cash and cash equivalents................... 266,230 2,885 8,965
Cash and cash equivalents at beginning of year.............. 19,389 16,504 7,539
---------- -------- --------
Cash and cash equivalents at end of year.................... $ 285,619 $ 19,389 $ 16,504
========== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 527 $ 350 $ 252
========== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock in connection with the 1999
Mergers................................................. $4,120,859 $ -- $ --
========== ======== ========
Equipment acquired under capital lease obligations........ $ 9,374 $ 6,481 $ 774
========== ======== ========
Issuance of note receivable from officer for preferred
stock................................................... $ -- $ -- $ 500
========== ======== ========
Conversion of bridge notes to preferred stock............. $ -- $ -- $ 2,000
========== ======== ========
Issuance of convertible redeemable preferred stock for
acquisitions............................................ $ -- $ 2,800 $ 8,500
========== ======== ========
Issuance of common stock for asset purchases.............. $ 11,000 $ 13,220 $ --
========== ======== ========
Value of warrant issued in connection with service
agreement............................................... $ -- $ 830 $ --
========== ======== ========
Deferred stock compensation related to options granted.... $ 6,261 $ 8,160 $ 2,713
========== ======== ========
Conversion of convertible redeemable preferred and
convertible preferred stock to common stock............. $ 46,101 $ 94,119 $ --
========== ======== ========
</TABLE>
See accompanying notes.
54
<PAGE> 56
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Healtheon/WebMD Corporation ("the Company") was incorporated in December
1995 and commenced operations in January 1996. In November 1999, Healtheon
Corporation ("Healtheon") completed the mergers ("the 1999 Mergers") with WebMD,
Inc., ("WebMD"), MedE America Corporation and Subsidiaries, Inc. ("MedE
America") and Greenberg News Networks, Inc. ("Medcast") and changed its name
from Healtheon Corporation to Healtheon/WebMD Corporation (See Note 2.) In May
1998, the Company merged with ActaMed Corporation in a transaction accounted for
as a pooling of interests (See Note 2.) All financial information has been
presented to reflect the combined operations of Healtheon and ActaMed for all
years presented and for WebMD, MedE America, and Medcast for the period
subsequent to November 12, 1999. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company provides web-based healthcare information and services to
facilitate connectivity and transactions among physicians, patients, payers and
other healthcare industry participants. The Company's Internet-based information
and transaction platform allows for the exchange of information among the
disparate information systems used by healthcare industry participants and
supports administrative transaction services, including patient enrollment,
eligibility determination, referrals and authorizations, laboratory and
diagnostic test orders and results, clinical data retrieval and claims
processing.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results could differ materially from these estimates.
CASH, CASH EQUIVALENT AND SHORT-TERM INVESTMENTS
All highly liquid investments with an original maturity from date of
purchase of three months or less are considered to be cash equivalents. The
Company's cash, cash equivalents and short-term investments are invested in
various investment-grade commercial paper, money market accounts and
certificates of deposit. All short-term investments mature within nine months.
The fair value of cash equivalents and short-term investments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Cash equivalents:
Corporate and other non-government securities......... $ 37,254 $19,346
Money market funds.................................... 248,365 43
-------- -------
285,619 19,389
Short-term investments:
Corporate and other non-government securities......... 5,667 17,428
-------- -------
$291,286 $36,817
======== =======
</TABLE>
Net unrealized gains (losses) were immaterial at December 31, 1999 and
1998.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Marketable debt and equity
55
<PAGE> 57
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
securities are classified as available-for-sale, and are carried at their fair
value, with the unrealized gains and losses, when material, reported net-of-tax
in a separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income or expense. The cost of securities
sold is based on specific identification. Interest and dividends on securities
classified as available-for-sale are included in interest income.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Depreciation is computed using the straight-line method over
the estimated useful life of the related asset, generally three to seven years
for equipment and twenty to twenty-five years for buildings. Leasehold
improvements and equipment acquired under capital leases are amortized over the
shorter of the lease term or the estimated useful life of the related asset.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets result from acquisitions accounted for under
the purchase method. (See Note 2.) Amortization of intangible assets is provided
on the straight-line basis over the respective estimated useful lives of the
assets. Goodwill is being amortized over estimated useful lives of three to four
years. Intangible assets related to acquired technology, customer lists,
trademarks and other intangibles are being amortized on a straight-line method
over the estimated useful life of the related asset, generally one to four
years. The Company periodically evaluates whether changes have occurred that
would require revision of the remaining estimated useful life of the assigned
goodwill or intangible assets or render the goodwill or intangible assets not
recoverable. If such circumstances arise, the Company would use an estimate of
the undiscounted value of expected future operating cash flows to determine
whether the goodwill or intangibles are impaired. To date, no impairment
indicators have been identified.
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires
the capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon the
completion of a working model. Capitalized internally developed software costs
were approximately $291 in 1997. There were no internally developed software
costs capitalized in 1999 or 1998. Amortization expense related to capitalized
internally developed software costs included in cost of revenue was
approximately $782 and $376 for the years ended December 31, 1998 and 1997 (zero
in 1999). Development costs related to the enhancement and modification of
Internet properties are expensed as incurred and are included in development and
engineering expenses.
REVENUE RECOGNITION
The Company provides healthcare transaction and network-based services;
subscriptions to the Company's web site; advertising and site sponsorship;
e-commerce and other services; development and consulting services; and
management and operation of customers' information technology ("IT")
infrastructure. The Company also has recognized revenue from software license
fees; however, the Company does not anticipate that a material amount of revenue
will be earned from software licenses in the foreseeable future. To date, the
Company has derived no significant revenue from brokers, value-added resellers
or systems integrators.
Revenue is recognized when the services are performed or the products are
delivered. The Company earns revenue from fixed fee subscription arrangements,
which are recognized ratably over the term of the
56
<PAGE> 58
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applicable agreement. Revenue relating to software license fees are recognized
when a noncancelable license agreement has been signed with a customer, the
software product covered by the license agreement has been delivered, there are
no uncertainties surrounding product acceptance, there are no significant future
performance obligations, the license fees are fixed and determinable and
collection of the license fees is considered probable. These products do not
require significant customization. Cash received in excess of revenue recognized
relating to such services has been recorded as deferred revenue in the
accompanying consolidated balance sheets.
The Company has entered into agreements that provide for the placement and
sponsorship of subscriptions, co-promotion and marketing rights, and web site
content licenses. Under such agreements, the Company generally pays a fee for
co-promotion services and branding rights and generally shares in the net
advertising and e-commerce revenues generated by the co-branded web sites and
web pages. Several of these relationships include the issuance of equity
securities by the Company. The Company has not recognized any revenue related to
the nonmonetary exchange of advertising for advertising, when such exchanges
were not objectively determinable based on the criteria set forth in Accounting
Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions."
Revenue recognized during 1999 from arrangements deemed to be nonmonetary
exchanges of the Company's products and services for customer products and
services totaled approximately $6,000. Revenues from these exchanges are
recorded at the fair value of the products and services provided or received,
whichever is more clearly evident. There was no corresponding cost of revenues
related to these transactions.
During 1997, the Company entered into agreements with two customers to
manage and operate their current and expanding IT operations, to develop a suite
of specific Internet-based commercial software applications and to assist these
customers in migrating from their current IT operating environment to these new
applications. The Company utilizes its own personnel, certain outside
contractors and certain personnel and facilities of one of the customers that
are leased under contract terms for these services. The cost of these leased
customer personnel and facilities is included as part of the total costs of the
IT and development services that are billed to the customers. In 1999, 1998, and
1997, the Company recognized revenue of approximately $17,736, $15,061 and
$2,100 for the IT services and approximately $6,310, $6,471 and $200 for the
development services. Revenue recognized for IT services included $11,951,
$11,792 and $1,909 in 1999, 1998 and 1997 related to leased personnel and
facilities. These amounts were also included in cost of operations for the
respective periods.
In December 1996, through a subsidiary, the Company entered into an
agreement to license a newly granted patent to IBM. As part of this agreement,
IBM agreed to pay $4,800 over a four-year period. Because of the extended
payment terms and the subsidiary's uncertain relationship with IBM, the Company
concluded that collection was not assured and, accordingly, recorded this
revenue as the proceeds were collected. In 1999, the Company amended the
agreement with IBM such that the remaining payment stream was discounted by
10.5% in exchange for immediate payment of the revised balance due, resulting in
recognition of the remaining deferred revenue. As a result, the Company
recognized software licenses revenue from this license sale of $1,518 in 1999
and $780 in both 1998 and 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value for marketable securities is based on quoted market prices.
The carrying value of these securities approximates their fair value.
57
<PAGE> 59
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of notes is estimated by discounting the future cash flows
using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to the Company for debt
instruments with similar terms, degrees of risk and remaining maturities. The
carrying values of these obligations approximate their respective fair values.
CONCENTRATION OF CREDIT RISK
The Company currently derives a substantial portion of its consolidated
revenue from a few large customers, one of which is a related party. Four
customers represented 41% of the total of trade accounts receivable and amounts
due from related parties at December 31, 1999. At December 31, 1998, two
customers represented 42% of the total balance of trade accounts receivable and
amounts due from related parties. The Company believes that the concentration of
credit risk in its trade receivables, with respect to its limited customer base,
is substantially mitigated by its credit evaluation process. The Company does
not require collateral. To date, the Company's bad debt write-offs have not been
significant.
ADVERTISING COSTS
Advertising production costs are recorded as expense the first time an
advertisement appears. The costs of communicating advertising are incurred and
expensed as the advertisement is broadcast in accordance with Statement of
Position No. 93-7 "Reporting on Advertising Costs." All other advertising costs
are expensed as incurred. The Company does not incur any direct-response
advertising costs. Advertising expense totaled approximately $9,132 in 1999 and
was not material in 1998 and 1997. Included in other current assets are costs
related to specific advertisements scheduled to appear in early 2000 totaling
$6,027.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes."
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair market value of the shares at the date
of grant. As permitted under Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," the Company accounts for
stock option grants to employees and directors in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees."
NET LOSS PER COMMON SHARE
Basic net loss per common share and diluted net loss per common share are
presented in conformity with SFAS No. 128, "Earnings Per Share," for all periods
presented. In accordance with SFAS No. 128, basic net loss per common share has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. On May 19,
1998, in connection with the Company's merger with ActaMed, all outstanding
shares of the Company's convertible preferred stock and ActaMed's convertible
redeemable preferred stock were converted into an aggregate of 39,272,329 shares
of common stock.
58
<PAGE> 60
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the calculation of basic and diluted net loss
per common share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss.................................... $ (287,992) $ (54,048) $ (28,005)
=========== =========== ===========
Basic and diluted:
Weighted-average shares of common stock
outstanding............................ 81,330,212 36,417,963 8,621,171
Less: Weighted-average shares subject to
repurchase............................. (963,517) (1,431,303) (1,398,013)
----------- ----------- -----------
Weighted-average shares used in computing
basic and diluted net loss per common
share..................................... 80,366,695 34,986,660 7,223,158
=========== =========== ===========
Basic and diluted net loss per common
share..................................... $ (3.58) $ (1.54) $ (3.88)
=========== =========== ===========
</TABLE>
The Company has excluded all convertible redeemable preferred stock,
convertible preferred stock, warrants, outstanding stock options and shares
subject to repurchase by the Company from the calculation of diluted loss per
common share because all such securities are anti-dilutive for all periods
presented. The total number of shares excluded from the calculation of diluted
loss per share was 63,898,198 in 1999, 23,020,426 in 1998 and 51,216,689 in
1997.
COMPREHENSIVE LOSS
The Company has no material components of other comprehensive loss, and
accordingly the comprehensive loss is the same as net loss for all periods
presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements to
conform with the current year presentation. These reclassifications had no
effect on previously reported financial position or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Company is required to adopt SFAS No. 133 for the year ending December 31, 2001.
SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. Because the Company currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
SFAS No. 133 is expected to have no material impact on the financial condition
or results of operations.
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the
Staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company believes that its current
revenue recognition principles comply with SAB 101.
In January 2000, the Emerging Issues Task Force of the FASB reached
consensus on Issue 99-17 "Accounting for Advertising Barter Transactions."
("EITF 99-17"). EITF 99-17 establishes accounting and reporting standards for
barter transactions which involve nonmonetary exchanges of advertising. It
requires that an entity recognize revenue and expenses from advertising barter
transactions at the fair value of the advertising surrendered only when an
entity has a historical practice of receiving cash for similar
59
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HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions. The Company does not believe that the adoption of EITF 99-17 will
have a material impact on its financial condition or results of operations.
In March 2000, the Emerging Issues Task Force of the FASB reached consensus
on Issue 00-2 "Accounting for Website Development Costs." ("EITF 00-2"). EITF
00-2 establishes how an entity should account for costs incurred to develop a
website. It requires that an entity capitalize costs during the web application
and infrastructure and graphics development stages of development. The consensus
is effective for all costs incurred beginning after June 30, 2000, although
earlier adoption is encouraged. The Company is currently evaluating the adoption
of EITF 00-2 and its potential impact on its financial condition or results of
operations.
2. BUSINESS COMBINATIONS
THE 1999 MERGERS
On May 20, 1999, Healtheon entered into an agreement to merge with WebMD, a
provider of web-based solutions for the administrative, communications and
information needs of healthcare professionals and the healthcare informational
needs of consumers. Healtheon exchanged 1.796 shares of its common stock for
each share of WebMD stock. The total purchase consideration was approximately
$3,659,921, comprising the issuance of 63,932,659 shares of Healtheon's common
stock with an aggregate fair value of $2,204,478, the assumption of options and
warrants to purchase 49,012,168 shares of Healtheon's common stock with an
aggregate fair value of approximately $1,409,746, and $45,697 of acquisition
costs. Acquisition costs consisted principally of investment banking fees,
professional services fees, including attorneys, accountants and printers,
filing and registration costs and approximately $2,530 of merger-related
restructuring costs. The acquisition has been accounted for using the purchase
method and, accordingly, the purchase price has been allocated to the tangible
and intangible assets acquired and the liabilities assumed on the basis of their
respective fair values on the acquisition date. The total goodwill recorded in
connection with the purchase was $2,944,804 and is being amortized over three
years. The values, totaling approximately $196,307, assigned to WebMD's acquired
technology, customer lists, trademarks, and other intangibles, were determined
through independent appraisal. WebMD's results of operations, including
approximately $144,006 of amortization expense related to goodwill and
separately identifiable intangibles, have been included in the consolidated
financial statements from November 12, 1999, the closing date of the
acquisition.
On April 21, 1999, Healtheon entered into an agreement to acquire MedE
America, a provider of healthcare transaction services for hospitals,
pharmacies, physicians, dentists, payers and pharmacy benefit managers (PBMs).
Healtheon exchanged 0.7494 shares of its common stock for each share of MedE
America stock. The total purchase consideration was approximately $417,292,
comprising the issuance of 10,404,454 shares of Healtheon's common stock with an
aggregate fair value of $388,221, the assumption of options to purchase 468,584
shares of Healtheon's common stock with an aggregate fair value of approximately
$13,644, and $15,427 of acquisition costs. Acquisition costs consisted
principally of investment banking fees, professional services fees, including
attorneys, accountants and printers, filing and registration costs and
approximately $4,756 of merger-related restructuring costs. The acquisition has
been accounted for using the purchase method and, accordingly, the purchase
price has been allocated to the tangible and intangible assets acquired and the
liabilities assumed on the basis of their respective fair values on the
acquisition date. The total goodwill recorded in connection with the purchase
was $324,983 and is being amortized over four years. The values, totaling
approximately $105,545, assigned to MedE America's customer lists, trademarks
and acquired technology, were determined through independent appraisal. MedE
America's results of operations, including approximately $18,836 of amortization
expense related to goodwill and separately identifiable intangibles, have been
included in the consolidated financial statements from November 12, 1999, the
closing date of the acquisition.
60
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HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 30, 1999, Healtheon entered into an agreement to acquire Medcast,
an Internet-based medical news and information service. Healtheon exchanged
2,692,501 million shares or options to purchase shares of its common stock and
approximately $2,336 in cash for all Medcast outstanding stock. The total
purchase consideration was approximately $112,953, comprising the issuance of
2,528,465 shares of Healtheon's common stock with an aggregate fair value of
$101,391, the assumption of options to purchase 164,036 shares of Healtheon's
common stock with an aggregate fair value of approximately $3,378, $2,336 in
cash and $5,848 of acquisition costs. The acquisition has been accounted for
using the purchase method and, accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and the liabilities
assumed on the basis of their respective fair values on the acquisition date.
The total goodwill recorded in connection with the purchase was approximately
$109,755 and is being amortized over three years. The values, totaling $17,700,
assigned to Medcast's customer lists, trademarks and acquired technology, were
determined through independent appraisal. Medcast's results of operations,
including approximately $5,834 of amortization expense related to goodwill and
separately identifiable intangibles, have been included in the consolidated
financial statements from November 12, 1999, the closing date of the
acquisition.
The fair value per share of Healtheon's common stock was based on the
closing price of Healtheon's common stock on the five days prior and subsequent
to the days the mergers were announced, or, if applicable, the days the merger
agreements were amended, which were September 7, 1999 for WebMD, October 6, 1999
for Medcast and April 21, 1999 for MedE America.
The following unaudited proforma financial information gives effect to the
acquisitions of WebMD, MedE America and Medcast, including the amortization of
goodwill and other intangible assets as if they had occurred as of the beginning
of each period presented. The information is provided for illustrative purposes
only and is not necessarily indicative of the operating results that would have
occurred if the transactions had been consummated at the dates indicated, nor is
it necessarily indicative of future operating results of the combined companies
and should not be construed as representative of these amounts for any future
periods. (unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
Net revenue........................................ $ 170,605 $ 102,587
========== ===========
Net loss........................................... $1,546,801 $(1,351,261)
========== ===========
Basic and diluted net loss per share............... $ (10.53) $ (12.08)
========== ===========
</TABLE>
METIS, LLC
On August 25, 1998, the Company acquired the assets of Metis, LLC, a
provider of Internet and intranet-based consulting, design and development
services for the healthcare industry. The total purchase consideration was
approximately $9,400, comprising the issuance of 1,600,000 shares of its common
stock with an aggregate fair value of $8,320, a cash payment of $620 and the
assumption of certain liabilities. Of the shares issued, 476,548 shares were
issued to employees under restricted stock purchase agreements subject to a
lapsing right of repurchase, at the Company's option, over the respective
vesting periods. The acquisition has been accounted for using the purchase
method and, accordingly, the purchase price has been allocated to the tangible
and intangible assets acquired and the liabilities assumed on the basis of their
respective fair values on the acquisition date. The total goodwill recorded in
connection with the purchase was $7,700 and is being amortized over three years.
The value assigned to Metis' assembled workforce of $1,400 was determined
through independent appraisal and is being amortized over two years.
61
<PAGE> 63
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Metis' results of operations, including $692 and $259 in goodwill amortization
in 1999 and 1998, respectively, have been included in the consolidated financial
statements from its date of acquisition.
ACTAMED CORPORATION
On May 19, 1998, Healtheon completed its merger with ActaMed, a developer
and provider of an integrated healthcare network, in a transaction that has been
accounted for as a pooling of interests. Accordingly, the financial information
presented reflects the combined financial position and operations of Healtheon
and ActaMed for all dates and periods presented. Healtheon issued 23,271,355
shares of its common stock in exchange for all of the outstanding shares of
common and convertible redeemable preferred stock of ActaMed. Healtheon also
assumed all outstanding stock options and warrants to acquire 3,383,011 shares
of ActaMed capital stock, after giving effect to the exchange ratio.
Separate results of the combined entities for the four months ended April
30, 1998 (period ended immediately prior to the merger) and the full year of
1997 were as follows (unaudited):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Revenue:
Healtheon.................................... $ 6,405 $ 3,199
ActaMed...................................... 6,690 10,191
-------- --------
$ 13,095 $ 13,390
======== ========
Net loss:
Healtheon.................................... $ (6,664) $(13,979)
ActaMed...................................... (6,186) $(14,026)
-------- --------
$(12,850) $(28,005)
======== ========
</TABLE>
There were no intercompany transactions between the two companies or
significant conforming accounting adjustments.
3. SERVICES AGREEMENT WITH SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
In connection with a 1997 five-year Services Agreement with SmithKline
Labs, the Company acquired a license to SmithKline Labs' SCAN software and
computer workstations that reside in various medical providers' offices. At
December 31, 1997, the SCAN license and the assets from one region of the
country were transferred to Healtheon for $2,000 in cash and 2,317,913 shares of
Series D convertible redeemable preferred stock valued at $8,500. The assets for
the remaining regions of the country were transferred to the Company, and the
Company paid the remaining purchase price of $7,700 through the issuance of
763,548 shares of Series D convertible redeemable preferred stock in March 1998
and 1,336,209 shares of the Company's common stock in June 1998. The value of
the services agreement and the SCAN software license totaled $14,774, and the
value of the computer workstations totaled $3,426.
In January 1999, the Company entered into a services agreement with
SmithKline Labs under which the Company will provide certain electronic
laboratory results delivery services to various provider sites. In addition, in
January 1999, the two companies completed an asset purchase agreement under
which the Company purchased certain assets from SmithKline Beecham Corporation,
used by its subsidiary SmithKline Labs, to provide these laboratory results
delivery services in exchange for $2,000 in cash and 1,833,333 shares of the
Company's common stock with a value of $11,000. On August 16, 1999, SmithKline
Labs was sold by SmithKline Beecham to Quest Diagnostics Incorporated.
62
<PAGE> 64
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID CONTENT AND SERVICES
In connection with obtaining web site content and distribution services,
the Company's subsidiary, WebMD, paid cash or issued equity instruments to
certain service providers, including related parties prior to the 1999 Mergers.
The amount of payments made or the fair value of equity instruments issued has
been capitalized and is being amortized over the agreement term. Prepaid costs
by category are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CURRENT PORTION
Content................................................ $ 1,478 $ --
Distribution........................................... 3,958 --
-------- --------
$ 5,436 $ --
======== ========
LONG-TERM PORTION
Services............................................... 2,215 --
Distribution........................................... 270,823 --
-------- --------
$273,038 $ --
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Computer equipment...................................... $ 44,219 $14,979
Land.................................................... 150 --
Buildings............................................... 1,664 --
Office equipment, furniture and fixtures................ 8,985 2,958
Purchased software for internal use..................... 9,725 2,624
Leasehold improvements.................................. 3,092 1,465
-------- -------
67,835 22,026
Less accumulated depreciation and amortization.......... (19,451) (9,741)
-------- -------
Property and equipment, net............................. $ 48,384 $12,285
======== =======
</TABLE>
Property and equipment included assets acquired under capital lease
obligations with a cost of approximately $9,374 and $6,481 at December 31, 1999
and 1998, respectively. Accumulated depreciation related to the assets acquired
under capital leases totaled $6,040 and $2,656 at December 31, 1999 and 1998,
respectively.
63
<PAGE> 65
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
AMORTIZATION ----------------------
PERIOD 1999 1998
------------ ---------- --------
<S> <C> <C> <C>
Goodwill........................................ 3 years $3,394,885 $ 15,668
Customer lists.................................. 4 years 84,130 --
Acquired technology............................. 3 years 64,747 8,245
Trademarks...................................... 3 years 116,869 216
Other........................................... 1-3 years 80,325 5,779
---------- --------
3,740,956 29,908
Less accumulated amortization................... (193,397) (10,040)
---------- --------
$3,547,559 $ 19,868
========== ========
</TABLE>
7. INVESTMENT
Prior to the 1999 Mergers, WebMD entered into a strategic alliance with
Nationwide Medical Services, Inc. ("J&C Nationwide"), a private company, by
acquiring a 30% equity interest. The investment was initially valued at $2,000.
This investment is being accounted for under the equity method of accounting,
and is adjusted for the appropriate share of the net earnings or losses of the
investee. At December 31, 1999, the J&C Nationwide investment carrying value was
approximately $1,725.
8. COMMITMENTS
The Company has agreements with various content providers and strategic
partners whereby the Company is committed to pay certain amounts in connection
with content and services obtained for use on its WebMD web site and certain
distribution arrangements. The Company has recorded $15,861 as costs related to
these agreements during 1999. The Company's non-cancelable future commitments
under these agreements, a portion of which are with related parties, are as
follows:
<TABLE>
<CAPTION>
UNRELATED PARTIES RELATED PARTIES TOTAL
----------------- --------------- --------
<S> <C> <C> <C>
2000....................................... $22,252 $ 49,782 $ 72,034
2001....................................... 13,933 61,212 75,145
2002....................................... -- 42,422 42,422
2003....................................... -- 34,375 34,375
2004....................................... -- 8,750 8,750
------- -------- --------
$36,185 $196,541 $232,726
======= ======== ========
</TABLE>
The Company has entered into several lease lines of credit. Approximately
$8,156 had been utilized under these lease lines through December 31, 1999. At
December 31, 1999, approximately $5,444 was available for future utilization
under these lease lines. This amount included approximately $1,100 that was
repaid under the terms of a revolving lease line and is thus again available for
future utilization. The arrangements are secured by the property and equipment
subject to the leases. The term of the leases is generally three years and the
interest rates implicit in the leases range from 6.9% to 20.2% per annum.
The Company leases its headquarters and other office facilities under
operating lease agreements that expire at various dates through 2008. Total rent
expense for all operating leases was approximately $4,106,
64
<PAGE> 66
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,386 and $1,165 in 1999, 1998 and 1997 respectively. Future minimum lease
commitments under non-cancelable lease agreements at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ended December 31, 2000............................ $ 7,746 $ 3,363
2001.................................................. 6,848 2,124
2002.................................................. 4,188 151
2003.................................................. 3,427 5
2004.................................................. 3,078 --
------- -------
Total minimum lease payments............................ $25,287 5,643
=======
Amount representing interest............................ (1,352)
Present value of minimum lease payments under capital
lease obligations..................................... 4,291
Less current portion.................................... (2,281)
-------
Non-current portion..................................... $ 2,010
=======
</TABLE>
9. RETIREMENT PLAN
The Company has a defined contribution 401(k) plan. The plan is for the
benefit, generally, of all employees 21 years of age or older with at least six
months of employment and permits voluntary employee contributions and Company
profit sharing contributions. The Company has not made any such contributions to
the plan through December 31, 1999. In conjunction with the 1999 Mergers, the
defined contribution 401(k) plans for WebMD, MedE America, and Medcast were
terminated and will be merged into the Company's plan. All WebMD, MedE America
and Medcast employees became eligible for the Company's 401(k) plan as of
November 12, 1999.
10. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On February 10, 1999, Healtheon completed its initial public offering. The
Company sold 5,750,000 shares of common stock to the public and realized net
proceeds of $41,399.
CONVERTIBLE PREFERRED STOCK
In October 1998, the Board of Directors authorized 8,285,007 shares of
convertible preferred stock and designated all of these shares as Series A. In
November 1998, the Company issued 7,683,341 shares of Series A convertible
preferred stock for $46,101 of cash proceeds. Upon the closing of the initial
public offering in February 1999, all of the outstanding shares of Series A
preferred stock were converted into shares of common stock.
WARRANTS
In July 1997, the Company issued a warrant to an officer, in connection
with his employment, to purchase 750,000 shares of Series B convertible
preferred stock at an exercise price of $2.00 per share, the fair value at the
date of issuance. The warrant expires three years from issuance, and shares
purchased under the warrant are subject to repurchase by the Company, at its
option, upon termination of employment. Shares under the warrant vest ratably
over a period of two years from the date of grant. In
65
<PAGE> 67
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
May 1998, this warrant was converted to a warrant to purchase common stock. It
remained outstanding at December 31, 1999.
In December 1998, as part of a service agreement with a customer, the
Company issued to the customer a warrant to purchase 500,000 shares of common
stock with an exercise price of $10.40 per share. The warrant vests as to
200,000 shares in December 1999 and as to an additional 100,000 shares in
December 2000, 2001 and 2002. The warrant expires in March 2003. The services
are anticipated to be provided by the customer to the Company through at least
December 31, 2002. In the event that the customer terminates the service
agreement prior to December 31, 2002, the customer is obligated to pay the
Company a breakage fee. This breakage fee represents a significant economic
penalty for nonperformance under the service agreement. The value of the warrant
at the date of issuance was approximately $830,000. This amount is being
amortized over the life of the service agreement.
Prior to the consummation of the 1999 Mergers, McKessonHBOC, Inc.
("McKessonHBOC") entered into an agreement with WebMD and Healtheon that served
to terminate all prior strategic agreements between WebMD and McKessonHBOC.
WebMD received a cash payment of $3,600 and, in exchange, agreed to pay a
commission of the ongoing monthly subscription fees for any physician
subscriptions to WebMD's products and services previously obtained by
McKessonHBOC, if any (the Company does not expect there will be any material
payments under this provision). In connection with this revision, McKessonHBOC
received 4,688,049 warrants to purchase WebMD common stock at a weighted average
exercise price of $38.00 per share. These warrants were assumed by the Company
in accordance with the Merger Agreement, giving McKessonHBOC a warrant to
purchase 8,419,736 shares of the Company's common stock.
Prior to the consummation of the 1999 Mergers, Microsoft Corporation
("Microsoft") entered into a five-year strategic alliance with WebMD. (See Note
13.) In connection with this relationship, Microsoft received a warrant to
purchase 7,614,916 shares of its common stock at an exercise price of $54.17,
the fair value of WebMD stock at the date of issuance. The warrant vested
immediately upon issuance and expires five years from the issuance date. This
warrant was assumed by the Company in accordance with the Merger Agreement,
giving Microsoft a warrant to purchase 13,676,389 shares of the Company's common
stock.
Prior to the consummation of the 1999 Mergers, E.I. du Pont de Nemours and
Company ("DuPont") entered into a five-year strategic alliance with WebMD. (See
Note 13.) In connection with this relationship, DuPont received a warrant to
purchase 4,000,000 shares of its common stock at an exercise price of $20.00,
the fair value of WebMD stock at the date of issuance. The warrant vested
immediately upon issuance and expires five years from the issuance date. This
warrant was assumed by the Company in accordance with the Merger Agreement,
giving DuPont a warrant to purchase 9,946,966 shares of the Company's common
stock.
Prior to the consummation of the 1999 Mergers, as part of a service
agreement, WebMD issued a warrant to purchase 1,038,450 shares of its common
stock to a financial services company. As of the merger date, this warrant was
assumed by Healtheon in accordance with the Merger Agreement and after the
effect of the exchange ratio, 621,685 remained unvested and expire on January
27, 2004. In the event the financial services company terminates the service
agreement, they forfeit the unvested options and pay the Company a cash penalty
of up to $3,400. This breakage fee represents a significant economic penalty for
nonperformance under the service agreement. The value of the warrant at the date
of issuance was approximately $4,688. This amount is being amortized over the
remaining life of the agreement as general and administrative expense.
At December 31, 1999, the Company had reserved 35,602,352 shares of common
stock for issuance upon exercise of the outstanding warrants for common stock.
66
<PAGE> 68
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK-BASED COMPENSATION
STOCK OPTION PLANS
Under the 1996 Stock Plan, or the 1996 Plan, which was adopted in February
1996, the Board of Directors may grant options to purchase common stock or issue
common stock subject to a restricted stock purchase agreement to eligible
participants. Options granted may be either incentive stock options or
nonstatutory stock options and are exercisable within the times or upon the
events determined by the Board of Directors as specified in each option
agreement. Options vest over a period of time as determined by the Board of
Directors, generally ten years. The term of the 1996 Plan is ten years. A total
of 15,000,000 shares were initially reserved under the 1996 Plan.
The number of shares reserved under the 1996 Plan is subject to an annual
increase equal to the lesser of 5% of the outstanding common shares or a lesser
amount determined by the Board of Directors. In January 1999, an additional
3,107,321 shares were reserved under the 1996 Plan under the annual increase
provision. In February 1999, the Board of Directors and the stockholders
approved an amendment to increase the number of shares reserved for issuance
under the 1996 Plan by an additional 1,000,000 shares. In connection with the
1999 Mergers, an additional 10,000,000 shares were reserved under the 1996 Plan.
At December 31, 1999, 10,057,560 shares remained available for future grant
under the 1996 Plan.
On October 20, 1998, the Company offered employees who were granted options
from July 1998 through October 1998 the ability to cancel their original option
grant in exchange for a new option agreement with a new vesting start date and
an option price of $3.55 per share; the deemed fair value of the Company common
stock on that date was $4.80. A total of 3,380,200 option shares with exercise
prices of $4.50, $6.30, $7.00 and $8.00 were eligible to be repriced. A total of
2,057,950 option shares were canceled and reissued.
In connection with the acquisitions of ActaMed, WebMD, MedE America and
Medcast, the Company assumed all the outstanding options issued under the
respective stock option plans and arrangements, after the application of the
exchange ratio, and reserved 3,100,489; 14,734,986; 468,584 and 164,036 shares
of common stock for issuance upon exercise of the assumed options. No further
options can be granted under these plans. At the time of these acquisitions,
options for 2,717,269; 8,637,406; 60,136 and 83,626 respectively shares were
fully vested. The remainder of the shares vest based upon the terms of the
original plans ranging from four to ten years.
Shares issued subject to restricted stock purchase agreements totaled
1,098,732 in 1998. All of these shares were issued to employees for cash. The
common stock is subject to repurchase at the original exercise price until
vested, at the Company's option. The shares vest over a period of time as
determined by the Board of Directors for each individual purchase agreement,
generally four years.
During 1999 and 1998, 375,000 and 259,896 shares, respectively, were
repurchased from terminated employees. In addition, on December 14, 1998,
455,000 shares of common stock issued in July 1998 subject to restricted stock
purchase agreements were rescinded as part of the repricing program. Shares
subject to repurchase totaled approximately 651,000 and 1,247,000 at December
31, 1999 and 1998, respectively.
67
<PAGE> 69
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1996........ 5,244,615 $ .68
Granted....................................... 5,394,008 .73
Exercised..................................... (547,844) .16
Canceled...................................... (890,528) .49
----------
Options outstanding at December 31, 1997........ 9,200,251 .72
Granted....................................... 7,743,881 4.32
Exercised..................................... (2,433,999) .59
Canceled...................................... (2,997,333) 4.95
----------
Options outstanding at December 31, 1998........ 11,512,800 2.06
Granted....................................... 7,407,738 20.41
Assumed....................................... 15,367,606 7.95
Exercised..................................... (5,501,438) 2.71
Canceled...................................... (1,138,369) 7.54
Expired....................................... (3,491) 3.34
----------
Options outstanding at December 31, 1999........ 27,644,846 $ 9.98
==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Weighted-average fair value of options granted.............. $8.08 $0.67 $.18
===== ===== ====
</TABLE>
The following table summarizes information regarding options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
REMAINING
WEIGHTED-AVERAGE CONTRACTUAL LIFE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER OUTSTANDING EXERCISE PRICE (IN YEARS) NUMBER EXERCISABLE PRICE EXERCISE
- - - - - --------------- ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$ .05 - $1.00 6,979,670 $ 0.61 4.3 3,905,172 $ 0.65
$1.30 - $4.50 5,115,129 3.29 8.3 1,994,715 2.92
$5.40 - $8.05 10,748,440 6.47 5.2 3,002,501 6.57
$17.35 - $40.25 3,541,893 33.85 9.0 292,392 23.61
$40.56 - $105.00 1,259,714 51.88 9.6 12,644 78.82
---------- ---------
$.05 - $105.00 27,644,846 $ 9.98 9,207,424 $ 3.91
========== =========
</TABLE>
The Company recorded deferred stock compensation of approximately $6,261
and $8,160 in 1999 and 1998, respectively. These amounts represented the
difference between the exercise price and the deemed fair value of common stock
on the date the stock options were granted. The Company recorded amortization of
deferred stock compensation of approximately $7,633 and $3,376 in 1999 and 1998,
respectively, based on a graded vesting method. At December 31, 1999, the
Company had a total of approximately $5,089 remaining to be amortized on a
graded vesting method over the corresponding vesting period of each respective
option, generally four years.
68
<PAGE> 70
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA INFORMATION
The Company has elected to follow APB No. 25 and related interpretations in
accounting for employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, no compensation expense is recognized when the
exercise price of stock options granted to employees equals the market price of
the underlying stock on the date of grant.
Pro forma information regarding net loss is required by SFAS No. 123 and
has been determined as if employee stock options granted subsequent to December
31, 1994 were accounted for under the fair value method of SFAS No. 123. The
fair value for these options was estimated at the date of grant using the
minimum value method in 1997 and 1998 and using a Black-Scholes option pricing
model in 1999 with an expected volatility of 100%. The following
weighted-average assumptions were used: risk-free interest rate of approximately
5.6% in 1999, 4.9% in 1998, and 6.0% in 1997; a weighted-average expected life
of the option of 3.3 years in 1999, 3.5 years in 1998, and 4.2 years in 1997;
and a dividend yield of zero for all years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Net loss (in thousands):
As reported..................................... $(287,992) $(54,048) $(28,005)
========= ======== ========
Pro forma....................................... $(322,999) $(55,414) $(28,173)
========= ======== ========
Basic and diluted net loss per common share
As reported..................................... $ (3.58) $ (1.54) $ (3.88)
========= ======== ========
Pro forma....................................... $ (4.02) $ (1.58) $ (3.90)
========= ======== ========
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimates, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's employee stock options.
EMPLOYEE STOCK PURCHASE PLAN
In September 1998, the Board of Directors and the stockholders approved the
adoption of the Company's 1998 Employee Stock Purchase Plan, or the 1998
Purchase Plan. The 1998 Purchase Plan became effective on the effective date of
the initial public offering, February 10, 1999. A total of 1,000,000 shares of
common stock were initially reserved for issuance under the 1998 Purchase Plan,
plus annual increases equal to the lesser of 500,000 shares; 0.5% of the
outstanding common shares; or a lesser amount determined by the Board of
Directors. In conjunction with the 1999 Mergers, the shareholders approved an
increase of 1,000,000 shares to the 1998 Purchase Plan. Additionally, the
formula for annual increases, calculated on the first day of each fiscal year,
was changed to increase the number of shares reserved for issuance under the
1998 Purchase Plan to be the lesser of 1,000,000 shares; 0.5% of the outstanding
common shares on that date; or a lesser amount determined by the Board of
Directors. A total of 635,201 shares were issued under this plan during 1999.
69
<PAGE> 71
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
--------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 224,570 $29,984
Intangible assets.................................... -- 5,491
Research and development tax credit.................. 2,353 2,353
Other accrued expenses............................... 6,155 --
Other................................................ 3,208 2,775
--------- -------
Total deferred tax assets.............................. 236,286 40,603
--------- -------
Valuation allowance.................................... (236,286) (40,530)
--------- -------
Net deferred tax assets................................ -- 73
--------- -------
Deferred tax liabilities:
Depreciation......................................... 47 (73)
Intangible assets.................................... (3,875) --
Other................................................ (114,966) --
--------- -------
Total deferred tax liabilities......................... (118,794) (73)
--------- -------
Net deferred tax assets and liabilities................ $(118,794) $ --
========= =======
</TABLE>
A valuation allowance equal to 100% of the net deferred tax assets has been
established because of the uncertainty of realization of the deferred tax assets
due to the lack of earnings history. The valuation allowance for deferred tax
assets increased by $195,756, $21,599 and $9,386 in 1999, 1998 and 1997
respectively.
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $590,973 which expire in 2009
through 2019, and federal tax credits of approximately $6,192 which expire in
2009 through 2014.
The 1999 Mergers resulted in the acquisition of deferred tax assets and a
corresponding valuation allowance of $97,985 during 1999. Approximately $54,207
of the deferred tax asset related to net operating loss carryforwards that will
result in a credit to contributed capital when recognized. In addition, net
operating loss carryforwards of approximately $19,890 arising from the ActaMed
merger are available to offset future taxable income.
Because of the "change of ownership" provisions of the Internal Revenue
Code and similar state provisions, a portion of net operating loss carryforwards
and tax credit carryforwards may be subject to an annual limitation regarding
their utilization against taxable income in future periods. A portion of these
carryforwards may expire before becoming available to reduce future income tax
liabilities.
13. RELATED PARTY TRANSACTIONS
Revenue from related parties and accounts receivable from related parties
consisted of revenue attributable to UnitedHealth Group for all years presented
and SmithKline Labs from January 1, 1998 to August 16, 1999. Accounts receivable
due from UnitedHealth Group and SmithKline Labs was $3,360 at
70
<PAGE> 72
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998. On August 16, 1999, SmithKline Labs was sold to a company
which is not a significant shareholder of Healtheon/WebMD. At this date, it
ceased to be a related party. At December 31, 1999, accounts receivable from
UnitedHealth Group were approximately $1,346.
Revenue from related parties also included amounts due from the Microsoft
Corporation from November 12, 1999 (the date of the 1999 Mergers) for revenue
sharing on advertising, third-party carriage fees and subscription and
e-commerce revenue to third parties as discussed below.
PREMIERE TECHNOLOGIES, INC. ("PREMIERE")
The Company provides its WebMD subscribers with Premiere enhanced
communications services. The Company's agreement with Premiere is effective
until January 31, 2001 and contains minimum commitments for per-account and
per-transaction payments by the Company to Premiere. The Company's agreement
with Premiere also provides for the development of the Orchestrate platform for
the Company. Premiere is a shareholder of the Company and one of the Company's
board members is an executive and director of Premiere. One of the Company's
executives is a board member of Premiere.
MICROSOFT CORPORATION
Prior to the 1999 Mergers, WebMD and Microsoft entered into a five-year
strategic alliance under which the Company will develop, host and maintain on
its servers a health channel for MSN, MSNBC and WebTV. Microsoft has committed
to provide a minimum of 125 million impressions to WebMD's health channel per
year for the term of the agreement. Over the term of the agreement, the Company
will pay Microsoft an aggregate of $162,000 for the distribution of the
Company's consumer health content and services, or carriage fees. In addition,
Microsoft and Healtheon/WebMD have each committed co-marketing funds of $50,000
over the first two years of the agreement. As of December 31, 1999, the Company
had recognized $3,950 as sales and marketing expense related to the carriage
fees.
Microsoft remits to the Company 100% of net revenue over the term of the
agreement from banner and other advertising and e-commerce transactions
generated on the health channel or advertising that Microsoft places on the
Company's web site each year during the term until the Company has received that
portion of the $162,000 carriage fees that was payable during that year, and
then will share revenue equally thereafter. The amount equal to the portion of
the $162,000 carriage fees that is payable during each year is a guaranteed
minimum amount. Microsoft is entitled to satisfy its guaranteed minimums by
purchasing or placing advertising on the Company's web site. The Company has
agreed to make sufficient advertising space available to Microsoft for this
purpose. The Company does not recognize any revenue based on the guaranteed
minimum payment amounts, but recognizes only the actual revenue derived from
third-party advertising. The Company recognizes revenue derived from advertising
on the Microsoft health channels, net of commissions, on notification from
Microsoft that the advertisements have been placed on the health channels and
billed by Microsoft. Payments by Microsoft that are made to satisfy the
guaranteed minimums will not be recorded as revenue, but as a reduction of the
carrying value of prepaid content and services-related parties. During 1999, the
Company recognized $1,590 related to health channel advertising revenue and no
revenue related to advertising placed by Microsoft on the Company's web site.
Microsoft will also sponsor up to 5.0 million subscriber months of
subscriptions to WebMD's physician web site over the term of the agreement. The
Company records revenue only to the extent that actual subscriptions are placed
with physicians. The Company pays a commission on all subscriptions placed by
Microsoft. During 1999, $1,845 was recorded as revenue related to subscriptions
sponsored by Microsoft. This amount has been recorded net of commissions.
71
<PAGE> 73
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company shares with Microsoft 50% of net revenue from banner and other
advertising on its physician web site generated by sponsored subscriptions until
Microsoft has received the amount it has incurred for its sponsored
subscriptions. Thereafter, the Company will share 25% of this revenue with
Microsoft. In addition, the Company will share with Microsoft 15% of its net
revenue from e-commerce transactions and additional services not included in the
basic subscription to the Company's physician web site generated by these
sponsored subscriptions. There were no obligations to Microsoft as of December
31, 1999 relating to this provision.
The value assigned to the Microsoft strategic agreement, as determined
through independent appraisal, was $180,000. As of December 31, 1999, the
Company had recognized $4,500 as sales and marketing expense for amortization of
this asset. As of December 31, 1999, the accounts receivable from Microsoft was
$9,030.
As described in Note 10, Microsoft has a warrant to purchase 13,676,389
shares of the Company's common stock and owns 11,933,342 shares of the Company's
common stock. As of December 31, 1999, an executive of Microsoft was a board
member of the Company.
EXCITE@HOME
Prior to the 1999 Mergers, WebMD entered into a three-year services
agreement with At Home Corporation, or Excite@Home, whereby the Company will
create a co-branded health channel and online health-related communities for
Excite@Home. In addition, Excite@Home purchased 461,510 shares of stock from
WebMD at $54.17 per share. The Company, through its WebMD subsidiary, will be
the exclusive provider of health content on the Excite@Home network. Excite@Home
has guaranteed a minimum level of impressions throughout the Excite@Home network
and the Company has agreed to pay carriage fees over the term of the agreement.
During 1999, the Company recorded $1,650 as sales and marketing expense related
to carriage fees based on impressions delivered. Excite@Home and the Company
will share the advertising revenue generated by the co-branded web site. The
accounts receivable for advertising revenue from Excite@Home was $1,158 as of
December 31, 1999.
In conjunction with the 1999 Mergers, Excite@Home received 837,640 shares
of the Company's common stock in exchange for its WebMD ownership. Additionally,
a board member of Excite@Home is a board member of Healtheon/WebMD.
14. SEGMENT INFORMATION
The Company derives its revenue from a single operating segment, healthcare
transaction and information services delivered over the Internet, private
intranets or other networks and from development, consulting and IT contracts
related to these services.
GEOGRAPHIC INFORMATION
The Company operates primarily within the United States and to date has
derived nearly all of its revenue from within the United States.
15. SUBSEQUENT EVENTS
ENVOY CORPORATION
On January 22, 2000, the Company entered into a definitive agreement with
Quintiles Transnational Corp. and its subsidiary, QFinance, Inc. (together,
"Quintiles"), to acquire Quintiles' electronic data interchange subsidiary
("EDI"), Envoy Corporation, a provider of healthcare EDI transactions in the
United States. Under the terms of the agreement, Quintiles will receive
35,000,000 shares of Healtheon/
72
<PAGE> 74
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WebMD stock and $400,000 in cash, for a total consideration of approximately
$2,500,000. Quintiles will issue the Company a warrant to purchase up to
10,000,000 shares of Quintiles common stock at $40.00 per share, exercisable for
four years. Stock received by Quintiles in the transaction will be subject to
restrictions on sale for one to two years. Completion of the agreement, which
will be accounted for as a purchase transaction, is expected in the second
quarter of 2000, subject to regulatory approval and certain other customary
closing conditions.
NEWS CORPORATION STRATEGIC ALLIANCE
On January 26, 2000, Healtheon/WebMD completed the transactions
contemplated by its strategic alliance agreement with The News Corporation
Limited, Fox Entertainment Group and certain of their affiliates (collectively,
"News Corporation"). Under this strategic partnership, News Corporation became a
minority stockholder in Healtheon/WebMD. The financial terms of the strategic
partnership include $400 million in media branding services to be provided by
News Corporation and its affiliates to Healtheon/ WebMD domestically over 10
years; a $100 million cash investment commitment by News Corporation in an
international joint venture; a $62.5 million five-year licensing agreement for
syndication of WebMD daily broadcast content; the transfer to Healtheon/WebMD of
a 50% interest in The Health Network, a health-focused cable network, and 50%
ownership of thehealthnetwork.com. All shares, excluding the cash investment,
will be restricted in certain respects for a period of up to three years.
Healtheon/WebMD issued an aggregate of 155,951 shares of Series A Preferred
Stock, which shares vote on an as-if-converted basis with the Company's common
stock, in consideration for these transactions. Assuming conversion of all of
the shares of Series A Preferred Stock, the holders of these shares will receive
21,282,645 shares of the Company's Common Stock. These shares are subject to
restrictions on their sale for three years. In addition, affiliates of Fox
Entertainment purchased 2,000,000 shares of the Company's common stock at $50.00
per share for an aggregate purchase price of $100 million in cash.
JANUS INVESTMENT
On January 27, 2000, Janus Capital Corporation, through its managed mutual
funds, invested $930,000 in exchange for 15,000,000 shares of common stock at
$62.00 per share in a private transaction.
KINETRA LLC
On January 31, 2000, the Company completed its acquisition of Kinetra LLC,
a joint venture between Electronic Data Systems Corporation and Eli Lilly and
Company, which was accounted for as a purchase. Kinetra is a provider of health
information networks and healthcare e-commerce services that enhance
decision-critical information flow within the healthcare field. Healtheon/WebMD
issued an aggregate of 7,437,248 shares of the Company's common stock valued at
approximately $300,000 and paid a nominal amount of cash in exchange for all of
the membership interests of Kinetra.
MEDICAL MANAGER CORPORATION/CAREINSITE, INC.
On February 13, 2000, the Company entered into definitive agreements to
acquire Medical Manager Corporation, a provider of physician practice management
systems in the United States, and its publicly traded subsidiary, CareInsite,
Inc., a developer of an Internet-based healthcare e-commerce network that links
physicians, suppliers and patients. Under the terms of the agreements, the
Company will exchange 1.65 shares of its common stock for each share of Medical
Manager and 1.3 shares for each share of CareInsite not owned directly or
indirectly by Medical Manager. Completion of the acquisitions, which will be
accounted for as purchase transactions, is expected in mid-year 2000, subject to
regulatory and stockholder approvals and certain other customary closing
conditions. In addition, the completion of the Medical Manager and CareInsite
acquisitions are conditioned on each other.
73
<PAGE> 75
HEALTHEON/WEBMD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ONHEALTH NETWORK COMPANY
On February 15, 2000, the Company entered into a definitive agreement to
acquire OnHealth Network Company ("OnHealth"), a source of original,
informative, timely and trusted consumer-oriented health and wellness
information, products and services on the web. Under the terms of the agreement,
shareholders of OnHealth stock are to receive 0.189435 shares of the Company's
common stock for each share of OnHealth stock. Closing of the transaction, which
will be accounted for as a purchase transaction, is expected in mid-year 2000,
subject to regulatory and OnHealth stockholder approval and other customary
closing conditions. In connection with the agreement, the Company advanced
$15,000 to OnHealth for working capital needs.
74
<PAGE> 76
EXHIBITS
As required under Item 14, Exhibits, Financial Statement Schedules and
Reports on Form 8-K, the exhibits filed as part of this report are provided in
this separate section. The exhibits included in this section are as follows:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - - - ----------- -----------
<C> <S>
2.1(a) Agreement and Plan of Merger dated as of February 13, 2000,
between Registrant and Medical Manager Corporation
2.2(a) Agreement and Plan of Merger dated as of February 13, 2000,
among Registrant, Avicenna Systems Corporation and
CareInsite, Inc.
2.3(b) Agreement and Plan of Reorganization dated as of May 20,
1999, as amended, by and among Registrant, WebMD, Inc.,
Water Acquisition Corp.
2.4(b) Agreement and Plan of Reorganization dated as of April 20,
1999, as amended, by and among Registrant, Merc Acquisition
Corp. and MedE America Corporation
2.5(b) Agreement and Plan of Merger dated as of June 30, 1999, as
amended, among Registrant, WebMD, Inc., Healtheon/WebMD
Corporation, GNN Merger Corp. and Greenberg News Networks,
Inc.
2.6(c) Agreement and Plan of Reorganization, dated as of February
24, 1998, by Registrant, MedNet Acquisition Corp. and
ActaMed Corporation
2.7(c) Agreement and Plan of Merger, dated as of March 1, 1996, by
and among Act Corporation, EDI Acquisition, Inc., UHC Green
Acquisition, Inc. and United HealthCare Corporation,
including amendment
2.8(c) Asset Purchase Agreement, dated June 25, 1998, among
Registrant, Metis Acquisition Corp. and Metis, LLC
2.9(d) Purchase Agreement dated as of December 20, 1999, by and
among Electronic Data Systems Corporation, Eli Lilly and
Company, Integrated Medical Systems, Inc., Kinetra LLC and
Registrant
2.10(e) Agreement and Plan of Merger dated as of January 22, 2000,
among Registrant, Envoy Corporation, Quintiles Transnational
Corporation and QFinance, Inc.
2.11(f) Agreement and Plan of Merger dated as of February 15, 2000,
among Registrant, Tech Acquisition Corporation and OnHealth
Network Company
3.1(g) Amended and Restated Certificate of Incorporation of
Registrant, as currently in effect
3.2(h) Bylaws of Registrant, as currently in effect
4.1(c) Specimen Common Stock certificate
10.1(c) Form of Indemnification Agreement to be entered into by
Registrant with each of its directors and officers
10.2(c) Healtheon Corporation 1996 Stock Plan and form of Stock
Option Agreement
10.3(c) ActaMed Corp. 1997 Stock Option Plan
10.4(c) ActaMed Corp. 1996 Stock Option Plan
10.5(c) ActaMed Corp. 1995 Stock Option Plan
10.6(c) ActaMed Corp. 1994 Stock Option Plan
10.7(c) ActaMed Corp. 1993 Class B Common Stock Option Plan
10.8(c) ActaMed Corp. 1992 Stock Option Plan
10.9(c) ActaMed Corp. 1996 Director Stock Option Plan, as amended
10.10(c) Amended and Restated Investors' Rights Agreement dated as of
January 28, 1998 among Healtheon Corporation and certain of
Registrant's security holders
10.11(c) Lease Agreement, dated December 2, 1997, between Larvan
Properties and Registrant, including addenda
10.12*(c) Services Agreement, dated as of December 31, 1997, as
amended, between ActaMed Corporation and SmithKline Beecham
Clinical Laboratories, Inc.
10.13*(c) Assets Purchase Agreement, dated as of December 31, 1997, as
amended, between ActaMed Corporation and SmithKline Beecham
Clinical Laboratories, Inc.
</TABLE>
75
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - - - ----------- -----------
<C> <S>
10.14*(c) License Agreement, dated as of December 31, 1997, between
ActaMed Corporation and SmithKline Beecham Clinical
Laboratories, Inc.
10.15*(c) Development Agreement, dated as of October 31, 1997, between
ActaMed Corporation and SmithKline Beecham Clinical
Laboratories, Inc.
10.16(c) Amended and Restated Securities Purchase Agreement dated as
of August 15, 1996, between Registrant and investors
10.17(c) Amended and Restated Series B Preferred Stock Purchase
Agreement dated October 31, 1996, between Registrant and
investors
10.18(c) Form of Series B Preferred Stock Purchase Warrant between
Registrant and certain of Registrant's investors
10.19(c) Series C Preferred Stock Purchase Agreement dated July 25,
1997, between Registrant and investors
10.20(c) Series D Preferred Stock Purchase Agreement dated October
13, 1997, between Registrant and investors
10.21(c) Full Recourse Promissory Note dated as of July 11, 1997,
between Registrant and W. Michael Long
10.22(c) W. Michael Long Employment Agreement
10.23(c) Healtheon 1998 Employee Stock Purchase Plan
10.24(c) Series A Preferred Stock Purchase Agreement, dated as of
October 31, 1998, between Registrant and investors
10.25*(i) Asset Purchase Agreement, dated December 31, 1998, between
Registrant and SmithKline Beecham Clinical Laboratories,
Inc.
10.26*(i) Services Agreement dated January 19, 1999, between
Registrant and SmithKline Beecham Clinical Laboratories,
Inc.
10.27*(j) Distribution and Cross Promotion Agreement dated May 6, 1999
between Microsoft Corporation, WebTV Networks, Inc., MSNBC
Interactive News, L.L.C. and WebMD, Inc.
10.28*(j) Agreement, dated May 19, 1999, between Registrant, WebMD,
Inc. and Microsoft Corporation
10.29 Letter Agreement dated March 27, 2000 between Registrant and
Microsoft Corporation
10.30(j) Agreement dated September 1, 1999, between Registrant,
WebMD, Inc., Healtheon/ WebMD, Inc., McKesson HBOC, Inc.,
HBO & Company, Access Health, Inc. and National Health
Enhancements Systems, Inc.
10.31(k) Investment Agreement dated May 12, 1999, between WebMD,
Inc., Microsoft Corporation and each of the other persons
listed on Schedule I thereto
10.32(k) Services Agreement dated January 27, 1999 between WebMD,
Inc. and Gleacher NatWest, Inc., currently known as Gleacher
& Co., LLC
10.33(l) Master Strategic Alliance Agreement dated December 6, 1999
among Registrant, The News Corporation Limited and Fox
Entertainment Group, Inc.
10.34* Master Services, Development and License Agreement dated
November 12, 1999 between Registrant and Beech Street
Corporation
10.35* Services and License Agreement dated as of October 24, 1999
between Registrant and United HealthCare Services, Inc.
10.36 Letter Agreement dated January 28, 1999 between WebMD, Inc.
and E.I. du Pont de Nemours & Company
10.37* Collaboration Agreement dated March 30, 1999 between WebMD,
Inc. and E.I. du Pont de Nemours & Company
10.38 Letter Agreement dated March 30, 1999 between WebMD, Inc.
and E.I. du Pont de Nemours & Company
10.39 Warrant to purchase shares of Series D Common Stock of
WebMD, Inc. dated March 30, 1999 issued to E. I. du Pont de
Nemours & Company
10.40* Second Amendment to Collaboration Agreement dated as of May
28, 1999 between WebMD, Inc. and E. I. du Pont de Nemours &
Company
10.41 Employment Agreement dated as of September 30, 1998 between
WebMD, Inc. and Jeffrey T. Arnold
</TABLE>
76
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - - - - ----------- -----------
<C> <S>
10.42 Letter Agreement dated May 20, 1999 between Registrant and
Jeffrey T. Arnold
10.43 Warrant to purchase shares of common stock of Registrant
dated March 9, 2000 issued to Gleacher & Co. LLC
10.44 Warrant to purchase shares of common stock of Registrant
dated March 9, 2000 issued to Eric J. Gleacher
10.45 Sublease Agreement between Premiere Technologies, Inc. and
WebMD, Inc. dated December 15, 1997
10.46(m) WebMD, Inc. 1997 Amended and Restated Stock Incentive Plan,
as amended
10.47(m) Director Stock Option Plan of WebMD, Inc.
10.48(m) Direct Medical Knowledge, Inc. 1997 Stock Option/Stock
Issuance Plan
10.49(m) Sapient Health Network, Inc. 1996 Stock Incentive Plan
10.50(m) Greenberg News Networks, Inc. 1997 Stock Option Plan
10.51(m) MedE America Corporation and its Subsidiaries Stock Option
and Restricted Stock Purchase Plan
10.52(m) MedE America Corporation and its Subsidiaries 1998 Stock
Option and Restricted Stock Purchase Plan
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney (see page 48)
27 Financial Data Schedule (for SEC use only)
</TABLE>
- - - - - ---------------
* Confidential treatment was received, or is requested, with respect to
certain portions of this document. Such portions were omitted and filed
separately with the Securities and Exchange Commission.
(a) Incorporated by reference to Registrant's Report on Form 8-K/A filed
February 24, 2000
(b) Incorporated by reference to Registrant's Registration Statement on Form
S-4 filed October 19, 1999
(c) Incorporated by reference to Registrant's Registration Statement on Form
S-1 filed January 14, 1999
(d) Incorporated by reference to Registrant's Report on Form 8-K filed February
10, 2000
(e) Incorporated by reference to Registrant's Report on Form 8-K filed January
27, 2000
(f) Incorporated by reference to Registrant's Report on Form 8-K/A filed
February 22, 2000
(g) Incorporated by reference to Registrant's Report on Form 8-K filed February
8, 2000
(h) Incorporated by reference to Registrant's Report on Form 8-K filed November
29, 1999
(i) Incorporated by reference to Registrant's Amendment No. 1 to its
Registration Statement on Form S-1 filed February 4, 1999
(j) Incorporated by reference to Registrant's Registration Statement on Form
S-4 filed September 7, 1999
(k) Incorporated by reference to Registrant's Registration Statement on Form
S-4 filed September 30, 1999
(l) Incorporated by reference to Registrant's Report on Form 8-K filed December
10, 1999
(m) Incorporated by reference to Registrant's Registration Statement on
Form S-8 filed November 12, 1999
77
<PAGE> 1
EXHIBIT 10.29
March 27, 2000
[MICROSOFT LOGO]
Via Facsimile and Overnight Delivery
Mike Long
Chief Operating Officer
Healtheon-WebMD Corporation
4600 Patrick Henry Drive
Santa Clara, CA 95054
Re: Healtheon/WebMD acquisition of Medical Manager Corp. and
CareInsite, Inc.: letter agreement dated as of May 19, 1999 among
Microsoft Corporation, Healtheon Corporation and WebMD, Inc. (the "Letter
Agreement").
Dear Mike:
This letter, when signed by Healtheon/WebMD below, will constitute
confirmation that Microsoft has rescinded its prior communications under Section
7.2.1 of the Letter Agreement.
Section 7.2.1 of the Letter Agreement sets out a process for dealing
with an acquisition by Healtheon/WebMD of a line of business application in a
"Core Category." That section allows Microsoft 15 days (the "First 15 Day
Period") from notice of a proposed acquisition to notify Healtheon/WebMD of
Microsoft's determination that Healtheon/WebMD's ownership of such line of
business application is contrary to the parties' goals and intent. The parties
are then allowed 45 days (the "45 Day Period") from such notice by Microsoft to
work together to reach consensus on a resolution. If the parties fail to reach
consensus by the end of the 45 Day Period, Microsoft has the right for 15 days
following the end of the 45 Day Period (the "Second 15 Day Period") to terminate
the Letter Agreement and the "WebMD Agreement" (as defined in the Letter
Agreement). Microsoft and Healtheon/WebMD agree to modify the above referenced
time periods, solely as they apply to Healtheon/WebMD's proposed acquisition of
Medical Manager and CareInsite. The First 15 Day Period will begin on the
closing of Healtheon/WebMD's acquisition of Medical Manager. The 45 Day Period
will begin on the day following the last day of the First 15 Day Period. If the
parties fail to reach consensus during the 45 Day Period, the Second 15 Day
Period will begin on the day following the last day of the 45 Day Period.
By signing this letter below, Healtheon/WebMD confirms its commitment
to working with Microsoft to achieve the goals and objectives of our existing
agreements, including Sections 11.1, 11.2, and 11.3.
We hope the acquisition of Medical Manager proceeds promptly and
quickly. We look forward to working with Healtheon/WebMD to implement the
objectives of the Letter Agreement.
Sincerely,
/s/
----------------------------------------
Davide Vigano
Director, Services Markets
Microsoft Corporation
Cc: Mike Heekin, Executive VP Strategic Relations, Healtheon - WebMD
Charles Stevens, Michael Leitner, Mandy Rutledge, Mark Bolender,
Microsoft.
Microsoft Corporation is an equal opportunity employer.
<PAGE> 2
AGREED:
Healtheon/WebMD Corporation
/s/
- - - - - --------------------------------
<PAGE> 1
EXHIBIT 10.34
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
MASTER SERVICES, DEVELOPMENT AND LICENSE AGREEMENT
This Master Services, Development and License Agreement ("Agreement")
is made this 12th day of November, 1999 ("Effective Date") by and between
Healtheon Corporation, a Delaware corporation with offices at 4600 Patrick Henry
Drive, Santa Clara, California 95054 ("Healtheon") and Beech Street Corporation,
a California corporation with offices at 173 Technology, Irvine, California
92618 ("BSC").
WHEREAS, Healtheon and BSC have agreed to form an alliance to address
the information technology needs of BSC, develop new applications designed to
address the information service needs of companies providing managed care and
other administrative services and pursue other ventures which may be of mutual
interest to the parties.
WHEREAS, the parties had previously entered into a Service,
Development, and License Agreement effective December 15, 1997, as amended by an
Agreement effective May 7, 1999, ("Prior Agreement") under which Healtheon
provided certain application development and information technology ("IT")
services;
WHEREAS, the parties now desire to supersede the Prior Agreement with
this Agreement, thereby enabling the parties to more easily expand their
relationship and allowing for multiple Service Exhibits under which Healtheon
would provide services to BSC, including application development services,
on-line services, and IT services.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 "Additional Applications" shall mean those applications that
are developed by Healtheon for BSC hereunder, but excluding the Developed
Applications and the Healtheon Platform Software. As provided in the terms and
conditions below, Additional Applications shall be owned by Healtheon, unless
otherwise provided in the applicable Service Exhibit.
1.2 "BSC Client" shall mean those clients of BSC which use BSC
products or services.
1.3 "BSC Managed Care Services" shall mean the following types of
services provided by BSC to BSC Clients: personal health management (demand
management), workers' compensation, medical bill review, case management,
pre-admission review, concurrent review, discharge planning, hospital bill
audit, retrospective non-network bill review and fee negotiation, health care
provider contracting and management, preferred provider networks, data
reporting, computer operations, service bureau services, consulting and other
support services and such other related new products/services that BSC shall
develop subsequent to the execution of this Agreement. Notwithstanding the
foregoing, BSC Managed Care Services shall not include BSC On-Line Services.
1.4 "BSC On-Line Service" shall mean the on-line service provided
by BSC that incorporates all or a portion of the Developed Applications and any
derivative works thereof.
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<PAGE> 2
1.5 "Database Information" shall mean the information provided to
Healtheon by BSC and contained within the Database Structures, including but not
limited to information concerning BSC's providers, provider contracts, customer
and customer contracts.
1.6 "Database Structure" shall mean the supporting database design
developed by Healtheon for use with the Developed Applications.
1.7 "Developed Applications" shall mean those applications, or
applications under development, and any improvements thereto which Healtheon
develops hereunder and which are designed to run on the Healtheon Platform, as
more fully described in the applicable Service Exhibit. As provided in the terms
and conditions set forth below, the Developed Applications will be owned by
Healtheon.
1.8 "Development Work" shall mean the work to be performed
hereunder by Healtheon to develop the Developed Applications.
1.9 "BSC End User" shall mean any employee, partner, agent or
other representative of (i) BSC, or (ii) a BSC Client; who is authorized to
access the BSC On-Line Service in conjunction with obtaining BSC Managed Care
Services.
1.10 "Healtheon Platform" shall mean the Healtheon Platform
Software, as well as certain industry standard software applications, tools, and
processes which provide the operating environment which enables the use of
Healtheon Developed Applications as part of an on-line service which is
accessible through the Internet by using industry standard web browsers.
1.11 "Healtheon Platform Software" shall mean the proprietary
operating system and other software which has been developed by Healtheon (but
excluding the developed applications and the Additional Applications) which is
part of the operating system of the Healtheon Platform.
1.12 "Services" shall mean the services to be performed by
Healtheon hereunder pursuant to a Service Exhibit.
1.13 "Work Product" shall mean any and all of the work product
produced or developed by Healtheon in connection with Healtheon's performance of
the Services to be provided hereunder.
2. PERFORMANCE OF SERVICES.
2.1 Service Exhibits. All Services to be provided by Healtheon
hereunder shall be by Service Exhibits. Each Service Exhibit shall refer to this
Agreement, describe the Services to be provided thereunder, and identify the
work product to be produced thereunder, if any. The initial Service Exhibits are
attached hereto as Service Exhibits A (for IT Services) and B (for ProviderWorks
Application Development Services). Additional Service Exhibits will become
effective when signed by authorized representatives of both parties.
2.2 Incorporation; Conflicts. Each Service Exhibit is hereby
incorporated in full into this Agreement by reference and shall be subject to
the terms and conditions of this Agreement. In the case of a conflict among the
provisions in this Agreement and a Service Exhibit, those of the Service Exhibit
will control.
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<PAGE> 3
3. PROJECT MANAGEMENT.
3.1 Personnel Resources. Healtheon and BSC shall each commit the
number of qualified and experienced personnel which are reasonably necessary to
perform their respective obligations under this Agreement and as further
outlined in the Service Exhibits. Healtheon shall have the sole right and
obligation to hire, supervise, manage, contract, direct, procure, perform or
cause to be performed all work to be performed by Healtheon and its personnel
hereunder. Healtheon, at its option, may engage third parties to render services
in connection with the performance of the Services contemplated hereunder, which
may include engaging the services of certain BSC employees to provide certain
information technology services. Healtheon will obtain written permission from
BSC prior to engaging any BSC employees to provide information technology
services. When engaging third party vendors, Healtheon will receive written
approval from BSC for any resulting fees which BSC will be obligated to pay. BSC
has the right to refuse on-site service from any third party vendor engaged by
Healtheon to provide such services hereunder. Notwithstanding the rights of BSC
in this section, BSC shall not unnecessarily withhold permissions, approvals or
acceptances to Healtheon unless BSC has a good faith reason for denying
permission, approval or acceptance, which shall be provided to Healtheon in a
written notice. All Healtheon employees utilized to provide the Services shall
have entered into Healtheon's standard form of employee nondisclosure agreement.
3.2 Project Management. Each party shall designate a project
manager (the "Project Managers") and the appropriate resources and persons to
coordinate the development and implementation of the Service Exhibits. The
Project Managers shall be responsible for resolving any matters arising under
this Agreement. In the event that the Project Managers are not able to resolve a
dispute, such dispute shall be resolved either by a management committee, as
described in Section 3.3 ("Management Committee") or by an agreed upon method as
defined within the applicable Service Exhibit.
3.3 Management Committee. The parties shall each designate an
equal number of management-level personnel to serve on the Management Committee.
The Management Committee shall conduct status meetings on a monthly basis, or as
decided by the Management Committee as appropriate, detailing the performance of
the Services during the prior four (4) week period and the work planned to be
performed during the upcoming four (4) week period or any other agreed upon time
period. The Management Committee shall be responsible for resolving any disputes
which have not been resolved by the Project Managers, unless the parties specify
another method in a Service Exhibit. The Management Committee shall be
responsible for determining whether services based upon the Developed
Applications shall be included in the definition of "BSC Managed Care Services"
for the purposes of this Agreement; otherwise, such services shall be excluded.
If such services are to be included, then the Management Committee shall be
responsible for establishing the applicable financial arrangements, if any,
pursuant to which such services may be offered by BSC.
3.4 Changes to Services, Service Exhibits. The scope of the
Services and the Service Exhibits shall not be changed in any material respect
without the prior written agreement of the parties, which agreement shall not be
unreasonably withheld.
4. OWNERSHIP AND LICENSE RIGHTS.
4.1 Ownership. BSC acknowledges and agrees that the Healtheon
Platform, and, unless otherwise specified in a Service Exhibit attached hereto,
Additional Applications, and all of the Work
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<PAGE> 4
Product including, but not limited to, all technology of any nature whatsoever,
all notes, records, drawings, designs, inventions, improvements, developments,
discoveries, trade secrets and any copyrightable material, including but not
limited to, the Developed Applications, and related Database Structures, and all
patentable inventions, conceived, made or discovered by Healtheon, solely or in
collaboration with others, during the period of this Agreement and which relate
in any manner to the Services to be performed hereunder or which Healtheon may
be directed to undertake or investigate in performing the Services, including
any derivative works of any of the foregoing, is the sole property of Healtheon,
but excluding the Database Information, as provided by BSC to Healtheon to
incorporate and operate within the Developed Applications in order to operate
the Developed Applications, which may be incorporated into the Work
Product Unless otherwise provided in a Service Exhibit, BSC acknowledges and
agrees that Healtheon shall have all proprietary rights in and to the Work
Product, including, without limitation, all copyrights, patents and trade secret
rights, all moral rights, all contract and licensing rights, and all claims and
causes of action of any kind with respect to any of the foregoing, whether now
known or hereafter to become known, and that Healtheon shall have the sole and
exclusive right to use, modify and exploit the Work Product in any manner that
Healtheon may choose.Notwithstanding the foregoing, in the event BSC exercises
the option for the On-Line Services under Section 5.3 for a Developed
Application, Healtheon will not modify such Developed Application in such a way
that the Developed Application would no longer meet in all material respects
BSC's specifications as stated in the applicable Service Exhibit.
4.2 Proprietary Notices. BSC shall not remove or alter any
trademark, trade name, copyright, or other proprietary notices, legends,
symbols, or labels appearing on or in materials pertaining to the Work Product.
Each portion of the Healtheon documentation reproduced by BSC shall include the
intellectual property notice or notices appearing in or on the corresponding
portion of such materials as delivered by Healtheon hereunder (e.g. trademark,
copyright and patent notices).
5. LICENSE AND SERVICE RIGHTS.
5.1 License Rights. In consideration for the development fees paid
to Healtheon pursuant to Section 7.1, Healtheon hereby grants to BSC a
nonexclusive and nontransferable, fully-paid, perpetual right and license,
exercisable at BSC's Designated Operations Site, to: (i) install, use, copy,
modify, create derivative works and maintain the Developed Applications, in
object code and source code form, solely as (a) part of the BSC On-Line Services
which are offered to BSC Clients in conjunction with the BSC Managed Care
Services obtained by such BSC Clients and to enable world-wide remote access by
BSC End Users in conjunction with the BSC On-Line Service and (b) for BSC's
internal use in providing BSC Managed Care Services to BSC Clients, and (ii) use
the Work Product (excluding the Developed Applications and any derivative works
thereof) delivered to BSC by Healtheon hereunder in conjunction with the
operations of BSC's Managed Care Services. BSC shall not use, sublicense or
otherwise distribute the Healtheon Platform Software or the Work Product,
including the Developed Applications and any derivative works thereof, in any
other manner except as expressly stated herein. BSC's "Designated Operations
Site" is Irvine, California. BSC may change its Designated Operations Site to
another site within the United States or United Kingdom by prior written notice
to Healtheon. A change of the Designated Operations Site to locations outside
the United States or United Kingdom requires Healtheon's prior written approval.
Notwithstanding the foregoing, BSC shall make no more than two (2) copies of the
source code relating to the Developed Applications (the "Source Code") and shall
restrict access to such Source Code to only those employees and Permitted Third
Party Consultants who require such access to enable BSC to use the Source Code
as in the manner contemplated herein and otherwise secure and protect such
Source Code consistent with its own practices regarding its most highly
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<PAGE> 5
confidential information. "Permitted Third Party Consultants" means third party
consultants for whom BSC has received Healtheon's prior written approval, which
shall not be unreasonably denied, and who have executed agreements with BSC that
includes confidentiality and intellectual property assignment provisions
consistent with this Agreement.
5.2 Option to License Healtheon Platform Software. Subject to the
payment of the license fee set forth below, Healtheon hereby grants to BSC a
nonexclusive and nontransferable, right and license, exercisable at BSC's
Designated Operations Site, to use the Healtheon Platform Software as part of
the Healtheon Platform to be deployed at BSC's Designated Operations Site to run
the Developed Applications and such Additional Applications which may be
licensed from Healtheon, as part of the BSC On-Line Service or other BSC Managed
Care Service to be offered to BSC Clients in conjunction with the BSC Managed
Care Services obtained by such BSC Client, and to enable world-wide access and
use by BSC End Users at remote locations in conjunction with the use of the BSC
On-Line Service and to make two back-up copies. The applicable one-time, up
front fee for such license shall be [*] dollars ($[*]), payable upon such
commercially reasonable terms as the parties may agree to at the time of BSC's
exercise of its rights hereunder; provided however, that such license fee shall
be waived after January 1, 2000. BSC shall not have the right to use, sublicense
or otherwise distribute the Healtheon Platform Software in any other manner
except as expressly stated herein. BSC shall be solely responsible for the costs
associated with acquiring all third-party hardware and software necessary to
deploy the Healtheon Platform at BSC's site. BSC shall pay Healtheon for any and
all associated implementation and installation services provided by or on behalf
of Healtheon on a time and materials basis under the then negotiated fee
schedule. In the event that BSC exercises its rights hereunder, Healtheon shall
make available to BSC maintenance services on such commercially reasonable terms
and conditions as may be agreed to by the parties. Healtheon shall provide all
existing Healtheon documentation reasonably necessary for BSC to exercise this
license option in order to make functional the Developed Applications and
Healtheon Platform to the extent Healtheon has it at the time BSC exercises its
option hereunder and Healtheon has the right to provide a copy to BSC.
5.3 Option to Use Healtheon On-Line Service. If, following the
completion of the Developed Applications, BSC declines to use its licensed
rights under Section 5.1, Healtheon hereby agrees to enter into a Service
Exhibit with BSC containing Healtheon's standard terms and conditions whereby
Healtheon shall provide BSC with (i) access to an on-line service which includes
the Developed Applications, and (ii) the right to sublicense such access rights
to BSC Clients. Healtheon shall offer such service to BSC and the BSC Clients at
the rate specified in the applicable Service Exhibit.
5.4 Media Marketing Materials. Healtheon may provide BSC with
information and materials to use in creating brochure(s), describing one or more
Healtheon on-line services provided hereunder ("Marketing Materials"). BSC may
modify such materials to make them consistent with its other material but may
not substantially change the content of such materials without Healtheon's prior
written approval. BSC shall submit a letter to Healtheon describing the intended
use of the Marketing Materials and any uses or references to Healtheon
trademarks, materials or information regarding such use for Healtheon's
evaluation and approval prior to any actual production, use or distribution of
Marketing Materials by BSC. Healtheon shall provide notice of approval or
rejection of the intended use of the Marketing Materials within seven (7) days
of receipt of the letter from BSC. Within such seven (7) days, Healtheon may
request additional information such as pre-production samples of the intended
advertising, merchandising, promotional or display materials containing any
Marketing Materials or description or reference to Healtheon's on-line services
for Healtheon's evaluation and approval as to quality, style, appearance, usage
of any Healtheon trademarks, and accuracy of the information, and Healtheon
shall
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE> 6
provide notice or approval or rejection within five (5) days of receipt of such
additional information. Subject to Healtheon's prior written approval as set
forth above, BSC shall have the right to distribute Marketing Materials to its
BSC Clients solely in conjunction with the identification, marketing, and
promotion of Healtheon on-line services provided hereunder. All use of Healtheon
trademarks by BSC accrues to the benefit of Healtheon. Neither party shall use
the name of the other party, or refer to the other party, directly or
indirectly, in any news release or information provided to any trade publication
without such party's prior written approval.
6. TECHNOLOGY AND LICENSE RIGHTS. In the event that any Development Work
requires access to or use of any other third-party technology or software, the
Management Committee shall be responsible for assessing which party should
obtain any necessary rights thereto.
7. FEES AND PAYMENT.
7.1 Fees and Expenses, Payment. BSC shall pay Healtheon the fees
and expenses, as set forth in the Service Exhibits for the Services to be
performed hereunder (the "Fees"). Healtheon shall submit invoices to BSC on a
monthly basis for the Fees when due. Invoices shall be due and payable within
ten (10) days after receipt. If a discrepancy is found on the monthly invoice
received by BSC from Healtheon, BSC shall promptly notify Healtheon of such
discrepancy and Healtheon agrees to exercise its best efforts to resolve the
discrepancy within seven (7) business days. During the period that Healtheon is
resolving the discrepancy, BSC shall not be required to pay to Healtheon the
amount of the discrepancy, and no late fees shall apply to the amount in
dispute. Upon resolution of the dispute, the invoice shall be due and payable
within ten (10) days.
7.2 Other Expenses. Healtheon shall have sole responsibility for
payment of compensation to its personnel and shall pay and report, for all
personnel assigned to perform services hereunder, federal and state income tax
withholding, social security taxes, and unemployment insurance applicable to
such personnel. Healtheon shall bear sole responsibility for any health or
disability insurance, retirement benefits, or other welfare or pension benefits
(if any) to which its own personnel may be entitled.
7.3 Third-Party Hardware and Software. In the event that it is
reasonably necessary for Healtheon to purchase or license any third-party
hardware and/or software in order to perform the Services (except for
Healtheon's on-line Services), the Project Managers shall determine whether such
third-party hardware and/or software should be purchased and/or licensed by BSC
or Healtheon and how the costs and ownership shall be allocated between the
parties.
7.4 Taxes. All Fees and payments are exclusive of all taxes,
duties or levies, however designated or computed. BSC shall be responsible for
and pay all taxes upon payments due under this Agreement including, but not
limited to, sales, use, or value-added taxes, duties, withholding taxes and
other assessments now or hereafter imposed on or in connection with this
Agreement, exclusive of taxes based upon Healtheon's net income.
7.5 Audit Rights. Each of the parties shall have the right,
exercisable no more frequently than once per calendar quarter and exercisable
upon thirty (30) days prior written notice, to audit the appropriate books and
records of the other party during regular business hours to review the
calculations of the amounts payable pursuant to Section 7. The costs of such
audit shall be borne by the auditing party, unless the results of such audit
reveal an underpayment (or overpayment) of more than ten percent (10%) for a
twelve month period, in which case the reasonable expenses of the auditing party
shall be reimbursed by the other party. The parties shall promptly pay (or
refund) to the other, the amounts of any underpayments (or overpayments).
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<PAGE> 7
8. CONFIDENTIALITY.
8.1 Confidential Information. The parties acknowledge that in the
course of performing under this Agreement, each party may be exposed to or
acquire information which is proprietary to or confidential to the other party,
its suppliers or customers ("Confidential Information"). Any and all such
Confidential Information of one party in any form obtained by the other party or
its employees, agents, or representatives in the performance of this Agreement
shall be deemed to be confidential and proprietary information of such party.
The parties agree to hold such Confidential Information in strict confidence, to
only permit use of such Confidential Information by its employees,
representatives, and agents having a need to know in connection with performance
under this Agreement, and not to copy, reproduce, sell, assign, license, market,
transfer, give or otherwise disclose the Confidential Information of the other
party to third parties or to use such Confidential Information for any purposes
whatsoever, except as expressly contemplated by this Agreement, without the
express written permission of the other party and to advise each of their
employees, agents, and representatives of their obligations to keep such
information confidential. The Healtheon Platform Software, Developed
Applications Additional Applications (unless otherwise specified in a Service
Exhibit), and Work Product shall be deemed to be the Confidential Information of
Healtheon. BSC's Database Information and interpretation rules shall be deemed
to be the Confidential Information of BSC.
8.2 Exceptions to Confidential Information. Confidential
Information shall not include information that (i) was, as of the time of its
disclosure, or thereafter becomes part of the public domain through a source
other than the receiving party; (ii) the receiving party can demonstrate was
independently known to the receiving party as of the time of its disclosure
without an obligation of confidentiality; (iii) the receiving party can
demonstrate it was independently developed by the receiving party without use of
materials containing the Confidential Information, or (iv) the receiving party
can demonstrate was subsequently learned from an independent third party not
under a confidentiality obligation to the providing party. In the event that a
receiving party is required to disclose certain Confidential Information of a
disclosing party pursuant to applicable law, court order or government
authority, the receiving party shall provide reasonable notice to the disclosing
party prior to such disclosure and shall cooperate with the disclosing party to
obtain protection from such disclosure. Anything to the contrary in this
Agreement notwithstanding, each party may use and exploit for any purpose any
programming techniques and ideas and concepts related to internet or computer
technology learned by its employees as a result of their exposure to the
Confidential Information of the other party and retained in the memory of such
employees after their last exposure to any computer code, documentation or
materials provided or owned by the other party, but excluding Healtheon Platform
Software, Developed Applications and Additional Applications design,
architecture and source code.
8.3 Reports of Third-Party Misappropriation. A receiving party
shall immediately report to the disclosing party any attempt by any person of
which the receiving party has knowledge (a) to use or disclose the Confidential
Information without authorization from the disclosing party, or (b) to copy,
reverse assemble, reverse compile or otherwise reverse engineer any part of the
Healtheon Services or Healtheon software provided to BSC hereunder.
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<PAGE> 8
9. REPRESENTATIONS AND WARRANTIES.
9.1 Warranties for Services. Healtheon hereby represents and
warrants that (i) each person assigned to perform the Services shall have the
proper skill, training and background so as to be able to perform the Services
in a competent and professional manner and (ii) all Services and any Work
Product and other materials or documentation delivered under this Agreement
shall have been completed in a thorough and professional manner. In the event of
a breach of Healtheon's representations and warranties under this Section 9.1.
Healtheon's sole obligation shall be to use commercially reasonable efforts to
promptly correct any defects identified by BSC in a time frame reasonable to the
impact of the defect or within established service levels as defined in the
relevant Service Exhibits. Healtheon does not represent or warrant that all
defects can be corrected.
9.2 Third-Party Technology. BSC hereby represents and warrants
that it has obtained all necessary consents, licenses and/or assignments with
respect to the Third-Party Technology and Software (as defined in Service
Exhibit A) which is licensed and/or deployed by BSC and which are necessary in
order for Healtheon to perform the Services (excluding Healtheon's on-line
Services) to be performed hereunder. Healtheon hereby represents and warrants
that it has obtained all necessary consents, licenses and/or assignments with
respect to the third-party technology and software which is licensed and/or
deployed by Healtheon in its performance of the Development Work to be performed
hereunder.
9.3 Authority. Healtheon and BSC each hereby represents and
warrants to the other that it is duly organized and validly existing under the
laws of the jurisdiction in which it is organized, in good standing therein, and
has the power to enter into this Agreement and to perform its obligations
hereunder and, furthermore, that the performance by it of its obligations under
this Agreement has been duly authorized by all necessary corporate or other
action and will not violate any provision of law or regulation of any corporate
charter or bylaws.
9.4 Infringement. Healtheon and BSC each hereby represents and
warrants to the other that any information or technology provided by it to the
other party in order to define the specifications or to accomplish the
development objectives of this Agreement does not infringe, violate,
misappropriate, or in any manner contravene or breach any U.S. patent or any
trademark, copyright, trade secret right, license or other property, or
proprietary right of any third party.
9.5 No Implied Warranties. THE WARRANTIES STATED ABOVE IN THIS
SECTION 9 ARE THE ONLY WARRANTIES MADE BY EITHER PARTY. THE PARTIES DO NOT MAKE
AND HEREBY DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
THE PARTIES ACKNOWLEDGE THAT COMPLEX COMPUTER SOFTWARE AND SERVICES, SUCH AS THE
DEVELOPED APPLICATIONS AND THE SERVICES, ARE RARELY FREE OF DEFECTS OR ERRORS
AND HEALTHEON DOES NOT WARRANT THE SAME.
10. LIMITATION OF LIABILITY.
10.1 Exclusion of Certain Damages. EXCEPT FOR CLAIMS ARISING OUT OF
A BREACH OF SECTION 8 AND EXCEPT FOR DAMAGES AWARDED TO A THIRD PARTY PURSUANT
TO SECTION 11, UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY SHALL EITHER
PARTY HAVE ANY LIABILITY FOR LOSS OF PROFITS, CONSEQUENTIAL,
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EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
10.2 Limitation of Liability. EXCEPT WITH RESPECT TO INDEMNIFIABLE
CLAIMS AS PROVIDED IN SECTION 11.1 AND FOR CLAIMS ARISING OUT OF A BREACH OF
SECTION 8, IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY FOR ALL MATTERS
ARISING OUT OF THE SUBJECT MATTER OF THIS AGREEMENT, WHETHER IN CONTRACT, TORT
OR OTHERWISE, EXCEED [*] DOLLARS ($[*]) OVER THE PERIOD OF ANY YEAR DURING THE
TERM OF THE AGREEMENT AND THEN FOR ALL TIME AFTER THE TERM OF THE AGREEMENT.
(For example purposes only, if Healtheon is liable for claims equaling $[*] in
the first year of the Agreement, and for $[*] in the second year, then
Healtheon's liability would be $[*] in the first year, and $[*] in the second
year.) THE REMEDIES PROVIDED HEREIN ARE THE PARTIES' SOLE AND EXCLUSIVE
REMEDIES.
11. INDEMNIFICATION.
11.1 Indemnification. Healtheon agrees to hold harmless and defend
BSC from and against any and all claims, demands, suits, actions, or
proceedings, arising out of any actual or alleged infringement by Healtheon of
any copyright or any U.S. patent, trademark, or trade secret right or other
proprietary right, with respect to the Work Product and Healtheon Platform
Software, as delivered by Healtheon hereunder and used by BSC in accordance with
the terms of this Agreement. BSC agrees to hold harmless and defend Healtheon
from and against any and all claims, demands, suits, actions, or proceedings,
arising out of any actual or alleged infringement by Healtheon of any copyright
or any U.S. patent, trademark, or trade secret right or other proprietary right
which arises out of BSC's failure to obtain any necessary consents, licenses, or
assignments with respect to any Third-Party Technology or Software which has
been licensed and/or deployed by BSC and which is necessary in order for
Healtheon to perform the Services (but excluding Services relating solely to the
Developed Applications.).
In the event BSC exercises its license rights under Section
5.1, BSC agrees to defend, indemnify, and hold Healtheon and its suppliers or
licensors, and its and their officers, agents, employees, and contractors,
harmless from any loss, damage, or expense, arising in any manner whatsoever
from or otherwise in respect to (a) BSC's, BSC Client's and/or BSC End User's
use of the Developed Applications, or (b) the failure of BSC to abide by the
terms and conditions of this Agreement relating to BSC's use of the Developed
Application.
11.2 Limitations. Healtheon shall have no indemnity obligation for
claims resulting from or alleged to result from (i) development work performed
by Healtheon in compliance with BSC's specifications where Healtheon's method of
compliance has been specifically compelled by the terms of BSC's specifications;
or (ii) BSC's use of the Work Product in combination with any hardware or
software not furnished by or authorized by Healtheon hereunder, if such
combination is the cause of such claim and the Work Product is not material to
the claim, or any modifications which have been made by BSC if such modification
is the cause of the claim. In addition, Healtheon shall have no indemnity
obligation for claims of infringement resulting or alleged to result from BSC's
failure within a reasonable time frame to implement any replacement or
modification which conforms to the requirements of Section 11.4 herein. BSC
shall have no indemnity obligations for claims resulting from or alleged to
result from Healtheon's breach of any Third-Party Technology or Software rights
where appropriate consents, licenses and/or assignments were obtained and
provided to Healtheon and Healtheon failed to adhere to the terms of applicable
consents, licenses and/or assignments.
[*]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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11.3 Payment and Cooperation. Subject to the limitations set forth
in Section 11.2 above, the indemnifying party shall pay all losses, damages,
settlements, expenses, costs and reasonable attorneys' fees, incurred by the
indemnified party arising out of the matters set forth in Section 11.1 provided
that such payment shall be contingent on: (i) cooperation by the indemnified
party with the indemnifying party in the defense and or settlement thereof, at
the indemnifying party's expense; and (ii) allowing the Indemnifying Party to
control the defense and all related settlement negotiations. The indemnified
party shall give the indemnifying party prompt written notice of any such claim
to enable the indemnifying party to defend or mitigate the claim.
11.4 Remedy. If, in the event of an infringement action pertaining
to the Work Product, including the Developed Applications, and/or Healtheon
Platform Software and BSC's use of the such Work Product and/or Healtheon
Platform Software is disrupted, Healtheon shall, at its option, (i) provide BSC
with access to software which is functionally equivalent to the infringing
elements of the Work Product and/or Healtheon Platform Software as applicable,
without additional charge; (ii) modify the infringing portions of the Work
Product and/or Healtheon Platform Software, as applicable, to avoid the
infringement; or (iii) obtain a license for BSC to continue use of such Work
Product and/or Healtheon Platform Software, as applicable, for the term of the
applicable license and pay, on an annual basis, if Healtheon elects not to
acquire a perpetual license, the additional fee required for such license(s).
11.5 Sole Obligation. SECTION 11 SETS FORTH THE PARTIES' SOLE
OBLIGATION, AND THE SOLE RECOURSE AGAINST THE OTHER PARTY IN THE EVENT OF ANY
CLAIM OF INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.
11.6 In the event that an error or omission by Healtheon as part of
the IT Services provided to BSC under Service Exhibit A has caused a BSC Client
solely to suffer actual damage and the BSC Client has received compensation from
BSC for the actual damage, and if the Management Committee determines that such
error or omission was the result of negligence or a failure to meet the
warranties set forth in Section 9.1 above, then the Management Committee shall
determine the percentage of such damages amount that shall be payable by
Healtheon, taking into consideration the degree to which such error or omission
was the cause of such damage in relation to other contributing facts and
circumstances, including, without limitation, the errors, omissions, or
negligence of BSC, and Healtheon shall pay to BSC such amount as determined by
the Management Committee. Healtheon's obligations under this Section 11.6 shall
be subject to the Limitation of Liability set forth in Section 10.2 above.
12. TERM AND TERMINATION.
12.1 Term. This Agreement shall continue for a fixed term of five
(5) years from the Effective Date (the "Term") unless terminated earlier under
the provisions of this Section 12 or by the mutual agreement of the parties. At
the end of each year of the Term, the parties shall review the state of this
Agreement and have the option to mutually agree to extend the Term for an
additional year. For example, the parties shall meet after the first year of
this Agreement and review the state of the Agreement. At that time, the parties
may mutually agree to extend the term of the Agreement to a term of six years
from the Effective Date. Notwithstanding the foregoing, the licenses granted in
Sections 5.1 and 5.2 shall have a perpetual term unless terminated earlier
pursuant to Section 12.3 or 12.4 or by the mutual consent of the parties.
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12.2 Termination for Convenience. Either party may terminate this
Agreement upon one year prior written notice to the other for any reason.
Promptly following the notice of termination, the parties shall use good faith
efforts to agree to a commercially reasonable transition plan which will enable
the parties to mitigate any on-going expenses during the notice period.
12.3 Termination by Either Party for Default. If either party
defaults in the performance of any material provision of this Agreement, then
the non-defaulting party may give written notice to the defaulting party that if
the default is not cured within ninety (90) days of such notice the Agreement
will be terminated. If the non-defaulting party gives such notice and the
default is not cured during the ninety (90) day period, then the Agreement shall
automatically terminate at the end of that ninety (90) day period.
12.4 Insolvency. Either party may terminate this Agreement by
written notice to the other, and may regard the defaulting party as in default
of this Agreement, if the defaulting party becomes insolvent, makes a general
assignment for the benefit of creditors, suffers or permits the appointment of a
receiver for its business or assets, becomes subject to any proceeding under any
bankruptcy or insolvency law whether domestic or foreign, or has wound up or
liquidated, voluntarily or otherwise.
12.5 Effect of Termination. The provisions of Sections 7 (solely
with respect to Fees and other payments which were due and payable as of the
date of termination), 4, 8, 10, 11, and 13 (to the extent applicable) shall
survive the termination of this Agreement for any reason. All other rights and
obligations of the parties shall cease upon termination of this Agreement. In
the event of a termination, neither party shall be entitled to any refund of the
fees paid or cost incurred for the development performed hereunder. Provided
that this Agreement is not terminated by Healtheon pursuant to either Section
12.3 or 12.4 or by BSC pursuant to Section 12.2, upon termination, Healtheon
shall deliver to BSC a copy of each Developed Application, Additional
Application, Data Structure, and Database Information which has been completed
as of the date of termination or is under development, in source and object code
form, and the related technical and user documentation, and, in the event of the
exercise of BSC's option pursuant to Section 5.2, Healtheon shall deliver to BSC
a copy of the Healtheon Platform Software in object code form.
12.6 Return of Materials. Within thirty (30) days after the
termination of this Agreement, each party shall return to the other, all
Confidential Information, and other material of any kind which is the property
of the other party.
13. GENERAL.
13.1 No Exclusivity or Restriction on Other Activity. Except as
expressly set forth in this Agreement, nothing herein shall preclude either
party from entering into agreements to obtain similar services or development
work from third parties or from providing similar services or development work
to third parties.
13.2 Relationship of Parties. The relationship of the parties shall
be that of independent contractors. Neither party will represent that it has any
authority to assume or create any obligation, express or implied, on behalf of
the other party, or to represent the other party as agent, employee, or in any
other capacity, except as specifically provided herein.
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13.3 Binding Effect; Assignment. This Agreement shall be binding on
and inure to the benefit of the respective parties and their permitted
successors and assigns. Neither party shall transfer, assign, sublicense or
subcontract any right or obligation hereunder, except as expressly provided
herein. In the event of a change in control of a party hereto, such party shall
be permitted to assign this Agreement to the surviving or new corporation
acquiring all or substantially all of the business and assets of such party by
merger, acquisition, consolidation or otherwise, with the prior written consent
of the other party, which consent shall not be unreasonably withheld. Either
party may assign its rights under this Agreement to an entity which it controls,
with the prior written consent of the other party, which consent shall not be
unreasonably withheld. It shall not be unreasonable for a party to withhold its
consent if any proposed assignment would materially increase such party's
obligations under this Agreement or materially increase the scope of the other
party's rights (including but not limited to the grant of rights contained in
Section 5) or if such proposed assignee is a competitor of such party.
13.4 No Waiver. Either party's failure to exercise any right under
this Agreement shall not constitute a waiver of any other terms or conditions of
this Agreement with respect to any other or subsequent breach, nor a waiver by
such party of its right at any time thereafter to require exact and strict
compliance with the terms of this Agreement.
13.5 Notices. All notices or other communications which are
required or permitted to be given hereunder shall be in writing and shall be
sent to the address of the recipient set forth below or such other address as
the recipient may designate by notice given in accordance with the provisions of
this Section with copies to:
In the case of Healtheon: In the Case of BSC:
Healtheon Corporation Beech Street Corporation
4600 Patrick Henry Drive 173 Technology
Santa Clara, California 95054 Irvine, California 92618
Attn: President Attn: President and COO
Copy to: General Counsel Copy to: Chief Financial Officer
Any such notice shall be delivered by either (i) first class registered or
certified airmail, postage prepaid, and shall be deemed to have been served
forty-eight (48) hours after posting; or (ii) express courier service, service
fee prepaid, and shall be effective upon delivery.
13.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, exclusive of
conflict of laws principles.
13.7 Severability. The invalidity of one or more phrases,
sentences, clauses or articles contained in this Agreement shall not affect the
remaining portions of this Agreement or any part thereof; and in the event that
one or more phrases, sentences, clauses or articles shall be declared void or
unenforceable this Agreement shall be amended to include only such portions of
such phrases, sentences clauses or articles that are not invalid, void or
unenforceable.
13.8 Entire Agreement; Amendments. This Agreement sets forth the
entire agreement between the parties and supersedes any other prior proposals,
agreements and representations between them related to its subject matter,
whether written or oral, including but not limited to the Prior Agreement
between the parties. No modifications or amendments to this Agreement shall be
binding upon the parties unless made in writing and duly executed by authorized
officials of both parties. It is
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expressly understood and agreed that no employee, agent, or other representative
of Healtheon has any authority to bind Healtheon with respect to any statement,
representations, warranty, or other expression unless the same is specifically
set forth in this Agreement. It is also understood and agreed that no usage of
trade or other regular practice or method of dealing between the parties hereto
shall be used to modify, interpret, supplement, or alter in any manner the terms
of this Agreement.
13.9 Attorneys' Fees. The prevailing party in any dispute shall be
entitled to collect from the other party the prevailing party's reasonable
attorneys' fees and costs in connection with the enforcement of this Agreement.
13.10 Non-Solicitation of Employees. Neither party shall solicit the
services or employment of any employee or agent of the other party during the
term of the Agreement, without the prior written consent of the other party. The
soliciting party who violates this Section 13.10 shall pay to the other party an
amount equal to one (1) years salary for any solicited employee of the other
party, as liquidated damages and not as a penalty. The amount of annual salary
shall be the annual salary in effect at the date the employee was solicited.
Initiation by an individual of contact regarding employment or response by an
individual to an advertisement or other generally available notice, shall not
constitute solicitation. BSC may solicit the services or employment of Healtheon
employees and agents who have a primary work location at a BSC office provided
that BSC provide Healtheon with notification prior to the solicitation.
13.11 Bankruptcy. The parties agree that the Agreement and any
related agreements are contracts under which Healtheon is a licensor of rights
to intellectual property within the scope of Section 101 of the United States
Bankruptcy Code and that BSC shall have all the rights of a licensee set forth
in Section 365(n) of the Bankruptcy Code. Upon the commencement of a bankruptcy
petition involving either party, the other party shall be entitled to retain and
may fully exercise all rights and licenses available under the Bankruptcy Code,
subject to the fulfillment by the other party of its obligations under this
Agreement.
13.12 Residual Information. Without prejudice to either party's
proprietary rights, neither party shall be liable for using general ideas,
concepts and know-how that may be gained as a result of exposure to or contact
with the other party or its materials.
13.13 Escrow. Healtheon agrees that it will put the Healtheon
Platform Software, the Database Structures, the Database Information and the
Developed Applications, in escrow with an independent escrow agent on a yearly
basis. The escrow agreement will be on terms and conditions which are mutually
agreeable to the parties.
13.14 Force Majeure. If either party is unable to perform its
obligations under this Agreement due to circumstances beyond its reasonable
control (other than obligations for the payment of money or the maintenance of
confidentiality), including, but not limited to, acts of God, earthquakes, labor
disputes and strikes, riots, war, actions decrees of governmental bodies,
changes in applicable Laws, or communications line or power failures, such
obligations will be suspended so long as those circumstances persist, provided
that the delaying party notifies the other party promptly of the delay and its
causes and uses commercially reasonable efforts to recommence performance
without delay.
13.15 U.S. Government Restricted Rights. The Healtheon Service and
the Healtheon Client Software are made available only with RESTRICTED RIGHTS.
All use, duplication, or disclosure of the
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Healtheon Service or such software by the government is subject to restrictions
as set forth in subparagraphs (c)(1)(ii) of the Rights in Technical Data
Computer Software Clause at DFARs 252.22-70013 and/or subparagraphs c(1) and
c(2) of the Commercial Computer Software Restricted Rights Clause at 48 C.F.R.
Section 52.227-19, as applicable. The contractor/vendor/manufacturer is
Healtheon Corporation, 4600 Patrick Henry Drive, Santa Clara, California 95054,
U.S.A.
13.16 No Third Party Beneficiaries. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto, and no
other person or entity shall be a direct or indirect beneficiary of, or shall
have any direct or indirect cause of action or claim in connection with this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the Effective Date.
Healtheon Corporation Beech Street Corporation
By: /s/ By: /s/
----------------------------------- ---------------------------------
Title: Title:
-------------------------------- ------------------------------
Date: Date:
--------------------------------- -------------------------------
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SERVICE EXHIBIT A
IT SERVICES
This Service Exhibit A is subject to and incorporates the terms of the Master
Services, Development and License Agreement (the "Agreement") dated November
___, 1999 between Healtheon Corporation ("Healtheon") and Beech Street
Corporation ("BSC").
1. Scope of Services. Healtheon will operate and maintain BSC's
information technology infrastructure and data processing functionality and
related services (collectively referred to as "IT Services"), including the
following types of services, as necessary and agreed to by the parties:
- - - - - - Maintain hardware operations
- - - - - - Maintain software infrastructure
- - - - - - Maintain data network(s)
- - - - - - Maintain desktop computing systems
- - - - - - Provide internal and external technical support
- - - - - - Provide project planning and management
- - - - - - Provide software installation
- - - - - - Provide hardware installation
- - - - - - Provide user technical support
- - - - - - Provide user training
- - - - - - Provide IT personnel management services
- - - - - - Provide IT consulting services
- - - - - - Provide custom software solution design and development services
2. Term. The term of this Service Exhibit A shall commence on the
Effective Date of the Agreement and, unless earlier terminated as provided
herein, shall continue for the term of the Agreement. The parties will review
the terms of this Service Exhibit A within ninety days after the Effective Date
and determine whether the IT Services to be provided should be more fully
addressed in a mutually agreed-upon amendment hereto. Beginning June 30, 2000,
and on each six month anniversary thereafter, BSC will review the IT Services
provided hereunder, and, if BSC reasonably determines that such services do not
adequately meet the requirements set forth in this Service Exhibit A or amended
version thereof ("IT Requirements"), BSC may provide Healtheon with a written
notice identifying those aspects not meeting such IT Requirements, and stating
BSC's intent to terminate the Service Exhibit in six (6) months. If, by the end
of such six (6) month period, Healtheon fails to improve the IT Services such
that the IT Requirements are met, this Service Exhibit will automatically
terminate.
BSC reserves the right to terminate this Service Exhibit with 90 days written
notice.
3. Third Party Technology and Software. In order to perform the Services
contemplated hereunder (but excluding Services relating solely to the Developed
Applications), BSC represents that Healtheon will need to have access only to
the third-party technology and software listed on Attachment A-1 which is
licensed and/or deployed by BSC (the "Third-Party Technology and Software"). BSC
hereby agrees to use commercially reasonable efforts to obtain, at its own
expense, all necessary consents, licenses and/or assignments which may be
necessary in order for Healtheon to perform such Services. Healtheon shall use
commercially reasonable efforts to cooperate with BSC to assist BSC in obtaining
any necessary consents, licenses and/or assignments to Third-Party Technology
and Software. During the term of this
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Agreement, BSC hereby grants to Healtheon a nonexclusive and nontransferable
right and license to use, modify and copy all technology and software owned by
BSC which is necessary for Healtheon to perform the Services.
4. Fees. For IT Services performed hereunder, BSC will pay Healtheon the
associated direct expenses and management fee as set forth below:
Direct Expenses: Healtheon shall charge BSC [*]% of Healtheon's
"direct" expenses associated with the IT Employees, including salary, and
benefits calculated at an assumed rate equal to [*]% of each IT Employee's
salary. "IT Employees" means those Healtheon employees or contractors whose
primary responsibility is the providing of IT Services hereunder at BSC's
facilities. Healtheon agrees that it will not charge BSC (i) any support
expenses, such as rent, phone, computing, office expenses for those IT
Employees; or (ii) any Healtheon "allocated" expenses, such as management,
administration, other overhead cost, etc., with respect to such IT Employees. In
the event that Healtheon decides to provide any of the IT Employees with
Healtheon stock options, Healtheon agrees that it will not charge BSC any
expenses associated with any such grants.
Healtheon Management Fees: The management fees for the remainder of
1999 will reflect a monthly management fee of $[*]. The parties will negotiate
the management fee to be applied to the remaining term of this Agreement.
The parties shall mutually develop a budget for the total fees and
expenses under this Service Exhibit and Healtheon shall make a reasonable
attempt to complete the services under this Service Exhibit within this budget.
5. Ownership Rights. Except as otherwise provided in this Section 5, all
work product created by Healtheon for BSC under this Service Exhibit ("IT
Service Product") is the sole property of BSC. Healtheon acknowledges and agrees
that BSC shall have all proprietary rights to all IT Service Product including,
but not limited to, all technology of any nature whatsoever, all notes, records,
drawings, designs, inventions, improvements, developments, discoveries, and any
copyrightable material, and all patentable inventions, conceived, made or
discovered by Healtheon employees under this Service Exhibit, solely or in
collaboration with others, in the performance of the Services performed under
this Service Exhibit, including any derivative works of any of the foregoing.
Healtheon acknowledges and agrees that BSC shall have all proprietary rights in
and to the IT Service Product, including, without limitation, all copyrights,
patents and trade secret rights, all moral rights, all contract and licensing
rights, and all claims and causes of action of any kind with respect to any of
the foregoing, whether now known or hereafter to become known, and that BSC
shall have the sole and exclusive right to use, modify and exploit the IT
Service Product in any manner that BSC may choose. Notwithstanding the
foregoing, IT Service Product shall not include, and Healtheon shall have sole
ownership of all right, title, and interest in and to, all enhancements,
modifications, improvements, and derivative works of the Healtheon Platform
Software, the Developed Applications, and the Additional Applications (excluding
those Additional Applications owned by BSC), created by Healtheon employees in
their performance under this Service Exhibit, or created by or for BSC
("Healtheon Improvements"), and all intellectual property rights therein.
Healtheon agrees that the software currently under development by Dr. Ed Zalta
for BSC is solely owned by BSC. Subject to the terms and conditions of the
Agreement, the licenses granted to BSC under Section 5.2 of the Agreement shall
apply to Healtheon Improvements of the Healtheon Platform Software, and the
licenses granted to BSC under Section 5.1 the Agreement shall apply to Healtheon
Improvements of the Developed Applications. Healtheon shall not use or provide
to third parties any Healtheon Improvements of the Developed Applications.
[*]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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ATTACHMENT A-1
THIRD PARTY TECHNOLOGY AND SOFTWARE
SERVER TECHNOLOGY AND SOFTWARE
<TABLE>
<CAPTION>
HOST NAMES DESCRIPTIONS OS IP ADDRESS ROLES AND FUNCTIONS
<S> <C> <C> <C> <C>
IRVINEFP CPQ 1500, Tower P133 NT4.0 SP5 192.168.200.5 Primary Domain Controller, File and
192.168.201.5 Print server, DHCP, and DNS
IRVINE2FP CPQ 1500, Tower P133 Ent NT4.0 SP5 192.168.201.15 Backup Domain Controller, File and
Print, and WINS
IRVINESECURE CPQ 850r PII 200 NT4.0 SP5 192.168.200.16 Backup Domain Controller and Cisco 5200
192.168.201.16 Secure GUI Interface
IRVINE1 CPQ 1500, Tower P133 Novell 312 File and Print
IRVINE2 CPQ 1500, Tower P133 Novell 312 File and Print
BEECH AST Tower Novell 312 File and Print, AS/400 Imaging
BEECHSAA AST Desktop Novell 312 Gateway for netware to AS/400,
Interface with AS/400 Imaging, and
File Transfer
GATEWAY3 CPQ Deskpro 575 NT4.0 SP5 192.168.200.56 Backup Domain Controller, SNA for
AS/400 Share folder
NOTES11 CPQ 2500r P200 NT4.0 SP5 192.168.200.4 Lotus Notes Email, GWI Apps
192.168.201.4
NOTES22 CPQ 2500r P200 NT4.0 SP3 192.168.200.9 GWI Apps
NOTES33 CPQ 850r PII 200 NT4.0 SP3 192.168.200.7 Lotus Notes SMTP Gateway
192.168.201.7
FRONTSTREET CPQ 3000r (2) PIII 500 NT4.0 SP5 192.168.199.24 Enterprise Backup System
ELMSTREET CPQ 3000r (2) PIII 500 Ent NT4.0 SP5 192.168.199.22 Enterprise File and Print/cluster,
Payroll Application, and PPO
PINESTREET CPQ 3000r (2) PIII 500 Ent NT4.0 SP5 192.168.199.23 Enterprise File and Print/cluster,
Payroll Application, and PPO
STATESTREET CPQ 5500 (4) PIII 500 Xeon Ent NT4.0 SP5 192.168.199.26 Enterprise SQL, IIS4.0 in Cluster, BARCC
CAPITALSTREET CPQ 5500 (4) PIII 500 Xeon Ent NT4.0 SP5 192.168.199.27 Enterprise SQL, IIS4.0 in Cluster, BARCC
MAINSTREET1 CPQ 2500r (2) P200 NT4.0 SP5 192.168.201.20 Backup Domain Controller (Cappcare),
Exchange Email
MAINSTREETEXCON CPQ 1600r P300 NT4.0 SP5 192.168.201.21 BDC (Cappcare), Exchange SMTP, and
Lotus Notes Connector
EXCSERV CPQ 2500r P200 NT4.0 SP5 172.16.10.25 PDC (Cappcare), WINS, and local DHCP
ARCSERV Dell PII 200 NT4.0 SP5 172.16.10.250 BDC (Cappcare), Arcserv for NT and DNS
CAPPSERV Novell 411 CORP, File and Print, and Old FTP
CASESERV CPQ 2500r P200 Novell 411 File and Print, and CMA Application
CITRIX CPQ Prolinea 800 PII 200 NT3.51 SP5 Winframe1.6 for CMA Apps
SQLSERV CPQ 2500r P200 NT4.0 SP5 172.16.10.24 SQL6.5, Healtheon Upload and Download
INETSERV CPQ Prolinea NT4.0 SP5 208.145.144.33 Cappacare Firewall
COMMSERV CPQ Prolinea Novell 411 Novell communication server
POLKSTREET CPQ 1500, Tower P133 NT4.0 SP5 10.101.2.49 BDC (Western), File and Print
LAKESTREET CPQ 2500r P200 NT4.0 SP5 10.251.171.36 BDC (Chicago), File and Print
PEACHSTREET CPQ 2500r P200 NT4.0 SP5 10.251.171.68 BDC (Atlanta) File and Print
WOODSTREET CPQ 1500, Tower P133 NT4.0 SP5 192.168.111.5 BDC (Edison, NJ), File and Print
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
TYLERSTREET CPQ 1500, Tower P133 NT4.0 SP5 192.168.103.5 BDC (Tampa), File and Print
BCHPR2 AS/400 9406/530 OS/400 192.168.201.10 BSC Production Machine
BCHDV1 AS/400 9406/500 OS/400 192.168.201.11 Development Machine
CAPPRICE AS/400 9406/530 OS/400 192.168.200.12 Cappcare Production Machine
DMACHINE AS/400 9406/500 OS/400 192.168.200.13 Development Machine
WEBTOHOST AS/400 720 OS/400 192.168.200.3 Web to Host
</TABLE>
VOICE TECHNOLOGY AND SOFTWARE
BSC - TECHNOLOGY VOICE SYSTEMS
Northern Telecom PBX 61C
Northern Telecom Meridian Mail
CCR - ACD Scripting System
MAX - ACD Reporting System
TAMPA, FLORIDA - VOICE SYSTEMS
Norstar PBX System
StarTalk Voice Mail System
EDISON, NEW JERSEY VOICE SYSTEMS
Norstar PBX System
StarTalk Voice Mail System
MACARTHUR VOICE MAIL SYSTEMS
Lucent PBX - G3si
Intuity Voice Mail System
CMS ACD System
WESTERN REGION - 5000 BIRCH STREET
Lucent PBX - VS
Intuity Voice Mail System
CENTRAL REGION - OAKBROOK, ILLINOIS
Lucent PBX - VS
Intuity Voice Mail System
EASTERN REGION - ATLANTA, GEORGIA
Lucent PBX - VS
Intuity Voice Mail System
ADDITIONAL TECHNOLOGY AND SOFTWARE
OS/400
OV/400
JDEdwards
CA-PRMS
Hawkeye
PerZip
TurnOver
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<PAGE> 19
PeekPlus
Novell IntranetWare
MS NT
MS Exchange
MS Professional Office Suite
MS Project
MS PowerPoint
MS Windows
MS Outlook
MS Internet Explorer
MS Visual Interdev
MS IIS
Visio
Visual Basic
SQL Server
HahtSite
MapInfo MapMarker
MapInfo MapXsite
GeoAccess
FoxPro
Netscape Navigator
Lotus Notes
Crystal Reports
Case Manager Assistant (CMA)
Paradox
WinFrame
ArcServ
Adobe Photoshop
PCAnywhere
QuarkXpress
GWI Help!
Fixed Asset System
Page 19
<PAGE> 20
SERVICE EXHIBIT B
PROVIDERWORKS APPLICATION DEVELOPMENT WORK
This Service Exhibit B is subject to and incorporates the terms of the Master
Services, Development and License Agreement (the "Agreement") dated November __,
1999 between Healtheon Corporation ("Healtheon") and Beech Street Corporation
("BSC").
1. Development Work. Healtheon shall design, develop, test, and complete
Healtheon's ProviderWorks Application incorporating BSC's Repricing
Configuration. A "Repricing Configuration" for a particular entity means a
configuration of the application and associated database that is determined by
such entity's claim reimbursement schedules, and the repricing contracts between
such entity and its affiliated providers and payers. The specifications for the
ProviderWorks Application to be developed hereunder are described in Attachment
B-1 ("Specifications"), which is attached hereto for reference. The parties
shall jointly develop a mutually agreeable detailed project plan, which shall be
described in Attachment B-2 ("Project Plan"), which is attached hereto for
reference. The Project Plan shall describe, in a degree of detail reasonably
satisfactory to the parties, all tasks and responsibilities required for the
successful and timely completion of the development and delivery of the
ProviderWorks Application, including the projected costs. The ProviderWorks
Application incorporating BSC's Repricing Configuration shall be deemed a
"Developed Application" for purposes of the Agreement.
2. Project Managers. The Project Managers shall coordinate the development
of the ProviderWorks Application. In addition, the Project Managers shall be
responsible for the development of the Project Plan, coordinating their
respective personnel and resources to satisfy their respective responsibilities,
administering Change Requests, and arranging for the transmission and receipt of
any deliverables, information and periodic status reports as required under the
Project Plan. From time to time during the term of this Agreement, each party
may replace its Project Manager with another person having equivalent authority
by providing written notice to the other party.
3. Change Requests. From time to time prior to the completion of the
Development Work hereunder, BSC may propose changes to the Project Plan and/or
Specifications ("Change Requests"). Such Change Requests shall be submitted in
writing. Healtheon shall review the Change Request and advise BSC whether
Healtheon's assessment of and response to the Change Request will require
payment of fees by BSC to Healtheon. If a Change Request does not, in
Healtheon's sole opinion, require Healtheon's expenditure of materially more
time and effort, Healtheon shall agree to the change at no additional charge,
but may require adjustment of the time schedules. If such Change Request does
require, in Healtheon's sole opinion, Healtheon's expenditure of materially more
time and effort, Healtheon will provide BSC a cost estimate for implementing the
change and shall advise BSC of the impact on the ProviderWorks Application. No
such changes, however, shall become effective until a written amendment
specifying the change or changes is executed by authorized representatives of
both parties.
4. Development Team. Healtheon shall provide an engineering team staffed
with up to forty engineers until the completion of the Development Work in
accordance with the Project Plan. In the event that the Project Plan require
additional personnel resources, the parties will revise the staffing commitments
hereunder.
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<PAGE> 21
5. System Testing and Final Acceptance.
5.1 Testing. In accordance with the Project Plan, the parties will
mutually agree upon a plan for testing the ProviderWorks Application ("Test
Plan"). Within fifteen (15) days following the completion of testing in
accordance with the Test Plan, BSC will give notice of its acceptance or
rejection of the ProviderWorks Application provided to BSC hereunder. BSC shall
accept the ProviderWorks Application if it substantially meets the
Specifications in all material respects. If BSC determines that the
ProviderWorks Application does not substantially meet the Specifications in all
material respects, then BSC shall notify Healtheon in writing of the
non-compliances identified by BSC. If BSC provides Healtheon with a notice of
non-compliance within such fifteen (15) day period, then within thirty (30) days
after its receipt of such notice, Healtheon shall correct the non-compliance and
document to BSC the corrective actions. Upon receiving such documentation of
corrective action, BSC shall immediately retest the ProviderWorks Application in
accordance with the Test Plan, and provide notice of acceptance or rejection as
set forth above. The foregoing testing and acceptance cycle shall be repeated up
to four (4) times before invocation of any other remedy in this Agreement by
BSC. BSC shall have been deemed to accept the ProviderWorks Application upon (i)
BSC's delivery to Healtheon of a written notice of acceptance, (ii) BSC's
failure to provide notice of rejection or acceptance within fifteen (15) days
following completion of testing under the Test Plan, or (iii) BSC's use of the
ProviderWorks Application other than for testing purposes.
5.2 Rejection of ProviderWorks Application. Upon expiration of the
testing and acceptance process described in Section 5.1 above, if the
ProviderWorks Application fails to meet the Acceptance Criteria, BSC shall have
the option of either (i) accepting the ProviderWorks Application as it is then
currently implemented; or (ii) rejecting the ProviderWorks Application and
terminating this Service Exhibit. THESE RIGHTS OF ACCEPTANCE AND REJECTION
CONSTITUTE BSC'S SOLE REMEDY IN THE EVENT OF ANY FAILURE OF THE PROVIDERWORKS
APPLICATION TO MEET THE ACCEPTANCE CRITERIA. In the event BSC rejects the
ProviderWorks Application under this Section 5.2, the ProviderWorks Application
shall not be licensed under Sections 5.1 and 5.3 in the Agreement, and BSC shall
promptly return all copies thereof to Healtheon.
6. Ongoing Development. Following completion of the ProviderWorks
Application under Section 1 above, Healtheon will continue to provide, upon
BSC's request, services for the further development of the ProviderWorks
Application on a time and materials basis.
7. Revenue Sharing by Healtheon. Healtheon shall pay to BSC the Applicable
Percentage (as defined in this Section 7) of Net Revenues (as defined below)
with respect to ProviderWorks On-Line Services received from Healtheon's
ProviderWorks customers. "Net Revenues" shall mean the revenues received by
Healtheon from a Healtheon ProviderWorks customer for ProviderWorks On-Line
Services less any amounts paid or owed by Healtheon to anyone on account of the
revenues received, including but not limited to taxes, royalties, leased network
fees, broker fees, commissions paid to outside third parties, subcontractor
vendor fees and other such reasonable and customary fees as may apply from time
to time. The "Applicable Percentage" with respect to Healtheon's ProviderWorks
On-Line Services shall be [*] percent ([*]%) if the customer is a Qualified
Healtheon Customer, or [*] percent ([*]%) otherwise. A customer will be
designated as a "Qualified Healtheon Customer" if BSC generated the lead,
participated in sales calls, demonstrations, and negotiations, and brought the
sale by Healtheon to such customer to conclusion, such designation to be
determined by the parties on a case-by-case basis. Healtheon's obligation under
this Section 7 shall continue for the term of this Service Exhibit B for so long
as BSC
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 22
continues to use its best efforts to market the ProviderWorks On-Line Services,
and to pay the Development Services fees due hereunder.
8. Limitation on Right to Modify. Nothwithstanding Section 5.1 of the
Agreement, BSC may use the ProviderWorks Application solely in a BSC Repricing
Configuration, and may not reconfigure the ProviderWorks Application for a third
party Repricing Configuration.
9. Fees and Expenses. For Development Work performed hereunder, BSC will
pay Healtheon development fees at a rate of $[*] per hour. The parties shall
mutually develop a budget for the total fees and expenses under this Service
Exhibit and Healtheon shall make a reasonable attempt to complete the
Development Work within this budget.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 22
<PAGE> 23
ATTACHMENT B-1
SPECIFICATIONS
The parties shall mutually agree upon the ProviderWorks Specifications to be
included in this Attachment B-1.
Page 23
<PAGE> 24
ATTACHMENT B-2
PROJECT PLAN
Healtheon will provide the first draft of the Project Plan to BSC within ninety
(90) days after the Effective Date.
Page 24
<PAGE> 1
EXHIBIT 10.35
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
SERVICES AND LICENSE AGREEMENT
This Services and License Agreement (the "Agreement") is made and
entered into as of the 24th day of October, 1999 (the "Effective Date"), by and
between Healtheon Corporation ("Healtheon") and UnitedHealthCare Services, Inc.
on behalf of itself and its Affiliates from time to time ("United").
RECITALS
A. UnitedHealthCare Corporation and ActaMed Corporation entered into a
Services and License Agreement on or about April 14, 1996 ("Prior Agreement").
B. Healtheon, in or about April, 1998, purchased ActaMed assuming as
of that date all contractual obligations contained in the Prior Agreement.
C. Healtheon has been providing electronic data interchange products
and services to United in accordance with the terms of the Prior Agreement.
D. United and Healtheon wish to make Healtheon United's preferred
electronic data interchange ("EDI") vendor and gateway partner, as more
particularly described in this Agreement. Both parties desire, through their
expanded relationship, to greatly increase the volume of EDI transactions
submitted to United through the Network, and to reduce the unit cost of EDI
Transactions to United . This Agreement replaces the Prior Agreement with
modified provisions that define Healtheon's role as gateway partner, sets out
the responsibilities of the parties for achieving EDI Transaction growth, and
makes certain other changes in keeping with the expanded relationship of the
parties.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties agree as follows.
1. Definitions.
1.1 "Affiliate" means with respect to a party, an entity directly or
indirectly controlling, controlled by or under common control with such party
where control means the ownership or control, directly or indirectly, of more
than fifty percent of all of the voting power of the shares (or other
securities or rights) entitled to vote for the election of directors or other
governing authority, as of the Effective Date or hereafter during the term of
this Agreement; provided that such entity shall be considered an Affiliate only
for the time during which such control exists.
1.2 "Application Program Interface" or "API" is defined as the means
for exchanging data between computer systems, including data standards and
formats utilized to allow Transactions between Third-party Vendors and/or
Healtheon or United.
1.3 "Change of Control" means: (a) any transaction or series of
transactions that cause 50% or more of the stock of Healtheon or United, as the
case may be, to be held by an individual or entity, or group of individuals or
entities acting together, who are not stockholders of Healtheon or United, as
the case may be, on the Effective Date; or (b) any material sale of Healtheon
assets or United assets, as the case may be, that are essential to the business
of Healtheon or United, as the case may be; or (c) any merger where Healtheon
or United, as the case may be, is not the surviving entity.
1.4 "Enhancements" means changes or additions to application software
and documentation that improve the functionality of software, such as
significant redesigns or improvements of current functions, or significant
advances in system performance through changes in the system design or coding.
<PAGE> 2
1.5 "HIPAA" shall mean the Health Insurance Portability and
Accountability Act of 1996 (P.L. 104-191), as amended from time to time.
1.6 "Licensed Materials" shall mean the Network Software, the
ProviderLink billing and registration system, and the documentation, training
materials, and other materials related to the Network Software or the Network,
all of which are listed on Exhibit B. All updates and new versions of such
materials provided to United pursuant to this Agreement are also included in
the definition of "Licensed Materials".
1.7 "Managed Plans" shall mean those entities identified in Exhibit A,
all of which have provided their consent to be bound by this Agreement.
1.8 "Member Locator" means a United owned data file identifying United
customer group health plan participant information.
1.9 "Network" means the equipment, software and API's operated by
Healtheon to receive EDI Transactions from Providers and Third-party Vendors
and transmit such Transactions to United Processing Systems, and to receive EDI
Transactions from United Processing Systems and transmit such Transactions to
Providers and Third-party Vendors. The term "Network" includes upgrades,
modifications and replacements to such equipment, software and API's made by
Healtheon from time to time. The term "Network" specifically excludes any
telecommunications network.
1.10 "Network Software" means the personal computer version of the
ProviderLink program, and all updates to it, which are licensed to Providers
and United and which allow access to the Network for the transmission and
reception of information.
1.11 "Processing Systems" means the computer programs owned by United,
which include Cosmos and UNET and other United designated systems, and which
United operates for health care claims processing and adjudication and other
business functions. The listing of such Processing Systems is attached as
Exhibit N and shall be amended from time-to-time to include additional systems
designed by United.
1.12 "Provider" means any third-party entity or individual who
delivers health care services to members covered under a medical benefit plan
offered by or administered by United.
1.13 When the term "Site" is capitalized herein, the term shall mean
each separate and unique interface of the Network Software between the Network
and the Provider.
1.14 "Third-party Vendor" means any entity (excluding Healtheon and
United) other than a Provider that receives EDI Transactions from Providers and
transmits such Transactions to a payor or receives EDI Transactions from a
payor and transmits such Transactions to Providers, whether such entity
receives and transmits such Transactions directly or through intermediaries.
Third-party Vendors include, for example, vendors of EDI services, vendors of
practice management systems, and EDI claims clearinghouses. Current Third-party
Vendors who submit Transactions through Healtheon as of the Effective Date are
listed on Exhibit K. Healtheon will update Exhibit K to include any
modifications to that list from time to time.
1.15 "Transaction" means an exchange of information between a Provider
and United as listed on Exhibit H. A "Claim Transaction" shall mean only those
transactions set forth in item (1) of Exhibit H. An "EDI Transaction" means a
Transaction accomplished through electronic data interchange.
1.16 "United" means UnitedHealthCare Services Inc., its parent,
Affiliates, subsidiaries, and health maintenance organizations that are managed
by United listed on Exhibit A.
2. License and Network Access.
2
<PAGE> 3
2.1 Healtheon grants United the nonexclusive, nontransferable right to
use the Licensed Materials, to reproduce and modify those of the Licensed
Materials so designated on Exhibit B and as are updated as set forth in
paragraph 1.6, and to access and utilize the Network, for United's internal
use, as set forth in this Agreement. United's internal use shall include use by
and/or on behalf of (a) United; and (b) third parties that are purchasers of
United's products and/or services, including management services, as well as
United's health care service providers United's access to use the Network will
at a minimum be on the same operational basis which Healtheon offers the
Network to its other customers of the Network, in a manner no less favorable to
United, as compared to a similarly situated Healtheon customer, except as
otherwise provided in this Agreement.
2.2 United shall submit modifications it makes to the Licensed
Materials for Healtheon's approval, prior to distributing the modifications. If
Healtheon does not respond to United within fourteen calendar days after United
submits modifications to Healtheon for approval, the modifications shall be
deemed approved. On the copies of the Licensed Materials United makes, United
shall reproduce all notices or legends appearing on the original copy,
including the copyright notice. All copies of the Licensed Materials made by
United can be used only as permitted under this Agreement. At any time within
thirty days after Healtheon's written request, United shall inform Healtheon of
the number and location of all copies of the Licensed Materials United has
made.
2.3 United shall have the right to install the Network Software at any
United or Provider's site, in order to connect such locations to the Network.
Healtheon will install the Network Software in a reasonably prompt manner at
United or Provider sites and connect them to the Network when mutually agreed.
There will be no charge for such installations except as mutually agreed.
United and Healtheon must continue to use the installation procedures developed
by United or other mutually agreeable installation procedures (except as
provided in any agreements directly between Healtheon and a UnitedHealth plan,
such as United of Georgia) for such sites as defined in Exhibit P. United shall
not be obligated under paragraph 12.1 to pay a monthly site fee for any
Provider connected to the Network by Healtheon, unless United has agreed to be
responsible for such Provider and fees.
2.4 Except as otherwise provided in this Agreement, United shall not
(a) copy, reproduce, modify, or excerpt any of the Licensed Materials for any
purpose; (b) distribute, rent, sublicense, share, transfer or lease the
Licensed Materials or access to the Network, to any person or entity which is
not a party to this Agreement; or (c) attempt to reverse engineer or otherwise
obtain copies of the source code for the Licensed Materials.
2.5 Healtheon agrees that Healtheon does not own and will not use,
distribute or publish any data transmitted over the Network either to or from
United, except to the extent such data originates with Healtheon.
Notwithstanding the above, Healtheon shall have the right to collect and
distribute data transmitted over the Network back to the originator of such
data. Notwithstanding the requirements contained in Section 13, Healtheon will
make no use of information contained in Transactions processed for United,
whether individually or in aggregated form, except pursuant to the terms of
this Agreement. Such Information shall not be disclosed to any person other
than one for whom such knowledge is reasonably necessary for the purposes of
performing services pursuant to this Agreement and then only to the degree such
disclosure is so necessary and such information shall be protected by each
party in the same manner as such party protects its own confidential
information. Healtheon shall obtain written assurances, from any Third-party
Vendor it contracts with directly, that such Third-party Vendor will comply
with the restrictions set forth in this Section 2.5. In addition, Healtheon
will not provide access to the Member Locator to any third-party without
United's prior written consent.
3. Marketing and Implementation of Network Products.
3.1 Healtheon shall be responsible for all marketing responsibilities
associated with this Agreement. Healtheon will create all marketing
communications. United will have a reasonable opportunity to review,
approve and require changes to all marketing communications that are
specific to United or the Managed Plans prior to distribution. Other
than as set forth in Section 3.2 below, United will not be responsible
for any other costs incurred by Healtheon associated with marketing
efforts associated with this Agreement. United will continue to
cooperate with the marketing activities of Healtheon and the Field
Reps. Healtheon may
3
<PAGE> 4
offer United the opportunity to participate in special promotional
activities or marketing campaigns (such as, but not limited to,
Healtheon's planned "Medical Trading Areas" campaign) on terms and
fees to be agreed by the parties.
3.2 In accordance with the terms of the Transition Agreement Regarding
Transition of United Employees to Healtheon (the "Transition
Agreement") which is attached hereto as Exhibit Q, United shall
terminate the employment of all marketing representatives responsible
for the sale and marketing of Healtheon's Network Software on behalf
of United and shall take all reasonable efforts to encourage the
Managed Plans to similarly terminate the employment of all marketing
representatives responsible for the sale and marketing of Healtheon's
Network Software. All such marketing representatives (whether employed
by United or a Managed Plan) are listed on Appendix A to Exhibit Q and
shall be referred to herein as the "Field Reps", and Healtheon shall
make an offer of employment to all Field Reps. For a period of nine
(9) months from the date the Field Reps are terminated by United ,
United shall reimburse Healtheon the sum each month for each Field Rep
or successor employed by Healtheon at a calendar month's end (the
"Monthly Per Capita Fee"). The Monthly Per Capita Fee shall be
one-twelfth (a) the Annual base salary of each of the Field Reps
stated on Appendix A to Exhibit Q divided by the total number of Field
Reps multiplied by (b) 1.23 (which amount represents the benefits
burden rate for United). In addition, United will provide the Field
Reps with continued use of United's office facilities (i.e. space,
furnishings, equipment, and services) for up to nine months from the
Effective Date at no charge to Healtheon. Healtheon and United will
use their best efforts to execute a Transition Agreement in
substantially the same form as attached hereto no later than November
1, 1999.
3.3 United will identify the business needs, goals and objectives of United for
Healtheon, and will continue to establish targets for the number and volume of
Providers submitting Transactions as set forth in Section 10 and Exhibit I.
United will provide this information to Healtheon no less often than quarterly,
and shall respond to additional reasonable requests for information within
thirty days of Healtheon's request. The parties shall mutually agree upon any
other information the other needs to perform under this Agreement.
3.4 Healtheon will appoint at least one representative dedicated to the United
account, who will have decision making capabilities for Healtheon. This person
will attend planning meetings with United at least on a monthly basis, keep
United updated on national trends in EDI, and consult with United regarding
Healtheon's software and Network strategy. Healtheon will provide
representatives to WEDI and ANSI and other industry groups as it determines,
upon United's request. United shall also designate a representative to work
with Healtheon and to coordinate United's activities with Healtheon, who will
have decision making capabilities for United. This person will attend planning
meetings with Healtheon, keep Healtheon updated on technical developments with
respect to Processing Systems, and coordinate United's activities with
Healtheon. Each party will inform the other of the name of the designated
representative and consult with the other before changing its designated
representative.
3.5 Exhibit D to this Agreement specifies the reports United will deliver to
Healtheon and Healtheon will deliver to United on a daily, weekly, monthly,
quarterly and annual basis. The parties shall also provide ad hoc reports to
the other when reasonably requested at no cost to the requesting party.
3.6 Healtheon will submit to United prior to the Effective Date, for its input
and comments, a comprehensive disaster recovery plan and documentation (the
"Disaster Recovery Plan" or the "Plan"). The Disaster Recovery Plan, which is
attached hereto as Exhibit O, shall include testing of the Plan no less often
than annually and agreed upon time constraints within which full recovery will
be expected. The parties will amend the Disaster Recovery Plan within 90 days
after the Effective Date to capture the additional Gateway Partnership services
enumerated under this Agreement. This plan will enumerate, among other things,
the steps necessary to ensure that United can perform the functions provided by
the Network without delay. Healtheon will accept comments from United and make
reasonable commercial efforts within the context of the Network to incorporate
such comments into the Plan. Healtheon will use its best efforts to establish a
back-up site under its Plan as soon as possible, but no later than March 31,
2000. Healtheon will submit amendments to the Plan to United, for its
information and input, any time that Healtheon makes substantial changes to its
Plan. Healtheon will participate in United's annual test of the United
4
<PAGE> 5
disaster recovery plan, with up to forty hours of Healtheon personnel time at
no cost to United. For any additional time beyond the forty hours which United
requests from Healtheon for this purpose, United will pay Healtheon an agreed
upon price.
3.7 Healtheon and United will establish a user group, to provide direction to
Healtheon on system initiatives, which will include representation from United
and Providers. Healtheon will solicit user suggestions, input and feedback
regarding the Network no less frequently than quarterly . Healtheon product
management staff will proactively acquire United input on current products and
new products in development. Product input will include, but is not limited to,
alpha and beta testing of new products and ongoing product enhancement
suggestions. Healtheon will develop a formal process to acquire Healtheon
product input on an ongoing basis. This process will include user groups and/or
focus groups and an annual product survey. Healtheon will provide to United on
a quarterly basis or upon reasonable request copies of customer satisfaction
surveys and other similar information, including written summaries of input
received or prepared by the user group, regarding use of the Network at Sites
for which United is paying the monthly Site fee or any transaction fees.
3.8 Pursuant to paragraph 12.2, United shall have the option of performing
installations and implementations of the Network Software itself. In such
circumstances, where United has decided not to out-source such functions to
Healtheon, United will continue to use qualified United personnel to install
and implement the Network for new and existing United-sponsored sites. United
will also continue to use qualified United personnel to train and provide
technical support to the extent required under Section 8, in the markets set
forth in Exhibit P.
3.9 United shall allow a reasonable number of reference inquiries and visits by
customers and potential customers of the Network on mutually agreeable terms.
United shall retain the right to reasonably refuse a site visit to any
competitor or potential competitor of United, and Healtheon shall inform all
customers and potential customers allowed on United's premises under this
paragraph 3.7 that they are required to abide by United's security procedures
and policies.
4. Healtheon's Obligations Regarding Network.
4.1 Healtheon will, during the term of this Agreement, continue
maintaining the Licensed Materials and the Network, or other Healtheon products
which provide, at a minimum, substantially the same functionality as provided
by the Licensed Materials and the Network, on the Effective Date, and at a
level competitive in the industry.
4.2 Healtheon will update the Licensed Materials and the Network with
changes mandated by state or federal law, including but not limited to HIPAA,
and other changes and additional standards required in the reasonable opinion
of the parties to meet market expectations for EDI. If the changes mandated by
this paragraph apply to substantially all of Healtheon's customers, then
Healtheon will provide prompt notice to United and make such changes without
charge as part of a release of the Network or the Licensed Materials pursuant
to paragraph 8.1 or paragraph 8.2.
4.3 Healtheon will continue to work diligently with practice
management system vendors and Third-party Vendors to develop interfaces between
practice management programs and the Network, in order to be able to market the
Network to Providers.
4.4 At United's request, and with United's direction, Healtheon will
work with and cooperate with Allina and United to formulate a plan allowing
Allina to use the Network to operate its LaborLink product.
4.5 Healtheon shall place in escrow for the benefit of United pursuant
to the escrow agreement attached to this Agreement as Exhibit E (the "Escrow
Agreement"), (i) a copy of the source code, object code and technical
documentation for all Healtheon owned software used in the operation of the
Network or in order to provide services to United under this Agreement,
including the Network Software, and (ii) a list of all third party software
used by Healtheon in the operation of the Network. Healtheon agrees to provide
United with a list of all
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<PAGE> 6
such third party software prior to the Effective Date. Healtheon has caused
United to be listed as a "Licensee" under the Escrow Agreement and shall cause
the Licensed Materials and all Healtheon owned operational computer software
and documentation Healtheon uses to operate the Network to be listed as a
"System" under the Escrow Agreement, by the Effective Date. In the event
Healtheon ceases operating the Network for any reason defined in such Escrow
Agreement during the duration of this Agreement, or upon the termination of
this Agreement, Healtheon or its escrow agent shall deliver to United, for
United's nonexclusive use, one then-current copy of all Healtheon owned
operational computer software and documentation Healtheon uses to operate the
Network and one copy of the list of all third party software used by Healtheon
in the operation of the Network.
4.6 Healtheon shall: (1) allow all Providers who so choose to transmit
EDI transactions through the Network to United; (2) assume primary
responsibility for Network operations, including notifying all Third-party
Vendors, and require those Third-party Vendors to notify Providers connected to
the Third-party Vendors, of the Network processing requirements and make
available the process and procedures for submitting EDI transactions to the
Network; (3) have primary responsibility for Provider and Third-party Vendor
interface development with those Providers and Third-party Vendors who
interface with the Network; (4) actively manage all Third Party Vendors
Healtheon contracts; such management shall include, but not be limited to, a
process that ensures: (a) timely and accurate initial certification, (b) prompt
communication of all edit and specification changes, (c) verification of edit
and specification change compliance by each vendor and national submitter, (d)
daily vendor and submitter batch and file monitoring and measurement, (e)
working with vendors and national submitters on an ongoing basis to decrease
rejections, (f) offering vendors assistance to work with individual providers
to increase effective submissions and (g) development of submitter management
measurements and targets, (5) have responsibility for marketing the Network to
third parties as stated in Section 3.1; (6) have primary responsibility for
conforming to United standards for accessing the Processing Systems, including
security, formats, validations and the content of communications; (7) archive
documentation of Vendor API's; (8) develop export controls, data access
methods, archiving, and throughput capacity to meet regulatory requirements and
achieve performance standards as specified in Section 10; and (9) unless
otherwise agreed to by both parties, Healtheon will restrict access to
Third-party Vendors to the United member locator process.
4.7 "Year 2000 Compliant" means, as to any services or software
program that such services or software:
(i) is capable of input, storage, manipulation, display, and
processing of dates within a continuous range of dates which extends before
January 1, 2000 and after such date, and is otherwise suitable to the
application, and will not cause an abnormally ending scenario within the
application or generate incorrect values or invalid results involving such
dates; and
(ii) provides that all date related user interface functionalities and
data fields include the indication of century; and
(iii) provides that all date related data interface functionalities
include the indication of century.
Healtheon has agreed to cause the Network to be Year 2000 Compliant by
October 31, 1999. As of November 8, 1999, Healtheon agrees to test the Network
and Network Software for Year 2000 compliance and to provide to United a
written assurance that the Network and Software is Year 2000 Compliant. The
parties mutually agree to determine by October 15, 1999, that the methods used
by the Parties to handle date related data are compatible, and will correct any
incompatibility by October 31, 1999.
Healtheon will make a Year 2000 Compliant version of the Network
Software and Licensed Materials available to all licensed users of the Network
Software and Licensed Materials as of September 30, 1999.
Healtheon will make a Year 2000 Compliant version of the Network
Software and Licensed Materials available to third parties.
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<PAGE> 7
4.8 Healtheon agrees, upon the termination by United of its agreement
with any Third-party Vendor , to use its best efforts to obtain or transfer
such Third-party Vendor's Transaction flow. These efforts will include
contracting directly with any Providers and practice management system vendors
associated with such Third-party Vendor.
4.9 Healtheon will attend promptly to United file changes in all
maintenance files (including, but not limited to, member and provider files)
and have updated programming in place to accept updated file formats as soon as
reasonably possible (and in the case of member and provider files, no later
than 30 days after written notification from United).
5. United's Obligations Regarding the Network.
5.1 United shall generate or receive transaction data in the standard
format and the protocol set forth as of the Effective Date, or as otherwise
mutually agreed upon by the parties. In the event that Healtheon changes such
format as approved by United or as required by federal or state law, United
shall provide Healtheon with standard output and test messages for Healtheon's
use.
5.2 United shall provide, at its own expense, all necessary hardware,
including terminal equipment, compatible with and suitable for United's
communications received by it through the Network. United shall prepare the
proper operating environment as described in Exhibit J attached to this
Agreement. As necessary, Healtheon will verify that interoperability between
the Network and United's operating system environment is appropriate as of the
Effective Date.
5.3 United will establish a common set of security controls and
measures to allow Healtheon access to data transactions necessary in the
Network. United will, to the extent reasonably practicable, provide common data
requirements for Transactions, common routing, and common validation.
5.4 United shall provide Healtheon with a periodic update of Member
Locator information in order for Healtheon to transfer the EDI Transaction to
the appropriate United Processing System. United shall provide other
information as necessary, and mutually agreed, to enhance and facilitate
Transaction routing throughout the Network.
5.5 United will cause the Processing Systems, and any interfaces
maintained by United, and not developed by Healtheon, between the Processing
Systems and the Network, to be Year 2000 Compliant.
5.6 United will maintain its internal systems and procedures as
necessary to timely and properly accept, route, process and report on
Transactions, and to detect and report problems with submitted Transactions.
5.7 United will cooperate with Healtheon in its attempts to establish
relationships with and work with practice management system vendors and Third
Party Vendors.
6. Access to the Processing Systems and Other Proprietary United
Software.
6.1 Healtheon will not have access to the Processing Systems or any
other United proprietary systems, and will have no right to modify the computer
code in the Processing Systems, except as mutually agreed to in advance by the
parties in writing. Healtheon will not receive any part of the Processing
Systems code, except as mutually agreed by the parties in writing. The Network
will deliver Transactions and information to the Processing Systems. United is
solely responsible for the operation of the Processing Systems.
6.2 United produces new releases of Processing Systems (including host
computer systems operated by third party out-sourcers on behalf of United),
from time to time. United will give Healtheon notice of such changes and
information regarding them if the changes affect the Network or Healtheon's
performance under this Agreement, and, if the changes require any modifications
to the Network or the Licensed Materials, the parties will
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<PAGE> 8
mutually agree on the scope of the project, the deliverables, deadlines, any
fees Healtheon will charge United, a test plan and an acceptance test plan.
6.3 Healtheon agrees that United shall be the sole and exclusive owner
of any and all changes (as contemplated in 6.1) United makes or directs
Healtheon to make to the code in the Processing Systems or any other computer
system proprietary to United. Healtheon agrees to assign and hereby assigns and
transfers to United any and all rights which Healtheon may have in such code,
including any copyright, patent, trademark, trade secret and other intellectual
property rights. Healtheon will cooperate with United and will execute any
documentation reasonably required by United to assert or protect its property
rights in such code.
7. Network Enhancements/Contracted Development.
7.1 Any Enhancements or development work on the Licensed Materials or
the Network defined and priced prior to the date this Agreement was executed,
including those being solely developed for United, will be provided to United
upon completion and included within the definition of "Licensed Materials", at
the charges previously agreed. Exhibit C is a list of all such pending
Enhancements and development work and the previously agreed upon charges. When
Healtheon develops Enhancements to the Network, which are not contemplated in
the prior sentence, which Healtheon offers generally to its customers, which
are not included in a maintenance release that Healtheon offers generally to
its customers pursuant to paragraph 8.1, Healtheon will offer such Enhancements
to United as soon as reasonably practicable.
7.2 When United specifically requests development work from Healtheon,
for United's use, the parties will set forth the scope of such services in
sufficient detail in a written statement of work ("Statement of Work") which
shall incorporate this Agreement by reference, and negotiate a price at the
time such work is requested. Each Statement of Work will set forth the new
functionality being developed, including system documentation, development
schedules, testing procedures, detailed costs associated with the development,
conditions relating to discounts or rebates to United and operating costs of
the new functionality once agreed to by the Parties. Healtheon will deliver the
new services as specified in the Statement of Work. If any delays occur in
delivering the services in accordance with the schedule, Healtheon shall
immediately notify United of the delay and deliver a proposed revised
scheduled. If Healtheon fails to deliver the new services as agreed to in the
revised schedule, United will cease making payments for such work until the
work is completed, delivered, installed and functioning in an acceptable manner
as specified by United in the Statement of Work. If Healtheon will be permitted
to use this custom work for other customers, United and Healtheon shall
negotiate the price United will pay Healtheon for such work, and if discounts
apply to reflect the benefits Healtheon receives for selling this work to other
third parties.
7.3 When Healtheon performs development work on the Network at the
request of any entity not a party to this Agreement, United shall have the
right to obtain this same work at a price not greater than the price the
contracting party has paid for the portion United is obtaining, as long as
Healtheon has the legal right to offer such work to United and such work is not
proprietary to the contracting party. Healtheon shall not impair United's
ability to access or obtain such work, and will make reasonable efforts to
obtain the legal right to offer this work to United if access or use is
restricted in any way.
8. Healtheon's Software Maintenance and Support Obligations.
8.1 Healtheon's maintenance releases for the Network Software and the
Licensed Materials shall be denoted by a three digit number where the first
number is the version number, the second number is the level number, and the
third number (if it is greater than 1) is the build number. A release with no
Enhancements shall be designated by a change in only the third digit and shall
be considered a maintenance release. For example, release 2.1.2 is a
maintenance release for the version 2.1.1 software. Healtheon will provide new
maintenance releases at no charge to all its Network maintenance customers,
including, without limitation, United and Providers.
8.2 The price United will pay Healtheon under paragraph 12.1 for
Healtheon's maintenance services under this Agreement do not include
Enhancements to the Network Software. Enhancements are contained in
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<PAGE> 9
Healtheon's new versions which are denoted by a three digit number, the first
digit of which is the version number, the second digit of which is a level
number, and the third digit of which is 1. For example, version 2.1.1 is
followed by new version numbers 2.2.1, 2.3.1, 2.4.1, 3.0.1, etc. A release with
Enhancements shall be designated by a change in the first or second digit and
shall be considered a new version. Healtheon will make new versions of the
Network Software available to United at a price equal to and better than that
Healtheon offers to other similarly situated Network customers.
8.3 Healtheon will provide free Network maintenance and support
services (including installation and support) to United at a level which at a
minimum will meet or exceed the free Network maintenance and support Healtheon
provides to its other Network customers. Healtheon will also provide the
support and maintenance services to United which are specified on Exhibit F
attached to this Agreement. Healtheon will notify United of any technical
errors in the Network Software reported to the Healtheon help desk in
accordance with mutually agreed to escalation procedures, and will correct such
technical errors in a manner consistent with Exhibit I. Healtheon will provide
all support and maintenance services directly to United and the Providers who
subscribe to the Network, as required. United shall have no obligation to
provide any support, training or maintenance services to Providers, other than
as specified in this Agreement. In order to allow United to implement a new
release of the Network Software or the Licensed Materials on an orderly
schedule, Healtheon shall maintain the current release and one prior release of
the Network and the Licensed Materials, except as otherwise mutually agreed.
The maintenance services specified in this Agreement shall be provided at no
cost to United beyond the fees set forth below in Section 12.
8.4 United inquiries and issues, and complaints lodged by payors,
Providers and Third-party Vendors will be handled by Healtheon as specified in
Exhibit F and I, and with the utmost customer focus in mind. These inquiries
and complaints shall be tracked and summaries provided to United on a monthly
basis. The summaries shall include, at a minimum, the identity of the
complaining or inquiry party, a description of the complaint or inquiry, date
received, date resolved, and outcome. The parties agree to mutually develop
problem escalation and review procedures on an ongoing basis.
8.5 Healtheon will maintain the security standards for the Network
which are set forth on Exhibit G attached to this Agreement, as updated from
time to time
9. Further Assurances and Covenants.
9.1 United shall support Healtheon's efforts to establish the
Network as the industry standard EDI gateway utility for
Providers and Third party Vendors to transmit Transactions to
payors. United agrees to use Healtheon as United's preferred
vendor for EDI services and internet development, subject to
Healtheon's availability and technical capabilities with
respect to the specific development project undertaken at
United's request. United and Healtheon agree to set forth in
writing the scope and deliverables required for any
development project commenced in accordance with this Section
9.2. United shall pay a negotiated fee to be the first point
of access with respect to Ingenix Inspector and Member
Recruitment interfaces on websites developed by Healtheon .
9.2 Except as otherwise provided herein, United will not contract
with, solicit, encourage or otherwise promote a Third-party
Vendor to process EDI Transactions directly with United;
provided that, in the event that Healtheon fails to meet the
performance standards set forth in Section 10 and does not
cure such failure within the time periods required by this
Agreement, United may solicit and transact directly with
Third-party Vendors
9.3 United shall be entitled to contract directly with any
Third-party Vendor to process EDI Transactions directly with
United only if United is conducted in its good faith judgment
that Healtheon is unable to provide reasonable service to
United with respect to the Transactions available through
such Third-party Vendor
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<PAGE> 10
10. Performance Standards.
10.1 Exhibit I to this Agreement specifies the performance standards
and measurements Healtheon must achieve and the applicable time periods for
measuring compliance with the performance standards (the "Performance
Standards"). The parties shall measure, at a minimum, performance of
Healtheon's help desk and customer support and the Network and Healtheon's
ability to meet or exceed United's Performance Standard for Transaction
processing volumes. Both parties will jointly develop and define the scope of
reports to measure the growth of Transactions. These Performance Standards are
established to ensure that the performance of the Network during the term of
this Agreement meets or exceeds industry standards in the relevant market
place. Within a period of 30-days after the Effective Date of this Agreement,
Healtheon and United will review the Performance Standards specified in Exhibit
I to establish and/or revise baseline performance measurement methods and
standards. Upon agreement on such revised Performance Standards they will be
attached hereto as Exhibit I and will supersede the current Exhibit I. In
addition, Healtheon has agreed to develop and deliver to United, on a quarterly
basis beginning April 1, 1999, Healtheon's plans to increase performance of the
Network beyond the minimum levels specified in Exhibit I. Healtheon will
produce such reports on a monthly basis, along with monthly status reports of
accomplishments, issues, Provider complaints set forth in Section 8.4, and
action plans necessary to achieve performance standards.
10.2 Any time that a Processing System is not operational through no
fault of Healtheon, the time the Processing System is not operational will not
be counted for the purposes of this Section 10.
10.3 In the event that Healtheon fails to meet any Performance
Standard on Exhibit I in any month, Healtheon shall begin to diagnose the cause
of the failure to meet the Performance Standard promptly after being notified
of or discovering the failure to perform. Thereafter, Healtheon shall work
continuously and diligently to correct such failure to perform until it is
corrected. The failures to meet the Performance Standards which occur while
Healtheon is working to remedy the problem shall continue to be counted for the
purposes of paragraphs 10.4 and 10.5.
10.4 Notwithstanding Section 10.5, in the event that Healtheon fails
to meet any Performance Standard identified in Exhibit I in any month after the
"Applicable Date" (as defined below) for that Performance Standard, and such
Performance Standard is categorized as below "standard" but not considered to
be "critical", as those terms are defined in Exhibit I, Healtheon will be
subject to a financial penalty of $[*] for each such failed standard contained
in Exhibit I. The aggregate penalty within each category shall not exceed $[*]
for each category in any given month. The aggregate penalty for all categories
combined will not exceed [*] percent ([*]%) of any fees referenced in Section
12 in any given month. Any penalties assessed will be credited to the total
Transaction invoice for the following month. United agrees that the penalties
enumerated herein are its sole and exclusive remedy for any damages United
incurs due to Healtheon's breach of this Agreement, only to the extent such
damages do not exceed $[*] per incident. Any damages caused by Healtheon, which
United incurs in excess of $[*], shall be offset by any related Performance
Standard penalties assessed in that given month. The "Applicable Date" for all
Performance Standards will be the Effective Date, with the following
exceptions: for Performance Element 1.5, Batch Claims, the Applicable Date will
be April 1, 2000; for Performance Category 3, Customer Service, the Applicable
Date will be November 8, 1999; and for Performance Category 6, Service
Delivery, the Applicable Date will be January 1, 2000.
10.5 In the event that Healtheon fails to meet the same Performance
Standard on Exhibit I for two months in any six month period beginning after
the Effective Date, and the failure is considered to be "critical", Healtheon
shall be deemed to be in material breach of this Agreement, which allows United
to give a notice of termination under paragraph 14.2 of this Agreement or to
contract with any Third Party Vendor listed on Exhibit K. Upon receipt of such
termination notice, Healtheon shall have 30 days to cure such breach as
provided in Section 14.2. The breach shall be considered cured if Healtheon's
performance on the affected Performance Standard is above critical for the
first complete month following such cure period.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 11
11. Representations and Warranties.
11.1 The parties agree that Healtheon owns the Network and Healtheon
represents that it owns the Licensed Materials and has the right to license the
Licensed Materials and grant access to the Network to United. All rights in
patents, copyrights, trademarks and trade secrets encompassed in the Licensed
Materials will remain in Healtheon or its licensors, as applicable. No title to
or ownership of the Licensed Materials is transferred to United. United agrees
that it does not obtain any rights in the Licensed Materials except the limited
right to use the Licensed Materials as provided herein.
11.2 Healtheon agrees to defend United against and, to the extent of
amounts paid to third parties in infringement damage awards and approved
settlement awards, hold it harmless from all claims, damages and liabilities
resulting from a claim that the Network or the Licensed Materials (other than
the version of the Licensed Materials which Healtheon acquired from United)
infringes a patent, trade secret or copyright or any other proprietary right,
provided that United gives Healtheon prompt, written notice of any such claim,
sole control of the defense and settlement of such claim, and all reasonable
assistance to defend such claim. United may appear in such action with counsel
of its choice, at its own expense. Healtheon shall have no obligations under
this paragraph if such claims, damages and liabilities result solely from
United's breach of any term of this Agreement, United's unauthorized use of or
modifications to the Licensed Materials or the Network, or the combination by
United of the Licensed Materials with other materials not provided by
Healtheon.
11.3 If United's right to use the Licensed Materials or the Network is
enjoined or limited in any way, or if Healtheon believes that the Licensed
Materials or the Network is likely to become subject to such action, then
Healtheon, at its option and expense, may either:
(a) immediately procure for United the right to continue to use
the Licensed Materials and the Network Software free from
such limitations;
(b) immediately modify the Licensed Materials and the Network
Software to be free from such limitations, but equivalent in
all material functional and performance respects to the
Licensed Materials and Network Software prior to such
modification;
(c) immediately replace the Licensed Materials and the Network
Software with materials that are free of claims, but
equivalent in all material functional and performance
respects to the Licensed Materials and the Network Software;
or
(d) if none of the above are reasonably possible or likely to be
effective, terminate this Agreement and the licenses granted
herein, and refund to United a proportionate amount of the
monies paid under this Agreement for which the Network
Software was not utilized.
11.4 Except as otherwise provided in this Agreement, Healtheon
expressly disclaims any warranties, express or implied, relating to the
Licensed Materials, including, but not limited to, the warranties of
merchantability and fitness for a particular purpose or use.
12. Prices and Payments.
12.1 Through December 31, 1999, United will pay Healtheon (a) $[*] per
month per user Site identification number established by Healtheon at United
and (b) $[*] per month per user Site identification number established by
Healtheon for which United has agreed to be responsible. In addition, during
the term of this Agreement United will pay Healtheon a per Transaction fee and
other fees set forth in the pricing table listed in Exhibit M. United shall not
pay for any transactions a Provider sends to a different payor. Healtheon shall
not charge United for any transactions which are rejected by Healtheon based on
United's specifications. These payments cover all license fees, subscription
fees, and access fees for usage of the Licensed Materials and the Network and
all fees for the maintenance services set forth in Section 8.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 12
12.2 The fees set forth in paragraph 12.1 do not cover charges for any
services United requests and obtains from Healtheon beyond the services
specified in paragraph 12.1, including, without limitation, file transfer of
data, , or a telecommunications connection between the Network and United's
host computers. Healtheon will not charge United any additional fees for
telecommunications costs or expenses between the Network and any third-party.
Healtheon shall not charge United anything for installation and implementation
of the Network at Sites where United chooses to do the installation and
implementation itself. United shall pay all taxes levied in connection with
this Agreement, except for any taxes based on Healtheon's net income.
12.3 Healtheon will bill United monthly for the Site and Transaction
fees for United and any Providers where United has asked Healtheon to bill
United directly, in a mutually agreeable format. All invoices shall reflect the
fee for services performed within sixty (60) days of United's receipt of the
invoice. When Healtheon bills United for a Provider's Site and Transaction
fees, Healtheon shall not bill the Provider directly for the same charges.
Invoices will include and itemize any additional fees for other services
purchased by United. United agrees to pay all undisputed fees and expenses
invoiced by Healtheon within thirty days after receipt of each invoice. If
United receives an invoice by the 10th calendar day of any month, United shall
use its best efforts to pay all undisputed fees and expenses invoiced by the
30th day of the month the invoice is received. United agrees to pay a late
payment charge equal to the lesser of 1% per month or the maximum rate allowed
by law on all undisputed amounts outstanding after sixty days following receipt
of the invoice.
12.4 Healtheon shall maintain accurate and complete books and records
regarding the transactions to and from United and the amounts Healtheon is
charging United under this Agreement, with a system of audit trails, records
and controls sufficient to satisfy the requirements imposed on Healtheon by its
external auditors and governmental regulators.
12.5 Healtheon will, at its expense, provide United annually with a
report produced in accordance with standards established by the American
Institute of Certified Public Accounts' Statement on Auditing Standards Number
70: Reports on the Processing of Transactions by Service Organizations.
12.6 United shall guarantee Healtheon $[*] in gross revenues for the
period August 1, 1999 through December 31, 1999, and $[*] (the "Base
Guarantee") in gross revenues per calendar year beginning January 1, 2000 (the
period between August 1, 1999 and December 31,1999 and each calendar year
referred to as a "Guarantee Period"). The amount guaranteed for any Guarantee
Period is referred to as the "Guaranteed Amount." After the conclusion of each
Guaranteed Period, the amount of fees for that period shall be determined (the
"Actual Fees") The Actual Fees shall include all fees paid by United to
Healtheon for: Claims Transactions, Transactions, eligibility inquiries, other
transactions, Site Fees, product development fees and any other amounts paid by
United to Healtheon under this Agreement. If the Actual Fees are less than the
Guaranteed Amount, then United may, in its sole discretion elect to either: (a)
pay to Healtheon the difference between the Guaranteed Amount and the Actual
Fees (such amount referred to as the "Shortfall") or (b) add the Shortfall to
the Base Guarantee for the next subsequent Guaranteed Period with the resulting
amount being the Guaranteed Amount for the next subsequent Guaranteed Period;
provided that, in no event shall United transfer to the next subsequent
Guaranteed Period an amount greater than [*]% of the current period Guaranteed
Amount.
12.7 Except as provided below, in the event that the number of Claim
Transactions falls below [*] per month, calculated at the end of each month on
a rolling three-month average (the "Actual Claims Transactions"), then the Base
Guarantee for the current Guaranteed Period shall be reduced by multiplying the
Base Guarantee by the ratio of (a) the Actual Claims Transactions to (b) [*].
The Base Guarantee will not be reduced for any reduction in Claims Transactions
that results from any action by United or from any failure by United to meet
its obligations under this Agreement, including its obligation to make
Healtheon its preferred EDI vendor and to support Healtheon as the industry
utility.
12.8 Healtheon agrees that it will not enter into an agreement for services or
licenses similar to those offered under this Agreement with any third party on
pricing terms more favorable that set forth in this Agreement.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
12
<PAGE> 13
13. Confidentiality and Security.
13.1 "Proprietary Information" means information that is (a)
confidential to the business of a party, including, without limitation,
computer software source code, technical documentation and information
regarding proprietary computer systems, marketing and product development
plans, financial and personnel information, and other business information not
generally known to the public; and (b) is designated and identified as such by
a party, or which the other party should have reasonably known was
confidential. Proprietary Information belonging to Healtheon includes, without
limitation, the Licensed Materials and the source code for its Network
Software. Proprietary Information belonging to United includes, without
limitation, information relating to Processing Systems other United computer
systems, Member Locator and information regarding United's members, Providers
or health plans. "Proprietary Information" does not include information which a
party lawfully had in its possession prior to receiving it from the other
party, or which a party properly receives from a third party, or which is or
becomes available to the public, or which a party independently develops
without reference to information received from the other party under this
Agreement.
13.2 Proprietary Information and all physical embodiments thereof
received by either party (the "Receiving Party") from the other party (the
"Disclosing Party") during the term of this Agreement are confidential to and
are and will remain the sole and exclusive property of the Disclosing Party. At
all times, both during the term of this Agreement and after its termination,
the Receiving Party shall hold all Proprietary Information of the Disclosing
Party in confidence, and will not use, copy or disclose such Proprietary
Information or any physical embodiment thereof (except as permitted by this
Agreement), or cause any of the Proprietary Information to lose its character
as confidential information.
13.3 The Disclosing Party's Proprietary Information shall be
maintained under secure conditions by the Receiving Party, using reasonable
security measures which shall be not less than the same security measures used
by the Receiving Party for the protection of its own Proprietary Information of
a similar kind, and any specific security measures required by this Agreement.
The Receiving Party shall not remove, obscure or deface any proprietary legend
relating to the Disclosing Party's rights, on or from any tangible embodiment
of any Proprietary Information without the Disclosing Party's prior written
consent. Within thirty days after the termination of this Agreement, the
Receiving Party shall deliver to the Disclosing Party all Proprietary
Information belonging to the Disclosing Party, and all physical embodiments
thereof, then in the custody, control or possession of the Receiving Party.
13.4 If the Receiving Party is ordered by a court, administrative
agency or other governmental body of competent jurisdiction to disclose
Proprietary Information, or if it is served with or otherwise becomes aware of
a motion or similar request that such an order be issued, then the Receiving
Party will not be liable to the Disclosing Party for disclosure of Proprietary
Information required by such order if the Receiving Party complies with the
following requirements:
(a) If an already-issued order calls for immediate disclosure,
then the Receiving Party shall immediately move for or
otherwise request a stay of such order to permit the
Disclosing Party to respond as set forth in this paragraph
13.4; and
(b) The Receiving Party shall immediately notify the Disclosing
Party of the motion or order by the most expeditious possible
means; and
(c) The Receiving Party shall join or agree to (or at a minimum
shall not oppose) a motion or similar request by the
Disclosing Party for an order protecting the confidentiality
of the Proprietary Information including joining or agreeing
to (or not opposing) a motion for leave to intervene by the
Disclosing Party.
13.5 The Receiving Party shall immediately report to the Disclosing
Party any attempt by any person of which the Receiving Party has knowledge (a)
to use or disclose any portion of the Proprietary Information without
authorization from the Disclosing Party; or (b) to copy, reverse assemble,
reverse compile or otherwise reverse
13
<PAGE> 14
engineer any part of the Proprietary Information (except as permitted herein).
13.6 With respect to information regarding members or other
individuals covered by United, its customers-sponsored health plans, or its
Affiliates, Healtheon:
(a) acknowledges that in receiving, storing, processing or
otherwise dealing with any confidential member information
("Confidential Member Information"), it is fully bound by the
provisions of state law and the federal regulations governing
confidentiality of Alcohol and Drug Abuse Patient Records, 42
CFR Part 2;
(b) shall resist in judicial proceedings any effort to obtain
access to Confidential Member Information otherwise than as
expressly provided for in state law and the federal
confidentiality regulations, 42 CFR Part 2; and
(c) agrees not to disclose or utilize Confidential Member
Information in any way that would violate any
physician-patient confidence or any state or federal
regulations, including HIPAA.
13.7 The obligations of this Section 13 shall survive termination or
expiration of this Agreement as to any Proprietary Information which falls
under the definition of "trade secret" under the Uniform Trade Secret Act and
Confidential Member Information. For all other information which falls under
the definition of Proprietary Information used in this Agreement, the
obligations of this Section 13 shall terminate five years after termination or
expiration of this Agreement.
14. Term and Termination.
14.1 This Agreement commences on the Effective Date and shall continue
until December 31, 2004 unless earlier terminated as provided herein. Except as
otherwise set forth herein, upon termination or expiration of this Agreement,
United's rights to use the Licensed Materials and the Network Software shall
cease unless extended in writing by the parties.
14.2 If one party breaches any material provision of this Agreement,
the non-breaching party may terminate this Agreement by giving 30-days written
notice of termination to the breaching party. If the breach is capable of being
cured and the other party cures such breach within the 30-days, the termination
shall not become effective.
14.3 If United shall, at any time, cease to manage or administer any
Managed Plan, then, as of the date of such cessation, this Agreement shall
terminate as to such Managed Plan. United shall inform Healtheon that an entity
has ceased or will cease to be a Managed Plan promptly after such information
is known to United and available for public consumption. In addition, a Managed
Plan may revoke its consent to be bound by this Agreement upon prior written
notice to Healtheon.
14.4 If during the term of the Agreement, there is a Change of
Control, United has the option to terminate the Agreement by providing
Healtheon with ninety (90) days prior written notice, renegotiate the terms of
the Agreement, or maintain the terms of the Agreement at the time of the Change
in Control. It is understood, however, that the consummation of the pending
mergers of Healtheon, WebMD, Inc., MedE America Corporation, and Greenberg News
Networks, Inc. shall not be considered a Change of Control.
14.5 Nothwithstanding any other provisions in this Agreement United
may terminate this Agreement, effective on January 1, 2003 or January 1, 2004,
upon ninety (90) days prior written notice,
14.5 Upon termination or expiration of this Agreement, the parties
shall cooperate in the orderly and reasonable removal of United from the
Network. The parties shall jointly develop a transition plan by October 31,
1999 ("Transition Plan"). The Transition Plan will allow United to access and
use the Network services, including Licensed Materials, Network Software and
APIs, and transfer connectivity between Providers and Third-party
14
<PAGE> 15
Vendors to United, for a period of twenty-four months following termination or
expiration upon the payment by United to Healtheon of a license fee in the
amount of $[*]. For so long as United continues to access and use the Network
services, in addition to such $[*] license fee, United shall pay all fees
specified in this Agreement as if this Agreement remained in force. If United
terminates the Agreement as a result of Healtheon's breach as set forth in
Section 14.2, the transition period shall be a period of not less than twelve
months. In addition, if Healtheon applies for or consents to the appointment of
a receiver, trustee, or liquidator for all or a substantial part of its assets,
files a petition or answer seeking reorganization or arrangement with creditors
or takes advantage of an insolvency law, the transition period shall be a
period of not less than twelve months. The Transition Plan will provide for a
reasonable level of support to transition United off the Network. Each party
will bear its own costs in developing the Transition Plan. During such
additional time, United shall continue to pay Healtheon all fees due under
Section 12 of this Agreement. In the event that Healtheon has terminated this
Agreement pursuant to paragraph 14.2 due to United's failure to pay amounts due
to Healtheon, Healtheon will not be required to perform services for United or
to allow United access to the Network during the transition period unless
United pays Healtheon in advance for such services and Network access. United
shall not be obligated to pay any Site or Transaction fees that accrue after
the Agreement and/or transition period have terminated with respect to
Providers that remain connected to the Network. The Disaster Recovery Plan
shall remain in effect during the transition period. Healtheon will not impede
United's ability to contract with any third parties.
15. Scope of the Agreement.
15.1 This Agreement does not apply to Medicare crossover, pharmacy,
dental, vision, and life insurance Transactions, or other Transaction types not
processed by Healtheon as of the Effective Date of this Agreement, including
non-EDI Transactions. This Agreement does not apply to Transactions processed
for or by the following entities or United business units: Government
Operations, AARP, and other entities or United business units designated by
United pursuant to this Agreement unless otherwise agreed to by the parties.
16. Dispute Resolution.
16.1 In the event a dispute between Healtheon and United arises out of
or is related to this Agreement, either party may request in writing that
designated representatives meet and negotiate in good faith to attempt to
resolve the dispute without a formal proceeding. During the course of such
negotiations, all reasonable requests made by one party to the other for
information, including copies of relevant documents, will be honored. The
specific format for such discussions will be left to the discretion of the
designated representatives.
16.2 If the designated representatives conclude in good faith that
amicable resolution through continued negotiation in this forum does not appear
likely, then the matter will be escalated to a joint panel of Healtheon and
United senior executives, by formal written notification by either party to the
other. This panel will meet as required to attempt to resolve the dispute. The
number and nature of the senior executives will depend on the issues in
dispute, but will include those senior executives with authority to resolve all
matters in dispute. At either party's election, this panel will be facilitated
by an external facilitator designated by both parties.
16.3 Formal proceedings for the resolution of a dispute may not be
commenced until the earlier of (a) the panel referred to in paragraph 16.2
concluding in good faith that amicable resolution through continued negotiation
of the matter does not appear likely; or (b) 30 days after the first notice of
the dispute was sent under paragraph 16.1 or paragraph 16.2. However, nothing
in this Section 16 shall preclude either party from seeking temporary or
preliminary injunctive relief where a party determines in good faith that such
relief is necessary to limit its damage or injury under this Agreement.
17. Limitation on Damages and Allocation of Risk.
17.1 Except to the extent of Healtheon's obligation to indemnify
United as provided in paragraph 11.2, United's obligations under paragraph 12,
and the obligations of each party with respect to the intellectual property of
the other, IN NO EVENT SHALL EITHER PARTY'S LIABILITY TO THE OTHER PARTY
(INCLUDING
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
15
<PAGE> 16
LIABILITY TO ANY PERSON WHOSE CLAIM OR CLAIMS ARE BASED ON OR DERIVED FROM A
RIGHT OR RIGHTS CLAIMED BY THE OTHER PARTY) WITH RESPECT TO ANY AND ALL CLAIMS
ARISING FROM OR RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT IN CONTRACT,
TORT OR OTHERWISE, EXCEED [*] DOLLARS ($[*]).
17.2 Indemnification by Healtheon. Healtheon shall defend, hold
harmless and indemnify United, its officers, directors, agents and employees,
from any and all claims by third parties that arise out of Healtheon's willful
misconduct or negligent acts or omissions in the discharge of Healtheon's
responsibilities under this Agreement. Healtheon shall defend, hold harmless
and indemnify United, its officers, directors, agents and employees, from any
and all claims by Healtheon's personnel for any compensation or benefits, and
claims by third parties that arise from a breach by Healtheon of any agreement
with any third party that relates to the services herein.
17.3 Indemnification by United. United shall defend, hold harmless and
indemnify Healtheon, its officers, directors, agents and employees, from any
and all claims by third parties that arise out of United's willful misconduct
or negligent acts or omissions in the discharge of United's responsibilities
under this Agreement. United shall defend, hold harmless and indemnify
Healtheon, its officers, directors, agents and employees, from any and all
claims by United's personnel for any compensation or benefits, and claims by
third parties that arise from a breach by United of any agreement with any
third party that relates to the services herein.
17.4 Insurance. Healtheon, during the term of this Agreement and any
extensions thereof shall maintain, at Healtheon's sole cost and expense,
commercial general liability insurance, including contractual liability, in the
amount of $1,000,000 per occurrence and $2,000,000 aggregate; auto liability
for $1,000,000 combined single limit, workers compensation and employer's
liability with limits of $500,000; coverage for valuable papers in the care,
custody or control of Healtheon in the amount of $100,000; professional
liability insurance, including errors and omissions, in the amount of
$1,000,000 per occurrence and $2,000,000 in aggregate; and a fidelity
bond/crime coverage, including computer fraud coverage, in the amount of
$50,000. Healtheon shall provide proof of such insurance upon request and shall
give ten (10) days written notice to United in the event of any termination,
cancellation or material change in such insurance. Such insurance shall not
derogate Healtheon's indemnification obligations to United set forth in this
Agreement. Further, approval or acceptance of such by United will not in anyway
represent that such insurance is sufficient or adequate to protect the
Contractor's interests or liabilities and such insurance coverage shall be
considered the minimum acceptable coverage.
18. General.
18.0 Audit. United shall have the right, not more often than once in
each calendar year, to have employees or mutually agreeable external auditors
audit the books and records of Healtheon relating to United transactions and
charges for which United is responsible, to determine the proper amounts which
should have been billed to United, which were billed to United, and which
United has paid under this Agreement, and Healtheon's procedures for handling
transactions to and from United, and Healtheon's adherence to Performance
Standards, and other obligations under this Agreement, including development of
a stand-by site and Disaster Recovery Plan as identified in Section 3.5. United
shall give Healtheon two weeks prior notice of any such audit, and shall abide
by reasonable Healtheon security and confidentiality procedures during the
audit. United shall bear the cost of such audit, provided that in the event the
audit determines that Healtheon has overcharged United by more than five
percent of the amount properly due Healtheon in any month beginning on or after
July 1, 1996, Healtheon shall pay all costs of such audit. Healtheon shall also
allow United to review Healtheon's security standards, as set forth in Section
8.5, no later than March 1, 1999, and Healtheon or its agent's compliance with
the escrow obligations referenced in Section 4.5 and Exhibit E. The once per
calendar year audit limit shall not apply to reviews associated with
Healtheon's compliance with the Performance Standards set forth in Section 10
or the security audit set forth in the preceding sentence.
18.1 This Agreement, including the Exhibits to it, constitutes the
entire understanding between the parties and supersedes all proposals,
communications and agreements between the parties relating to its subject
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
16
<PAGE> 17
matter. No amendment, change, or waiver of any provision of this Agreement will
be binding unless in writing and signed by both parties.
18.2 This Agreement will be governed by and construed in accordance
with the laws of the State of Minnesota applicable to contracts made and
performed therein.
18.3 Neither party may assign this Agreement without the prior,
written consent of the other party, which shall not be unreasonably withheld,
provided, however, that Healtheon may assign this Agreement to a successor
corporation created in connection with its merger with WebMD, Inc. Any
attempted assignment without such consent shall be void. Any assignment with
consent does not release the assigning party from any of its obligations under
this Agreement unless the consent so states.
18.4 Any notices relating to this Agreement shall be in writing and
will be sent by certified United States mail, postage prepaid, return receipt
requested, or by facsimile transmission or overnight courier service, addressed
to the party at the address set forth below, or at such different address as a
party has advised to the other party in writing and shall be deemed given and
received when actually received:
<TABLE>
<S> <C>
UnitedHealth Group Healtheon Corporation
9900 Bren Road East 4600 Patrick Henry Drive
Minneapolis, MN 55440 Santa Clara, CA 95054
Attn: Chief Information Officer Attn: CEO
cc: General Counsel
And And
David Miller Nancy Ham
UnitedHealthCare Services, Inc. Healtheon Corporation
450 Columbus Boulevard 7000 Central Parkway
Hartford, CT 06115 Atlanta, GA 30328
</TABLE>
18.5 In the event one or more of the provisions of this Agreement are
found to be invalid, illegal or unenforceable by a court with jurisdiction, the
remaining provisions shall continue in full force and effect.
18.6 The obligations of the parties under this Agreement (other than
the obligation to make payments) shall be suspended to the extent a party is
hindered or prevented from complying therewith because of labor disturbances
(including strikes or lockouts), war, acts of God, fires, storms, accidents,
governmental regulations, failure of telecommunications vendors or suppliers,
or any other cause whatsoever beyond a party's control. For so long as such
circumstances prevail, the party whose performance is delayed or hindered shall
continue to use all commercially reasonable efforts to recommence performance
without delay and shall declare a disaster under its Disaster Recovery Plan.
18.7 Each party shall have the right to include the other party's name
on its customer or vendor list and to disclose the nature of the services and
products provided under this Agreement, so long as such services and products
are accurately represented; provided, however, that neither party has the right
to use the other's name, trademarks or trade names for other advertising, sales
promotion, or publicity purposes without the other's prior written consent.
18.8 During the term of this Agreement, neither party will solicit or
attempt to hire any individual who is then currently an employee of the other
party or who has been an employee of the other party within the six months
prior to the solicitation or hiring, without the other party's prior, written
consent. This paragraph 18.8 shall
17
<PAGE> 18
only apply to individuals who, in the case of Healtheon, have performed
services for United under this Agreement or worked in connection with the
Network Software or the Licensed Materials, or who, in the case of United, have
worked with Healtheon or received services from Healtheon, on behalf of United.
18.9 Healtheon agrees to use commercially reasonable efforts to abide
by the terms of the Statement attached as Exhibit L, to the extent applicable
to Healtheon's performance of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
UNITEDHEALTHCARE SERVICES, INC. HEALTHEON CORPORATION
By /s/ By /s/
---------------------------------- ---------------------------------
Title Title
------------------------------- -----------------------------
Date Date
-------------------------------- ------------------------------
18
<PAGE> 19
EXHIBIT LIST
Exhibit A: Managed Plans
Exhibit B: Licensed Materials
Exhibit C: Development Work in Progress
Exhibit D: Reports
Exhibit E: Escrow Agreement
Exhibit F: Network Maintenance and Support Services
Exhibit G: Security
Exhibit H: Transactions
Exhibit I: Performance Standards and Methods of Measurement
Exhibit J: United Operating Environment
Exhibit K: List of Third-party Vendors
Exhibit L: EEO Statement
Exhibit M: Pricing
Exhibit N: List of Processing Systems
Exhibit O: Disaster Recovery Plan
Exhibit P: Healtheon Market Sites
Exhibit Q: Transition Agreement
19
<PAGE> 20
EXHIBIT A
MANAGED PLANS
- - - - - -
- - - - - - PHP, Inc. (Michigan
- PHP of Mid Michigan
- PHP of South Michigan
- PHP of Southwest Michigan
- PHP of West Michigan
- - - - - - PHP of South Carolina
- - - - - -
- - - - - -
- - - - - - Allina
20
<PAGE> 21
EXHIBIT B
LICENSED MATERIALS
<TABLE>
<CAPTION>
Right to Right to
Reproduce Modify
<S> <C> <C>
* User Manual, versions 2.1, 2.2.5, and 2.61 No No
Portal Specifications No No
- - - - - - Communications Interface Document
- - - - - - HCFA Claim Validations
- - - - - - HCFA National Standard Format Claims
- - - - - - ANSI X12 837 Claims Format
- - - - - - Implementation Guide for Claims
- - - - - - ANSI X12 835 Electronic Remittance Advice
- - - - - - UB92 Hospital Claim Format
- - - - - - DOS Command Line Routines
- - - - - - UNIX Command Line Routines
Training Materials
- - - - - - Version 2.61 Demo Disks and CSI Demo Disks No No
- - - - - - ProviderLink Training Manual No No
Network: EDI TCP/IP Interface Specification No No
Promotional Material
- - - - - - ProviderLink Brochure No No
- - - - - - ProviderLink Send Back Card No No
</TABLE>
- - - - - - Healtheon will, upon request from UHC, identify UHC as the sponsor and
promoter of these materials.
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<PAGE> 22
EXHIBIT C
DEVELOPMENT WORK IN PROGRESS
Attached is a list of uncompleted projects in the Healtheon Queue Management
which shall be completed in accordance with their terms. Any development work
not listed below will be mutually agreed to in a Statement of Work.
<TABLE>
<CAPTION>
PROJECT PROMOTION DATE COST ESTIMATE
- - - - - ------- -------------- -------------
<S> <C> <C>
H14 Rhode Island Middleware Project 11/1/1999 $[*]
H44 Single Payer ID - UNET Insured Address 11/25/1999 $[*]
H44 Single Payer ID - COSMOS Insured ID 10/7/1999 $[*]
H44 Single Payer ID - COSMOS Referral Provider 11/4/1999 $[*]
DOS 2.6.2 Upgrade Assistance Project 10/31/1999 $[*]
</TABLE>
This exhibit does not include previously invoiced development work, projects
completed prior to October 15, 1999, or projects for which Statements of Work
have not been executed as of 10/15/1999.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
22
<PAGE> 23
EXHIBIT D
REPORTS
Reports Healtheon will provide to United
The following reports will be provided to United from Healtheon on a routine
schedule as indicated.
- - - - - - Orbit reports
Three monthly core operating reports, for each market, will be sent to
each health plan lead ProviderLink/EDI representative and a central
United corporate resource. (Available electronically or on paper as
requested.)
<TABLE>
<S> <C>
- - - - - - UNI Access Status Report Monthly
- - - - - - Monthly Detail Transaction report by source UNI Monthly
- - - - - - Monthly Detail Transaction report by Destination Market Monthly
- - - - - - Intercompany billing detail reports for use in determining allocation of transaction expensed to the proper health
plan or business unit.
- - - - - - Summary of fees by health plan detailed by plan and DIV Monthly
- - - - - - Intercompany Billing Details-site fees, mail and ERA transactions Monthly
- - - - - - Intercompany Billing Details-transaction charges Monthly
</TABLE>
- - - - - - Performance Reports
Healtheon will provide United with monthly Performance Reports as
defined in Exhibit I of this agreement.
Reports United will provide to Healtheon
These reports will include data from health plans centralized on COSMOS, those
plans with decentralized United host systems including, but not limited to,
Complete, Ramsay, UHC Illinois, etc., and all ex-MetraHealth systems including
the previous Travelers and Met Life systems.
UHC will provide a resource to coordinate the assembly of this data and will
serve as the contact for all questions regarding these reports.
<TABLE>
<S> <C>
- - - - - - Membership data by health plan or market provided on paper or electronically where available. Monthly
- - - - - - Claims receipts or processed claims, for all commercial UnitedHealth plans or markets, offices Monthly
or systems, including the total volume of claims received electronically by
month and year-to-date, if available, actual penetration percentages by
plans, market, offices or systems, and desired percentage of electronic
claim receipts.
- - - - - - Decision Support System (DSS) Data will be extracted from UHC health plans Quarterly
and markets to support the market analysis done by Healtheon and
for the prioritization of target providers and potential prospects.
- - - - - - Physician and Hospital claims volume data for each health plan/market by Monthly
Provider Number and/or submitting Entity Tax ID including:
- - - - - - Total claims volumes received by each provider/tax ID
- - - - - - Volume received electronically (EDI) by each provider/tax ID
- - - - - - Volume received on tape/other by each provider/tax ID, if applicable and available
- - - - - - Electronic data to be determined in the future to support the analysis of new transactions as As agreed
mutually agreed by both parties.
- - - - - - Strategic information from United related to EDI growth goals and Quarterly
objectives by health plan/market will be provided to Healtheon
as needed. This will include pertinent project plans and other material/
documentation that will assist Healtheon to enhance and increase electronic
transactions for United.
</TABLE>
23
<PAGE> 24
EXHIBIT F
NETWORK MAINTENANCE AND SUPPORT SERVICES
Healtheon will provide United with the following Network maintenance services
which will be performed by Healtheon staff not dedicated to United enhancements.
The cost of these maintenance services is included as a part of the Transaction
and Site fees, and include:
- - - - - - Correction of identified system bugs in the network hardware or
application;
- - - - - - Changes and modifications to the Healtheon hardware, application and
network required to manage scalability and capacity issues associated with
increased transaction volumes;
- - - - - - Changes required to maintain service level commitments as identified in
Exhibit I;
- - - - - - Help Desk services as defined in Exhibit I, including appropriate staffing,
call response time, escalation procedures, reporting, availability,
severity levels, problem log tracking and problem resolution, etc;
- - - - - - Maintaining the ORBIT system and accurately performing the provider
registration process on ORBIT to include the assignment of site and Tax
ID's;
- - - - - - User Security set up and processing;
- - - - - - Marketing Group Product Support for maintenance of a computerized defect
control system problem log to include ongoing discussions between the Help
Desk personnel and the Healtheon development staff to communicate customer
needs and reactions to daily activity;
- - - - - - Plan Rep Training for all current and future owned or managed plans as well
as United corporate staff;
- - - - - - Plan Rep and Corporate training will be conducted at Healtheon locations
unless alternate locations are mutually agreed upon by both parties;
- - - - - - Maintenance, monitoring and reporting of network and communication systems
regarding stability and performance as specified in Exhibit D;
- - - - - - Multi-Payer and Vendor technical and administrative support to insure
collection and transmission of maximum volumes of electronic claims to
United; Infrastructure will be upgraded by Healtheon as needed to
accommodate provider transactions to United;
- - - - - - Maintenance and appropriate connectivity to United host systems to maintain
security provisions and data integrity of United transactions;
- - - - - - Administer and maintain license agreement procedures with providers
assuring appropriate signatures and approvals from United providers;
- - - - - - Provide routine, updated application and network documentation for United
sites;
- - - - - - Maintain the network and application to assure data integrity of
transactions;
- - - - - - Maintenance of releases shall be defined to include any emergency releases
issued by Healtheon;
- - - - - - Technology upgrades to the Healtheon hardware, network, and/or application
(to include such things as fault tolerance products and services) will be
included as part of ongoing maintenance;
- - - - - - Provide ongoing support of and communication with the health plan
representatives on electronic commerce issues;
- - - - - - Provide monthly billing detail by health plan, and in the aggregate, for
all transaction activity.
24
<PAGE> 25
EXHIBIT G
HEALTHEON PROVIDERLINK SECURITY
Function Objective
To provide adequate data security given the confidential nature of the data and
the types of transactions performed on the Healtheon ProviderLink network.
Security related to Healtheon ProviderLink is made up of multiple components:
workstation security, network security, and host security. This document will
concentrate on workstation and network security.
Function Features
Data Ownership
The Healtheon ProviderLink network is a system that enables communication
between a health care provider's place of business and payer host systems. While
the Healtheon ProviderLink network enables the flow of data between these
entities, it "owns" none of the data.
Workstation Security
Healtheon ProviderLink sites are identified by site ID. This site ID is used by
the Healtheon ProviderLink network to control access. A provider's office will
install site security when installing the Healtheon ProviderLink application
software. In early versions of ProviderLink, this consisted of a hardware dongle
device with hardwired site ID. With the more recent versions of the Healtheon
ProviderLink application, "SoftLock" is used. The "SoftLock" process writes the
site ID to a physical sector on the hard disk, then writes the address of that
sector into each Healtheon ProviderLink application executable for decoding.
A user ID is used within the Healtheon ProviderLink application to locally
control access to functionality. When the Healtheon ProviderLink application
software is installed, a default administrator user ID is established. It is the
responsibility of the site administrator to define workstation user IDs and
passwords, and the functions each can access. This allows the site to control
who has access to which functions of Healtheon's ProviderLink network, but only
the site ID is used to control access within the network.
Network Security
The Healtheon ProviderLink network will use the ORBIT tool to manage security.
Healtheon network security administrators will be responsible for registering
provider sites. When registering a site, the transactions as site can perform
and the payers that the transaction can be performed with are granted. The
administrators also register sites and providers with some of the payer host
systems accessed via Healtheon ProviderLink.
The Healtheon ProviderLink network makes a call to the security gatekeeper with
every transaction after the point of entry into the Healtheon ProviderLink
network. The gatekeeper will return whether a site is authorized to perform the
requested transaction or not.
In addition, the functional software servers that make up the Healtheon
ProviderLink real-time network use as software ticketing scheme to control
access. Each functional server downstream from the gatekeeper call will check to
ensure that a valid ticket is passed as part of the call. In this manner,
Healtheon controls access to a tightly defined path; in effect, if a party knows
the internal structure of the Healtheon ProviderLink network, the party still
cannot bypass the security module to gain access to functionality.
25
<PAGE> 26
Host Security
In general, host security is left up to the business partner that "owns" the
host. As necessary, the Healtheon ProviderLink network will provide information
to the host system to satisfy the security requirements.
In the case of COSMOS, Healtheon ProviderLink site IDs are associated with
Unisys user IDs. Also associated with each Unisys user ID are transaction codes
(tran codes) and UHC provider IDs. When transactions are performed to COSMOS,
the site ID is converted to a Unisys user ID; then the user ID and tran code are
checked to ensure access is allowed. For provider sensitive transactions
(referrals, claim status, etc.), the provider association is also verified.
26
<PAGE> 27
EXHIBIT H
TRANSACTIONS
(1) PROFESSIONAL CLAIMS, INSTITUTIONAL CLAIMS, AND ENCOUNTERS (collectively
referred to as "Claim Transactions"): Claim Transactions are requests
for payment for services rendered or in the case of Encounters
submitted with the same data for informational purposes. Providers
submit Claim Transactions to the Network for transmission to the
Processing Systems. Providers receive validation and acknowledgement
reports from the Network indicating the status of the Claim
Transactions as it is routed through the Network and to the Processing
Systems. A single Claim Transaction and the associated validation and
confirmation reports are considered a single Claim Transaction.
(2) REAL-TIME CLAIM STATUS INQUIRY
This Transaction allows a Provider to submit an electronic request for
information regarding the status of a Claim and receive a response. The
request and response pair are a single Transaction.
(3) REAL-TIME ELIGIBILITY & BENEFITS INQUIRY:
This Transaction allows a user to submit an electronic request for and
receive a response containing verification of a member's eligibility
and selected benefit information. The request and response pair are a
single Transaction.
(4) REFERRAL AND AUTHORIZATIONS
Referrals and Authorizations are requests from Providers to United
procedural, inpatient, or specialist visit authorization as required
under certain managed care products. This Transaction allows a user to
submit Referrals and Authorizations electronically through the Network
to United for processing or to delete submitted referrals and
authorizations that are pending. Many of these Transactions include a
response from the Processing System to indicate the parameters of the
authorization and give the Provider an authorization number.
(5) REFERRAL AND AUTHORIZATION INQUIRY
This Transaction allows a user to submit a submit an inquiry and
receive a response on the status of a previously submitted Referral or
Authorization.
(6) PROVIDERLINK MAIL/FAX
This Transaction allows a user to receive and send electronic mail
messages and facsimiles to the other users of the Network (e.g. claims
adjustments to the processing centers). These Transactions are billed
to the sender. One Transaction equals 5K of text.
(7) PROVIDER DIRECTORY
This Transaction allows a Provider to conduct an on-line provider
look-up and to request provider demographic information by specialty.
Each search is a Transaction.
(8) ELIGIBILITY ROSTERS
Eligibility rosters are the electronic distribution of member files or
listings to capitated Providers for the purpose of indicating the
membership for which a particular capitated Provider has
responsibility. Each file distributed is considered a single
Transaction.
(9) ELECTRONIC PROVIDER REMITTANCE ADVICE ("EPRA")
Electronic Provider Remittance Advices are files containing Explanation
of Benefits information distributed by United to Providers for the
purpose of communicating the results of the Claims adjudication
process. Each EPRA file is a separate Transaction.
27
<PAGE> 28
(10) BATCH ELIGIBILITY & BENEFITS INQUIRY
This Transaction allows Providers to submit Eligibility and Benefit
Inquiries in a flat file or ANSI 270 format to the Network and receive
responses in a later communication session in either a flat file or
ANSI 271 format. Each member record searched is considered a
Transaction. (Note: This Transaction is not a current capability of the
Network.)
(11) BATCH CLAIMS STATUS INQUIRY
This Transaction allows Providers to submit Claim Status Inquiries in a
flat file or ANSI 276 format to the Network and receive responses in a
later communication session in either a flat file or ANSI 277 format.
Each separate inquiry is considered a Transaction. (Note: This
Transaction is not a current capability of the Network.)
(12) ANSI X12 834 Enrollment
These Transactions allow employers or governmental entities to submit
individual and/or family data in an ANSI 834 file format through the
Network to United for purposes of enrolling the members. Each file is
considered a separate Transaction. (Because the 834 transaction is not
a provider transaction, Healtheon performs the 834 as a Network Service
on a non-exclusive basis.)
28
<PAGE> 29
EXHIBIT I
Performance Standards and Methods of Measurement
The purpose of this exhibit is to establish the Performance Standards and
methods of measurement required by UnitedHealth Group for Healtheon to meets the
obligations as specified in Section 10 of the Agreement.
The Performance Standards are divided into several categories. Each category
defines a major functional aspect of the delivery of EDI Transactions via the
Network. Within each category are individual elements, which more specifically
establish Performance Standards and the methods of measurement.
Each Performance Standard has three levels of performance:
1. STANDARD - The minimum level of performance required by the Agreement.
2. BELOW STANDARD - A level that is less than standard but not considered
critical to the operation of the network.
3. CRITICAL - A level that significantly impacts the operation of the
Network.
Performance standards will be reviewed on a monthly basis, by designated
representatives for both parties. Healtheon will report the results to
UnitedHealth Group by no later than the 10th working day following the end of
the month (will reassess time lines based on final report package and
distribution). On a quarterly basis the Performance Standards will be reviewed
in accordance with Section 10 and revised as necessary for the purpose of
measuring performance for the following quarter.
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<PAGE> 30
1.0 PERFORMANCE CATEGORY: NETWORK
The ProviderLink Network will be available 24 hours a day, 7 days a week with
the exception of Planned Downtime Hours.
<TABLE>
<CAPTION>
PERFORMANCE ELEMENTS STANDARD BELOW STANDARD CRITICAL
- - - - - -------------------- -------- -------------- --------
<S> <C> <C> <C>
1.1) NETWORK AVAILABILITY (ALL TRANSACTIONS) (SEVERITY LEVEL 1)
Objective: To ensure the availability of the ProviderLink Host
Network including ESN, CBP, ORBIT, MHS (Mail) VRUs, and PLNET
components, and in aggregate. Server availability will be
measured until such time that transaction availability can be
measured and reported:
1.1.1) ESN
1.1.2) CBP [*]% [*]% -[*]% <[*]%
1.1.3) ORBIT [*]% [*]% -[*]% <[*]%
[*]% [*]% -[*]% <[*]%
1.1.4) PLNET [*]% <[*]%
1.1.5) VRUS (DISCONTINUED 9/30/99) [*]% -[*]%
Network Availability is measured as the number of actual hours
available as a percentage of total available hours. The
following definitions are used for calculating the
availability measurement:
1.1.A) DEFINED HOURS are the total days in the month
multiplied by 24 hours.
1.1.B) PLANNED DOWNTIME HOURS are the planned and published
hours that any system is down for routine maintenance and
change requests or other planned outages during non-business
hours (business hours = 7am-7pm workdays). Change requests
require 10 business days advance notice and must be approved
by a UnitedHealth Group request team.
1.1.C) AVAILABLE HOURS are the Defined Hours minus the Planned
Downtime Hours, minus Mutually Agreed Unplanned Downtime Hours.
1.1.D) UNPLANNED DOWNTIME HOURS are the unplanned hours of
downtime experienced during the month.
1.1.E) MUTUALLY AGREED UNPLANNED DOWNTIME HOURS are emergency
unplanned downtime hours to correct Network Availability or
other problems, and are mutually agreed without 10 business
days lead time by UnitedHealth Group change request team and
Healtheon.
1.1.F) ACTUAL HOURS are the Available Hours minus Unplanned
Downtime Hours.
1.1.G) AVAILABILITY PERCENTAGE is determined by dividing the
Actual Hours by Available Hours and multiplying the result by 100.
1.1.H) BUSINESS AVAILABILITY is determined by dividing the Actual
Hours by Available Hours (excluding Mutually Agreed Unplanned
Downtime) and multiplying the result by 100.
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
30
<PAGE> 31
<TABLE>
<CAPTION>
PERFORMANCE ELEMENTS STANDARD BELOW STANDARD CRITICAL
- - - - - -------------------- -------- -------------- --------
<S> <C> <C> <C>
1.2) DEDICATED CIRCUIT CONNECTIVITY (SEVERITY LEVEL 1) [*]% [*]% -[*]% <[*]%
Objective: To ensure the communication circuit performance is
jointly monitored and improved via joint problem
identification and resolution.
UnitedHealth Group and Healtheon will agree to standards and
methods to measure the performance of dedicated
telecommunication circuits (Frame Relay; T1, etc.) between
UnitedHealth Group and Healtheon.
1.2.1) CIRCUITS BETWEEN UNITEDHEALTH GROUP and Healtheon
(COSMOS, UNET, UHCI, Primecare, UHCM)
1.2.2) CIRCUITS BETWEEN HIGH-VOLUME VENDORS and Healtheon
(DISC, Spacestar, Med Power, Health Care Interchange)
1.2.3) CIRCUITS BETWEEN HIGH-VOLUME TRADING PARTNERS and
Healtheon (Fairview Hospital)
- - - - - ---------------------------------------------------------------------------------------------------------------------------
1.3) DIAL-IN MODEM CONNECTIVITY (ALL TRANSACTIONS) (SEVERITY
LEVEL 1)
Objective: To ensure that modem performance and capacity meet
demand.
1.3.1) HDMS. Modem to modem calls received by the Healtheon [*]% [*]% -[*]% <[*]%
Network will be answered. The modem connectivity performance
is measured by statistics generated from the HDMS modem rack
network controller (inclusive of 14.4 and 28.8 bank of modems).
1.3.2) DIAL TEST. A dial test will also be conducted to
randomly simulate dial-in experience. [*]% [*]% -[*]% <[*]%
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
31
<PAGE> 32
<TABLE>
<CAPTION>
PERFORMANCE ELEMENTS STANDARD BELOW STANDARD CRITICAL
- - - - - -------------------- -------- -------------- --------
<S> <C> <C> <C>
1.4) Real-time Transaction Success Exclusive of United Health
Group Processing System (Severity Level 1, 2, or 3)
Objective: To monitor Real-time Transaction Success to proactively identify
and resolve problems. Real-time Transaction Success will be measured with the
December 1998 Successful Submission metric until replaced. Successful Submission
measures the % of real-time transactions that return a successful response
exclusive of UnitedHealth Group Processing System performance (eligibility,
referrals, etc.). As new transactions are added, performance standards will be
defined. A successful transaction may include data errors, UnitedHealth Group
Processing System errors, and other non-Network errors.
TRANSACTIONS
1.4.1) ELIGIBILITY
1.4.2) CLAIM STATUS INQUIRY
1.4.3) REFERRAL STATUS INQUIRY [*]% [*]% -[*]% <[*]%
1.4.4) REFERRAL ADD [*]% [*]% -[*]% <[*]%
1.4.5) REFERRAL INQUIRY [*]% [*]% -[*]% <[*]%
1.4.6) REFERRAL DELETE [*]% [*]% -[*]% <[*]%
1.4.7) PROVIDER LOOK-UP [*]% [*]% -[*]% <[*]%
1.4.8) PASSWORD CHANGE [*]% [*]% -[*]% <[*]%
[*]% [*]% -[*]% <[*]%
[*]% [*]% -[*]% <[*]%
FILE TRANSFERS
1.4.9) CLAIMS UPLOAD
1.4.10) PROVIDER DATA DIRECTORY
1.4.11) MAIL UPLOAD [*]% [*]% -[*]% <[*]%
1.4.12) MAIL DOWNLOAD [*]% [*]% -[*]% <[*]%
1.4.13 MAIL FIND FIRST, NEXT, ACKNOWLEDGEMENT [*]% [*]% -[*]% <[*]%
[*]% [*]% -[*]% <[*]%
[*]% [*]% -[*]% <[*]%
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
32
<PAGE> 33
<TABLE>
<CAPTION>
PERFORMANCE ELEMENTS STANDARD BELOW STANDARD CRITICAL
- - - - - -------------------- -------- -------------- --------
<S> <C> <C> <C>
1.5) CLAIMS TRANSACTION PROCESS (SEVERITY LEVEL 1, 2, OR 3) [*]% within [*]% within [*]% within
Objective: To ensure timely end-to-end audit of the claim [*] wall clock [*] to [*] [*] wall
process. Daily problem report logs will be used to monitor hours wall clock clock hours
performance until systematic measurement capabilities are in hours
production. Healtheon implement systematic measurement
capabilities no later than 4/1/2000.
END-TO-END PROCESSING, as measured from claims file pull from
the point that the file is in the Healtheon system to the Payer
Report (Acknowledgments and/or Status Reports from UHC Processing
Systems) into Submitter's mailbox, will be used for purposes of
Performance Standard Compliance. Standards will be defined by
UnitedHealth Group Processing System Platform (UNET; COSMOS). The
following sub-elements will not be used for Performance Standard
Compliance, but will be used to monitor, control, and improve
end-to-end processing performance:
1.5.A) SUCCESSFUL INBOUND CLAIM file from Submitter to [*]% [*]% within [*]%
Healtheon as measured from time of submission to creation of < [*] [*] to [*] > [*]
the Claim Submission Report (CSR) and its placement in wall clock wall clock wall clock
Submitter's mailbox. hours hours hours
1.5.B) SUCCESSFUL OUTBOUND FILE TRANSFER from Healtheon to [*]% [*]% within [*]%
UnitedHealth Group Processing System (all platforms) as < [*] [*] to [*] > [*]
measured when the tank file or batch file prep is generated wall clock wall clock wall clock
until payer system acknowledgement of receipt. hours hours hours
1.5.C) SUCCESSFUL UNITEDHEALTH GROUP PAYER validation as [*]% [*]% within [*]%
measured from acknowledgement of receipt to time when < [*] [*] to [*] > [*]
UnitedHealth Group report received by Healtheon. wall clock wall clock wall clock
hours hours hours
1.5.D) SUCCESSFUL OUTBOUND CLAIM ACKNOWLEDGEMENT from [*]% [*]% within [*]%
Healtheon to Submitter as measured from when payer report < [*] [*] to [*] > [*]
(Acknowledgements and/or Status Reports from UHC Processing wall clock wall clock wall clock
Systems) is received by Healtheon to when report is parsed hours hours hours
and delivered to the Submitter's mailbox (includes Healtheon
Claim Submission Report.)
1.5.E) SUCCESSFUL OUTBOUND CLAIM ACKNOWLEDGEMENT from
Healtheon to Submitter as measured from when payer report is
received by Healtheon to when report is parsed and delivered
to the Submitter's mailbox via Consolidated Payer Report.
Submitters who select to use the Consolidated Payer Report
have the option to extend the delivery schedule beyond the
standard 24 hour guideline.
- - - - - - Option 1 - Every business day [*]% within 1 [*]% within [*]% > 2
business day 2 business business days
days
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
33
<PAGE> 34
<TABLE>
<CAPTION>
BELOW
PERFORMANCE ELEMENTS STANDARD STANDARD CRITICAL
- - - - - -------------------- -------- -------- --------
<S> <C> <C> <C> <C>
- - - - - - Option 2 - Every second business day [*]% within 2 [*]% within [*]% > 3
business days 3 business business days
days
[*]% within 3 [*]% within [*]% > 4
- - - - - - Option 3 - Every third business day business days 4 business business days
days
[*]% within 4 [*]% within [*]% > 5
- - - - - - Option 4 - Every four business days business days 5 business business days
days
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
34
<PAGE> 35
2.0 PERFORMANCE CATEGORY: DATA INTEGRITY
Healtheon will uphold the highest standard of integrity with regard to the
transmission and processing of transactions, reporting performance and service.
<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
BELOW
PERFORMANCE ELEMENTS STANDARD STANDARD CRITICAL
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
2.1) DATA INTEGRITY (SEVERITY LEVEL 1) [*]% [*]% - <[*]%
Objective: To ensure that information received by Healtheon is [*]%
accurately translated, validated, and formatted according to
jointly approved specifications.
UnitedHealth Group will develop a measurement process
using random audits to measure data integrity throughout the
entire process (inbound and outbound). Until this
measurement system is implemented, this category will not
be reported.
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
2.2) CLAIM SUBMISSION EDITS
Objective: To ensure that the claim submission edits are
efficiently and effectively directing claims to the appropriate
UnitedHealth Group host processing system.
The following sub-elements will be tracked, however
Healtheon will not be held to specific Performance Standards
other than adherence to mutually agreed validations.
Performance thresholds will be established based on review
of beta test performance.
2.2.1) Percentage of claims rejecting at
Healtheon's Claim Submission Report TBD by TBD by TBD by
11/15/99 11/15/99 11/15/99
2.2.2) PERCENTAGE OF DUPLICATE CLAIM FILE SUBMISSIONS [*]% [*]% - [*]% <[*]%
Performance and standards established based on effective effective effective
implemented duplicate submissions criteria. Objective: 11/15/99 11/15/99 11/15/99
Eliminate duplicate file submissions. Healtheon will
establish effective procedures and duplicate file detection
edits to prevent the retransmission of a file by Third party
Vendors or by virtue of its own internal claim file generation
process. Measurement will be based on files containing any
number of claim records, according to jointly approved
specifications.
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 36
3.0 PERFORMANCE CATEGORY: HEALTHEON PROVIDERLINK CUSTOMER SERVICE & HELP DESK
Users and UnitedHealth Group agree to call the Healtheon ProviderLink Help Desk
at 612-512-2600 or 1-800-446-8279 for all problem resolution when concerns
cannot be resolved by UnitedHealth Group. The Healtheon ProviderLink Help Desk
will be available from 7:00 a.m.-7:00 p.m. CST, Monday through Friday,
excluding holidays. Voice mail is available for after hour calls. Messages left
on voice mail or email will be responded to within [*] business hours. Messages
left after business hours will be retrieved the following business day and
returned in [*] business hours.
<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
BELOW
PERFORMANCE ELEMENTS STANDARD STANDARD CRITICAL
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
3.1) PERCENT OF HELP DESK CALLS ANSWERED WITHIN 30 [*]% [*]% - [*}% <[*]%
SECONDS OF FIRST RING
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
3.2) AVERAGE SPEED TO ANSWER CALLS - from first ring to live [*] seconds [*] -[*] > [*]
voice to assist caller (not place caller on hold) or less seconds seconds
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
3.3) CALL ABANDONMENT RATE [*]% [*]% - [*]% > [*]%
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
3.4) CALLS MONITORED PER HELP DESK REP. PER MONTH [*] calls [*]-[*] calls < [*] calls
(not to be less than [*]% of calls per month)
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
3.5) CALL BLOCKAGE RATE (BUSY SIGNAL) TBD TBD TBD
Baseline and performance standards will be determined
based on blockage reports from U.S. West
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE> 37
4.0 PERFORMANCE CATEGORY: PROBLEM REPORTING & RESOLUTION
A monthly problem log utilizing the severity classifications and indicating
resolution times for each call received will be tracked and reported by
Healtheon no later than [*] business days following month end. Utilizing the
Healtheon ProviderLink Help Desk computerized problem management tool, the
following information will be recorded on each call to the help desk or problem
identified:
- - - - - - Site ID
- - - - - - Site Name
- - - - - - Caller Name
- - - - - - Caller Phone Number
- - - - - - Health Plan
- - - - - - Call Recipient
- - - - - - Date and Time Ticket Opened
- - - - - - Date and Time Ticket Closed
- - - - - - Call Duration
- - - - - - Severity Level
- - - - - - Problem Definition Code
- - - - - - Problem Resolution Code
- - - - - - Call Status
The Healtheon ProviderLink Help Desk will attempt to accommodate any request
for additional information as long as the collection of the information does
not add significant time and effort in logging the call. The Healtheon
ProviderLink Help Desk statistics will be reported to UnitedHealth Group on a
routine basis. UnitedHealth Group claim status inquiry calls will be referred
to UnitedHealth Group for tracking and resolution.
SEVERITY CLASSIFICATION:
The Healtheon Help Desk will perform the following severity classification and
resolution procedures for provider, vendor and UnitedHealth Group callers. The
severity classification will be internally reviewed for accuracy. For problem
resolution performance, Business Hours are defined as 7:00 a.m.-7:00 p.m. CST,
Monday through Friday, excluding holidays. Wall-Clock Hours are 24 hours per
day, seven days per week.
<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
BELOW
PERFORMANCE ELEMENTS STANDARD STANDARD CRITICAL
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
4.1) SEVERITY ONE Alert within Alert Alert
Network failure causing total loss of function or creating a [*] minutes between greater than
critical impact to the business process. Healtheon will form a (Wall-clock) [*] to [*] [*] minutes
dedicated Healtheon Crisis Management Team to manage minutes (Wall-clock)
crisis situations as defined by Severity One. The Crisis (Wall-clock)
Management Team will be responsible for coordinating
efforts and communications from the initial report,
throughout the cycle of investigation, determination and [*]% [*]% [*]%
resolution.
Severity One Examples: Resolution Resolution Resolution
- - - - - - Claims cannot be uploaded from the ProviderLink within [*] between [*] greater
Network the COSMOS or UNET hours to [*] hours than [*]
- - - - - - Real Time transactions cannot be performed (Wall-clock) (Wall-clock) hours
- - - - - - The ProviderLink Network is unavailable to customers (Wall-clock)
(vendors and end users)
- - - - - - Severity Two issues not resolved in [*] business
hours or mutually determined to be Severity One
- - - - - ---------------------------------------------------------------- -------------- -------------- --------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
37
<PAGE> 38
<TABLE>
<CAPTION>
- - - - - ---------------------------------------------------------------- -------------- -------------- ---------------
BELOW
PERFORMANCE ELEMENTS STANDARD STANDARD CRITICAL
- - - - - ---------------------------------------------------------------- -------------- -------------- ---------------
<S> <C> <C> <C>
4.2) SEVERITY TWO [*]% [*]% [*]%
The Network is down or delivering degraded service Resolved Resolved Resolved
to a broad class of users, but not halting business functions. within [*] between [*] greater than
Acceptable resolution may be problem turnover to Business and [*] [*] Business
UnitedHealth Group or vendor or trading partner. Hours Business Hours
Hours
Severity Two Examples:
- - - - - - A single transmission method, for example, the BBS,
is down UnitedHealth
- - - - - - Claims cannot be uploaded from the ProviderLink Group
Network to UnitedHealth Group proprietary systems notification
- - - - - - Reports are not being distributed to a class of via daily
submitter problem
- - - - - - Data mapping errors tracking
- - - - - - Connection to a single vendor or clearinghouse report
(produce a list of large vendors/clearinghouses that
should be S-1)
- - - - - - Voice Response Unit down
- - - - - - UnitedHealth Group host databases not available
- - - - - ---------------------------------------------------------------- -------------- -------------- ---------------
4.3) SEVERITY THREE [*]% [*]% [*]%
A function within the Network does not perform according to Resolved Resolved Resolved
specification. The non-conformance is impacting a single site within [*] between [*] greater than
or a very small class of users or otherwise having a Business Business [*] Business
minimal impact to the business. Acceptable resolution may Hours Hours and Days
be turn over of responsibility for problem resolution to [*] Business
UnitedHealth Group, a vendor or trading partner. Days
Severity Three Examples
- - - - - - A provider/billing service batch of claims cannot be
uploaded (cannot be resolved in less than 24 hours)
- - - - - - A provider cannot connect to the ProviderLink network
to perform real-time transactions
- - - - - - A ProviderLink site is having difficulty downloading
mail
- - - - - - A ProviderLink site is receiving intermittent errors
when performing real-time transactions
- - - - - ---------------------------------------------------------------- -------------- -------------- ---------------
4.4) SEVERITY FOUR Review
Functions of the Network are operating. Caller's issue has Statistics
little or no impact on business. Resolution time is variable, Quarterly
however, Healtheon may incorporate non-critical bugs into
the subsequent releases of the software and/or process.
Severity Four Examples:
- - - - - - Verifying that claim batches were processed
- - - - - - Suggestions for enhancements or modifications to the
system
- - - - - - Training on product functionality
- - - - - ---------------------------------------------------------------- -------------- -------------- ---------------
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
38
<PAGE> 39
5.0 CATEGORY: PRODUCT PLANNING
- - - - - - Healtheon will provide quarterly updates outlining product strategy to
UnitedHealth Group.
- - - - - - Healtheon will solicit customer feedback through focus groups and
customer surveys on an annual basis.
6.0 CATEGORY: SERVICE DELIVERY
- - - - - - Project cycle time - delivery deadlines based on requirements
definition and mutually agreed Statements of Work. Financial penalties
associated with service delivery would only be those stipulated in a
specific mutually agreed statement of work.
- - - - - - Delivery of Reports in Exhibit D
7.0 CATEGORY: SYSTEMS CHANGE CONTROL
Performance standards for change control processes related to application
maintenance and enhancement releases will be mutually agreed to by UnitedHealth
Group and Healtheon within 30 days after the effective date of this agreement.
8.0 CATEGORY: SYSTEM ENHANCEMENTS DOCUMENTATION
Any new changes in functionality to ProviderLink products or services will be
documented and made available to Health Plans, Providers and Vendors within 5
business days of software release or as stated in the Statement of Work. This
is inclusive of modifications due to UnitedHealth Group COSMOS or UNET
releases, ProviderLink Network upgrades, ProviderLink for DOS or ProviderLink
Net enhancements, modifications or a combinations thereof.
9.0 CATEGORY: OPERATIONAL CONTROLS
Objective: Establish operational controls that insure systems development,
operations maintenance, customer satisfaction, and submitter performance is
managed to deliver the goals, objectives and timeframes mutually agreed to
between Healtheon and UnitedHealth Group. The elements within this category may
be modified or expanded in conjunction with new objectives or system
enhancements that are put into the operations of the Healtheon Products and
Network. Healtheon will be expected to demonstrate that operational controls
are in place and are effectively improving Network performance on a quarterly
basis.
9.1 Conduct Provider Satisfaction Surveys no less frequently than annually and
utilize results to enhance system performance and functionality.
9.2 Analyze and report utilization of non-claim transactions as a percent of
claims transactions.
9.3 All new third party vendors and national trading partners submitting to the
Healtheon Network must go through the certification process which requires a
minimum [*]% Healtheon acceptance rate. Healtheon will contractually obligate
third party vendors and national trading partners making field level changes to
re-certify at the same acceptance rate from Healtheon.
9.4 Demonstrate the Member Locator file is updated on a timely basis. [*]%
acknowledgement and confirmation of a successful update within [*] business day
of receipt of data from UnitedHealth Group in the same format.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
39
<PAGE> 40
EXHIBIT J
UHC OPERATING ENVIRONMENT
(a) UHC will provide a WAN capable of routing TCP/IP communications
between Healtheon and UHC Corporate.
(b) UHC will provide the asynchronous communications supporting
communications traffic between Healtheon, PrimeCare, and all UHC
health plans and business units or outsourced systems requiring
connectivity.
(c) UHC will provide the communications equipment necessary to support (a)
and (b). UHC will provide CSU/DSUs, FRACs, routers, and modems needed
to support the communications between Healtheon and the UHC WAN.
(d) UHC may establish firewalls and other security measures as appropriate
to control access to the UHC networks.
ATTACHED DIAGRAMS:
In the first diagram, labeled Attachment I, the division of responsibility is
identified by the vertical line. This division of responsibility is depicted in
more detail by the second diagram, labeled "ProviderLink Architecture". In the
second diagram, the cloud which represents the UHC WAN and the 3 large servers
at the bottom of the page (COSMOS, UHCI, PrimeCare, and future connections), are
the responsibility of UHC Corporate. The WAN cloud includes all communications
equipment necessary to connect the Healtheon LAN to the UHC WAN.
40
<PAGE> 41
EXHIBIT K
LIST OF THIRD PARTY VENDORS WHO SUBMIT THROUGH HEALTHEON
- - - - - - [*]
- - - - - - [*]
- - - - - - [*]
- - - - - - [*]
- - - - - - [*]
- - - - - - [*]
- - - - - - [*]
- - - - - - [*]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
41
<PAGE> 42
EXHIBIT L
EEO COMPLIANCE/CODE OF CONDUCT
EQUAL EMPLOYMENT OPPORTUNITY
United strives to maintain a workplace that accepts the differences in
individuals' cultures, ages, ethnicities, genders, physical and mental
abilities and lifestyles.
Also, United will not discriminate against any independent contractor based on
age, race, gender, color, religion, national origin, disability, marital
status, covered veteran status, sexual orientation, status with respect to
public assistance, or any other characteristic protected under state, federal,
or local law.
Harassment and intimidation are recognized forms of discrimination and, as
such, are forbidden. Any independent contractor who harasses or intimidates
another employee, job applicant, vendor, independent contractor or customer
will be subject to disciplinary action up to and including removal from the
assignment and termination of the independent contractor relationship.
SEXUAL & OTHER HARASSMENT
United policy is to provide a work environment that is free from harassment.
Therefore United will not tolerate harassment based on age, race, gender,
color, religion, national origin, disability, marital status, covered veteran
status, sexual orientation, status with respect to public assistance and other
characteristics protected under state, federal or local law. Such conduct is
prohibited in any form at the workplace, at work related functions, or outside
of work if it affects the workplace. This policy applies to all United
employees, independent contractors, clients, customers, guests, vendors and
persons doing business with United.
Sexual harassment, one type of prohibited harassment, has been defined as:
- Unwelcome sexual advances, requests for sexual favors, and
other verbal or physical conduct of a sexual nature when...
- submission to such conduct is made a term or condition,
either explicitly or implicitly, of an individual's
employment;
- submission to or rejection of such conduct by an individual
is used as a factor in decisions affecting that individual's
employment; or
- such conduct has the purpose or effect of substantially
interfering with an individual's work performance or creates
an intimidating, hostile or offensive working environment.
Examples of conduct prohibited by this policy include but are not limited to:
- unwelcome sexual flirtation, advances or propositions
- verbal comments related to an individual's age, race, gender,
color, religion, national origin, disability or sexual
orientation
- explicit or degrading verbal comments about another
individual or his/her appearance
- the display of sexually suggestive pictures or objects in any
workplace location including transmission or display via
computer
- any sexually offensive or abusive physical conduct
- the taking of or the refusal to take any personnel action
based on an employee's submission to or refusal of sexual
overtures
42
<PAGE> 43
- displaying cartoons or telling jokes which relate to an
individual's age, race, gender, color, religion, national
origin, disability or sexual orientation
If you believe that you are being subjected to harassment, you should:
1. If you feel comfortable, tell the harasser that his
or her actions are not welcome and they must stop.
2. Immediately report the incident to your employer,
the manager/supervisor of the department to which you have been assigned, the
site Human Resources representative (HRR) or the Employee Relations Department.
3. If additional incidents occur, immediately report
them to one of the above resources.
Any reported incident will be investigated. Complaints and actions taken to
resolve complaints will be handled as confidentially as possible, given
United's obligation to investigate and act upon reports of such harassment.
Retaliation of any kind against an individual who reports a suspected incident
of sexual harassment is prohibited. An independent contractor who violates this
policy or retaliates against an individual in any way will be subject to
disciplinary action up to and including removal from the assignment and
termination of the independent contractor relationship.
VIOLENCE-FREE WORKPLACE
It is United's policy to provide a workplace that is safe and free from all
threatening and intimidating conduct. Therefore, United will not tolerate
violence or threats of violence in any form in the workplace, at work related
functions or outside of work if it affects the workplace. This policy applies
to all United employees, independent contractors, clients, customers, guests,
vendors, and persons doing business with United.
It will be a violation of this policy for any individual to engage in any
conduct, verbal or physical, which intimidates, endangers or creates the
perception of intent to harm persons or property. Examples include but are not
limited to:
- physical assaults or threats of physical assault, whether
made in person or by other means (e.g., in writing, by phone,
fax or e-mail)
- verbal conduct that is intimidating and has the purpose or
effect of threatening the health or safety of an individual
- possession of firearms or any other lethal weapon on company
property, in a vehicle being used on company business, in any
company owned or leased parking facility or at a work-related
function
- any other conduct or acts which management believes represents
an imminent or potential danger to work place safety/security
United will promptly investigate any reported occurrences or threats of
violence. Violations of this policy will result in disciplinary action, up to
and including removal from the assignment and termination of the independent
contractor relationship. Where appropriate and/or necessary, United will also
take whatever legal actions are available and necessary to stop the conduct and
protect United employees and property.
DRUG-FREE WORKPLACE
United is committed to providing a safe and healthy work place, and minimizing
risks to its employees and to the public. Therefore, independent contractors
are prohibited from the following when reporting for work, while on the job, on
United or customer premises or surrounding areas, or in any United vehicle or
personal vehicle used for company business:
43
<PAGE> 44
- the unlawful use, possession, transportation, manufacture,
sale, or other distribution of an illegal or controlled
substance or drug paraphernalia
- the unauthorized use, possession, transportation,
manufacture, sale or other distribution of alcohol
- being under the influence of alcohol or having a detectable
amount of an illegal or controlled substance in the blood or
urine
NOTE: The term "controlled substance", as used in this policy, means a drug or
other substance as defined in applicable federal laws on drug abuse prevention.
Any independent contractor who violates any of these prohibitions will be
subject to disciplinary action up to and including removal from the assignment
and termination of the independent contractor relationship.
Use of alcohol or other drugs before, during or after work may affect your
performance on the job. Poor job performance, regardless of the cause, may lead
to disciplinary action up to and including removal from the assignment and
termination of the independent contractor relationship.
Any independent contractor convicted under any criminal drug statute for a
violation occurring while on the job, on United or customer premises, or in any
United vehicle must notify United no later than five days after such
conviction.
SMOKING
Smoking is not permitted at any time in United work areas, including United
vehicles or in any customer or client areas. The smoking policy for Buildings'
common areas is determined by each location.
If smoking is allowed outside of the Buildings, smokers should be considerate
of coworkers, customers and members of the public. Help to maintain a clean
entry way by depositing cigarettes in appropriate containers and staying far
enough away from doors so that smoke does not blow into the Buildings.
Employees and independent contractors who smoke must observe the same
guidelines as non-smokers for the frequency and length of break periods.
USE OF UNITED RESOURCES
The use of United materials or facilities for purposes not directly related to
United business, or the removal or borrowing of United property without
permission, is prohibited. Examples include but are not limited to personal
computers, United letterhead, copy machines, telephones and other office
supplies.
USE OF COMPUTER SYSTEMS
United relies heavily on computers to meet its operational, financial, and
information requirements. The computer systems, related data files and the
information derived from them are important assets of the company. A system of
internal controls exists to safeguard these assets. Information will be
processed in a secure environment and all independent contractors share the
responsibility for the security, integrity, and confidentiality of information.
United's computer systems (hardware and software) and the information stored on
them are company property. As an independent contractor, you may be given
access to information stored on these systems. These systems must be used for
company sanctioned purposes and not for personal use. Any interactions with
systems outside of United must be approved by the Data Security area within the
Information Systems Department.
44
<PAGE> 45
The use of personal computers (PCs) and UNIX workstations to process and store
sensitive information is a matter of particular concern. Information processed
and stored on PCs or UNIX workstations must be given the same protection as if
it were on a mainframe system.
Disks containing sensitive information must be stored in a locked location when
not in use. Users must use adequate back up procedures for data and programs
and use controls that assure the integrity and security of the information
contained on United's computers. Backups of information stored on computers
must be made at regular intervals. Only licensed, copyrighted software
purchased by United is permitted to reside on United personal computers.
Independent contractors may not copy United purchased/developed software for
use at home. Any personal computer that has non-United purchased software is
not permitted to connect to any United computer. PCs with shareware or freeware
must be preapproved before connecting to any United computer.
USERCODES AND PASSWORDS
Usercodes and passwords are the usual means to control access to information
systems. Usercodes identify the user to the system and passwords authenticate
that the user is who they claim to be. Usercodes and passwords provide
accountability for each access and for the activities performed. Passwords are
the fundamental safeguards of vital information assets and must never be
shared.
A good password should be easy to remember and hard to guess. Use at least six
characters and combine letters and numbers. Never use your name or names of
relatives, pets, dates or frequently mentioned items. A good way to choose a
password is to take the first letter from every word in a sentence. For
example: IL2DMCF for "I like to drive my corvette fast".
Any disclosure of a password is a violation of security. If you think your
password has been compromised, change it immediately or contact the Data
Security area within Information Systems.
COMMUNICATION SYSTEMS
United's internal mail, telephones, electronic mail, bulletin boards and voice
mail and the information stored on them are company property. Users of these
systems cannot expect that messages will remain private or that they will not
be inadvertently or intentionally disclosed to persons other than the intended
recipients.
These communication systems are to be used for company business and other
company sanctioned purposes. Generally these systems should not be used for
proprietary, confidential, or private information. Examples of inappropriate
use include: activities supporting part time business (e.g., sales of
cosmetics, sports cards, etc.), chain letters, sports pools, notifications of
outside organization meetings and receipt of personal mail at the work place.
United reserves the right to inspect or review all uses of these systems.
Independent contractors violating this policy are subject to disciplinary
action up to and including removal from the assignment and termination of the
independent contractor relationship.
DISPOSAL OF SENSITIVE INFORMATION
It is important that sensitive information be disposed of properly. Anything
marked "Confidential" or "Proprietary" must be securely destroyed. Check with
the supervisor of the area to which you are assigned or the Information
Security Manager within Information Systems about the approved method for
disposing of sensitive information. Some of the methods which may be used are:
- shredding paper documents
- disposing of documents or diskettes in secured waste disposal
cans
- cutting diskettes in half
45
<PAGE> 46
COMMUNICATIONS WITH NON-UNITED PEOPLE
The conduct of corporations is subject to increasing scrutiny. For this reason:
- never discuss confidential or proprietary business matters in
public or where you may be overheard
- when communicating publicly on matters that involve United
business, do not speak for United unless you are authorized by
the Legal or Public Relations Departments
- when communicating on matters not involving United business,
keep personal views separate from corporate views
- don't use United stationery or titles for communications not
involving United business
- refer inquiries from the press or other media to the Public
Relations Department before any information or opinion is
given
- refer inquiries from financial analysts to the Public
Relations or Investor Relations Departments.
SECURITY RESPONSIBILITIES
Independent Contractors are responsible for:
- protecting all United information and information resources
from unauthorized disclosure, use, modification or
destruction.
- ensuring that user codes and passwords are not disclosed to
or used by others
- never installing any software or data files that are not
directly related to the independent contractor's assignment
without the authorization of Information Services support
personnel. Games, screen savers, graphics and any other
software not authorized and purchased by the company are not
allowed.
- ensuring that virus detection software is installed and
automatically runs when the system is booted.
- reporting questionable activities regarding the misuse of
United's information resources to the supervisor/manager of
the area to which you are assigned, Human Resources
Representative or the appropriate security area (i.e.,
Corporate Audit, Information Systems).
46
<PAGE> 47
EXHIBIT M
PRICING
BASE TRANSACTION FEE. United will pay Healtheon an amount as set forth in the
table below for each Claim Transaction
ELIGIBILITY INQUIRY FEE. United will pay Healtheon for each eligibility inquiry
an amount as set forth in the table below; provided that the total fees paid
for eligibility inquiries in any calendar year shall not exceed $[*].
OTHER TRANSACTION FEES. United will pay Healtheon an amount as set forth in the
table below for each of the following transactions:
- - - - - - REFERRAL AND AUTHORIZATIONS
- - - - - - REFERRAL AND AUTHORIZATION INQUIRY
- - - - - - PROVIDERLINK MAIL/FAX
- - - - - - PROVIDER DIRECTORY (REAL-TIME LOOK-UP)
- - - - - - ELIGIBILITY ROSTERS
- - - - - - ELECTRONIC PROVIDER REMITTANCE ADVICE
- - - - - - ANSI X12 834
- - - - - - CLAIM STATUS INQUIRY
- - - - - - BATCH ELIGIBILITY & BENEFITS INQUIRY
- - - - - - BATCH CLAIMS STATUS INQUIRY
PRODUCT DEVELOPMENT RATES:
Healtheon will perform contracted product development work with United at [*]
of Healtheon's standard hourly rates.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
47
<PAGE> 48
<TABLE>
<CAPTION>
NUMBER OF HOSPITAL AND PRICE PER CLAIM PRICE PER PRICE PER OTHER
PHYSICIAN CLAIMS (IN TRANSACTION ELIGIBILITY TRANSACTIONS
MILLIONS) DELIVERED TO INQUIRY
UNITED THROUGH HEALTHEON
<S> <C> <C> <C>
[*] or less $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] to [*] $[*] $[*] $[*]
[*] or greater $[*] $[*] $[*]
</TABLE>
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
48
<PAGE> 49
EXHIBIT N
LIST OF PROCESSING SYSTEMS
- - - - - - COSMOS
- - - - - - UNET
- - - - - - PrimeCare
- - - - - - United - Illinois
- - - - - - United - Mid-Atlantic
49
<PAGE> 50
EXHIBIT O
Healtheon Provider Line Disaster Recovery Plan
CURRENT INTERIM PLAN
Healtheon has entered an agreement with Comdisco to provide a cold site
disaster recovery facility for 90 days.
Comdisco will make available:
1) facilities at a remote location with appropriate real estate,
electrical and air conditioning
2) available hardware which is identical to the hardware located in
Healtheon's Atlanta data center
3) appropriate network connectivity from the Comdisco site to Healtheon's
customers in case of a disaster in Atlanta.
Healtheon is responsible for:
1) Daily, weekly and monthly backups of Healtheon's operating systems,
operating sub-systems, applications and data.
2) Storing the -1 generation of all backup tapes at an off-site facility.
3) Loading the operating systems, sub-systems, applications and data from
backup tapes on to the hardware provided by Comdisco at the cold site
facility.
4) Restoring the appropriate network connectivity to Healtheon's
customers.
5) Resuming business activities within 36 hours of the declaration of a
disaster.
PERMANENT PLAN
While this interim disaster recovery process is in effect, Healtheon will
continue to implement a more comprehensive, testable disaster recovery plan
that includes and documents all necessary operational procedures. The plan and
an associated disaster recovery contract will be complete by December 31, 1999.
TESTING OF THE PERMANENT PLAN
The complete plan will be tested in the 1st quarter of 2000.
Y2K BUSINESS CONTINUITY
A separate Y2K business continuity plan is in progress and will be completed by
November 30, 1999.
50
<PAGE> 51
EXHIBIT P
HEALTHEON MARKET SITES
- - - - - - United of Georgia
- - - - - - United South
51
<PAGE> 1
EXHIBIT 10.36
DuPont Nutrition & Health
Walker's Mill, Barley Mill Plaza
P. O. Box 80038
Wilmington, DE 19880-0038
DuPont Nutrition & Health
January 28, 1999
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, GA 30326
Attn: Mr. Jeff Norman
Dear Sirs:
WEBMD SUBSCRIPTIONS AGREEMENT
Further to our recent discussions we set out below the terms upon which we have
agreed that E. I. du Pont de Nemours and Company ("DuPont") shall purchase
subscriptions to WebMD's internet service.
1. DuPont will purchase 10,000 annual subscriptions to WebMD's Basic
Service, as defined in WebMD's Terms of Service, ("the Subscriptions")
commencing 1st March, 1999;
2. The consideration for the purchase of the Subscriptions shall be the
sum of $3,600,000, payable as set out in paragraph 4 below;
3. DuPont shall be responsible for selecting the physicians who shall
receive the Subscriptions and shall notify WebMD accordingly in
writing;
4. The fees for the Subscriptions referred to in paragraph 1 above shall
be payable in monthly installments at the end of each calendar month
of service. WebMD shall address all invoices to: E. I. du Pont de
Nemours and Company, Beaumont Accounts Payable, P. O. Box 4908,
Beaumont, Texas 77704. Invoices shall refer to the DuPont Purchase
Order number (which shall be notified to WebMD in writing before
commencement of the Subscriptions) and shall be payable on a net 30
day basis;
1
<PAGE> 2
5. In the event that WebMD discontinues its service, no further
subscription fees shall be payable by DuPont hereunder;
6. The existing Confidentiality Agreement between DuPont and WebMD shall
apply to the terms of this letter agreement;
7. This letter agreement shall be governed by the substantive law of the
state of Delaware, without reference to its conflicts of law rules or
principles.
Please sign and return the enclosed copy of this letter indicating your
acceptance of its terms.
Sincerely,
/s/
Thomas C. Humphrey
Vice President and General Manager
DuPont Nutrition and Health
The above terms are agreed for and on behalf of WebMD, Inc.
/s/
- - - - - ---------------------------------------------------------------
Name:
Date:
2
<PAGE> 1
EXHIBIT 10.37
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
COLLABORATION AGREEMENT
This Agreement is dated the 30th day of March 1999 (the "Effective
Date") and is made between E. I. duPont de Nemours and Company ("DuPont"), a
Delaware corporation, having its principal place of business at 1007 Market
Street, Wilmington, Delaware 19803, and WebMD, Inc. ("WebMD") a Georgia
corporation, having its principal place of business at 400 The Lenox Building,
3399 Peachtree Road NE, Atlanta, Georgia 30326.
WHEREAS:
A. DuPont and WebMD have entered into agreements dated 28th January 1999
pursuant to which DuPont has purchased 180,000 shares of Series C
Preferred stock of WebMD and has committed to purchase 10,000 physician
subscriptions to WebMD's Internet service; and
B. The parties now wish to maintain the existing agreements described
above and extend their relationship to include collaboration in the
areas of marketing, technology, competencies, healthcare industry
access, and revenue sharing all in the area of Life Sciences.
IT IS HEREBY AGREED AS FOLLOWS:
1. Web Site Content
1.1 DuPont shall be the exclusive provider of Life Sciences content to
WebMD, subject to the provisions herein, for a period of five years
from the date of this Agreement. For the purposes of this Agreement,
"Life Sciences" is defined as ethical and generic pharmaceuticals, over
the counter medicines, food, nutritional supplements and medical foods.
If WebMD wishes to make available to its users certain Life Sciences
content, and such content either is not available from DuPont or, in
the reasonable opinion of WebMD, is not of acceptable quality, then
WebMD will notify DuPont of the content WebMD wishes to obtain. If
DuPont is not able to commence provision of such content within sixty
(60) business days of such request, then WebMD shall be permitted to
present such content provided by a third party.
1.2 WebMD shall feature DuPont as the leading on-line provider of Life
Sciences content, product and services to doctors and consumers through
its content presentation on its own Internet site and on the co-branded
sites to be produced by WebMD through its agreements with CNN, MSN and
Lycos, and all network and digital channels arising out of future
transactions, to the extent permitted under it contracts with those
parties.
1.3 The parties agree that DuPont will initially concentrate on providing
Life Sciences content, products and services to WebMD customers on
WebMD's professional and consumer sites.
1.4 WebMD shall develop at its cost a pharmaceutical channel to provide
information to medical doctors on pharmaceutical products; sample
fulfillment; sales representation
<PAGE> 2
and communication; and the potential for pharmacy connectivity for
DuPont and its Life Science partners through WebMD's alliance
relationships. Further, WebMD will build a robust engine designed to
support detailing for the Life Science products of DuPont and its Life
Science Partners. WebMD will pay DuPont a retainer fee of $[*] to be
paid in monthly installments, for the period 1st May 1999 to 31st
December, 1999 to consult with WebMD on the design and functionality of
the system described in this Section. Such fee shall be invoiced
monthly and payable net 30 days from the date of such invoice.
1.5 WebMD and DuPont shall work to develop compatible Internet platforms in
order to integrate the DuPont web arena with the WebMD consumer and
physician sites.
1.6 WebMD shall facilitate a number of on-line Continuing Medical Education
(CME) courses around DuPont and its Life Sciences partners' content,
products and services.
1.7 WebMD and DuPont shall enter into further agreements providing for the
joint ownership of jointly developed technology to be produced through
the collaboration under this Agreement, including the technology
platforms to build and host mutually agreed upon on-line communities of
doctors, consumers and patients based on DuPont and its Life Sciences
partners' products and services.
1.8 The parties agree that the professional site will be free of commercial
advertising with the exception of the "Lounge" and "Library," whereas
the consumer site will include advertising, and promote e-commerce.
1.9 The professional site will offer a range of transaction-based services
for a fee to doctors, and the consumer site will include all elements
of e-commerce. The parties will share revenue generated by the
operations of this Agreement as outlined in Schedule 1 to this
Agreement.
1.10 It is agreed that all Life Sciences content relating to pharmaceuticals
regulated by the FDA shall comply with all relevant FDA regulations.
2. Third Party Relationships
2.1 To the extent permitted in its agreement with CNN dated January 28,
1999 (the "CNN Agreement"): i) WebMD shall, at its own cost, promote
the DuPont life sciences offering in [*]% of all 30-second commercials
to be run by WebMD on the CNN Networks under the CNN Agreement which
will include a pro-rata share of WebMD's advertising inventory in prime
time; and ii) WebMD shall arrange for DuPont, or any of its affiliates
whom it designates, to be named the sponsor in conjunction with WebMD
in [*]% of the total number of 30-second spots available under the CNN
Agreement airing on "Your Health." Production and run costs will be
borne by WebMD.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-2-
<PAGE> 3
2.2 WebMD and Intel currently plan to establish a Solutions Center
Consortium in order to drive e-Commerce communications standards,
security standards etc. DuPont will be the exclusive Life Sciences
participant in the Consortium.
2.3 DuPont will plan and lead the creation of the pharmaceutical program
for WebMD, which is anticipated to include participation from selected
Life Science companies with significant leadership in selected human
health systems according to a plan to be developed by the parties
within 60 days. DuPont will use commercially reasonable efforts to
engage suitable partners who are representative of the best companies
in the pharmaceutical industry. WebMD agrees that DuPont and its Life
Science partners will be exclusive sponsors of segmented human health
systems, e.g. DuPont for the HIV/AIDS category, Merck for the
Hypertension category and Zeneca for the Oncology category. Web MD
agrees that it shall not enter into relationships with Life Science
companies other than through its relationship with DuPont for the sale
of advertising and sponsorships on its own website (webmd.com), and
will consult with DuPont for its input on the Life Science advertising
and sponsorships appearing on co-branded portal sites.
2.4 DuPont will use its best efforts to ensure that WebMD has timely access
to the content and resources of relevant DuPont businesses and DuPont's
Life Sciences partners.
3. Other Activities
3.1 WebMD and DuPont will develop and conduct live events centered around
DuPont Life Sciences products and services; involving opinion and
thought-leader forums as appropriate. In addition, WebMD will devote no
less than [*]% of its inventory of MSN and Lycos banner impressions
available under the agreements with MSN and Lycos, both dated March 5,
1999, to promote the relationship among WebMD, DuPont and their Life
Sciences partners.
3.2 DuPont and WebMD may enter into a separate alliance for the
international development and deployment of the WebMD strategy, and
DuPont will develop a plan for such global expansion.
4. Management of the Collaboration
4.1 To facilitate the anticipated scope and importance of the alliance
created by this Agreement, the parties will jointly establish teams to
execute the terms of this alliance, and these teams will be located to
facilitate communications, e.g., New York, Wilmington, Atlanta.
4.2 WebMD will reimburse the cost for DuPont to retain mutually agreeable
external or internal expertise in the area of audits and fraud
detection/management to ensure that all proper procedures and controls
are in place for this alliance. The scope and length of the engagements
will be mutually determined by the parties, and the cost thereof will
not exceed $[*] per annum. The engagement will include the testing of a
system to be developed by WebMD that is designed to distinguish usage
of the WebMD
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE> 4
professional Internet site under a physician subscriber's personal
username and password from usage by other authorized users of the
physician subscriber's account.
4.3 Recognizing the importance of maintaining the strength, market
presence, and integrity of DuPont's brand, WebMD will consult with
DuPont on removing or modifying any WebMD service or other offerings
which DuPont deems will dilute or adversely impact the DuPont brand.
4.4 WebMD, shall, at the request of DuPont, cause two persons designated by
DuPont or its assignee who are qualified to serve as directors, to be
included, with recommendation, among the nominees submitted for
election to WebMD's Board of Directors to WebMD's shareholders at the
next regularly scheduled shareholder's meeting following such request,
and at each regularly scheduled shareholders meeting thereafter as is
required to maintain the uninterrupted service on the WebMD Board of
DuPont's two designees until such request for board representation is
withdrawn, or until the Agreement expires or is terminated.
4.5 DuPont will pay WebMD $[*] for participation in WebMD's portal
relationships, including, but not limited to, Lycos, as a carriage fee
for its consumer content, to be paid as follows: i) For the first year
of the Agreement, $[*] payable ten months after the Effective Date; ii)
For the second year of the Agreement, $[*] payable ten months after the
first anniversary of the Effective Date; and iii) For the third year of
the Agreement, $[*] payable ten months after the second anniversary of
the Effective Date. DuPont will pay an additional $[*] if the aggregate
traffic on WebMD's consumer site and co-branded portal sites reaches an
average of [*] page views per month, over three calendar months, on or
before the eighteenth month after the Effective Date, to be paid
straight line over the remaining months of the three-year consumer
term; provided, however, that DuPont will have a minimum of twenty four
(24) months over which to pay the $[*], and the revenue splits
described in Note 4 of Schedule 1 shall extend at least until the end
of the twenty four(24) month period.
4.6 The parties will meet periodically (and at least once per quarter) to
discuss possible acquisitions, investment and other areas of
collaborative activity.
5. Intellectual Property Matters
5.1 Each party shall retain sole rights to any intellectual property
developed by that party independently of the collaboration pursuant to
this Agreement;
5.2 The parties shall jointly own any intellectual property which arises
out of the collaboration pursuant to this Agreement provided that if
one party specifies and funds particular R&D activities, such party
shall have sole rights to any intellectual property arising out of such
R&D activities. DuPont shall have sole rights to any format which may
be approved by the Food and Drug Administration for the promotion of
Life Sciences on the Internet.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE> 5
5.3 To the extent legally permitted, WebMD will provide DuPont and the Life
Sciences partners a royalty-free, transferable, assignable license to
blinded, aggregated data on physicians and consumers gathered through
the operations of the collaboration.
6. Sponsorship of Physician Subscriptions
6.1 In order to eliminate conflict within the existing WebMD direct and
indirect sales force, DuPont shall sponsor WebMD memberships for a
total of 6,150,000 member months for physicians in the United States at
a price of $29.95 per month. The first [*] DuPont-sponsored member
months will commence in May 1999. The penetration schedule pertaining
to 1999 is attached hereto as Schedule 2. In the event that WebMD
offers memberships to a third party at a price of less than $29.95 per
month, it shall also extend any such lower price to DuPont for the
unexpired portion of DuPont's subscriptions hereunder. DuPont and WebMD
will meet quarterly to consider cancellation of physician subscriptions
which are not being actively used.
6.2 For the period 1st May, 1999 to 31st December, 1999, invoices for
subscription sponsorships shall be issued by WebMD on the last day of
each month for that month's active members and payable by DuPont net 30
days from the date of such invoice. All other revenue and expense items
for that period shall be invoiced quarterly in arrears payable net 30
days from the date of such invoices. The parties will meet no later
January, 2000 to determine mutually agreeable accounting cycles and
reporting.
6.3 User activity information will be tracked and reported quarterly by
WebMD to DuPont in a form reasonably satisfactory to DuPont. WebMD and
DuPont will work together to ensure a high level of subscriber
utilization.
6.4 For the training of physician subscribers, WebMD shall devote $[*] per
each physician who is enrolled as a new DuPont-sponsored subscriber of
WebMD hereunder.
6.5 Within 30 days after the Effective Date, the parties will jointly
develop a plan for the effective distribution and usage of WebMD
subscriptions among U.S. physicians. The plan will include, among other
elements, penetration goals for WebMD subscriptions on a quarterly
basis beginning after the calendar year 1999, and steps to be taken by
WebMD to promote active usage of the WebMD service by physician
subscribers. WebMD will pay DuPont $[*] per active user per month, and
DuPont will use those funds as incentives to the distribution force.
DuPont will use reasonable commercial efforts to distribute the
sponsored subscriptions according to the distribution plan developed
hereunder.
7. Warrant Agreement.
In partial consideration of DuPont's obligation to sponsor physician
subscriptions to the WebMD service hereunder, WebMD, by separate
warrant agreement ("the Warrant Agreement"), shall issue to DuPont a
warrant to purchase up to 4,000,000 shares of WebMD common stock,
Series D, at a purchase price of $20 per share. Such warrants
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE> 6
shall remain exercisable for a period of five years, and shall contain
commercially reasonable terms and conditions.
8. Proprietary Rights and Confidentiality.
8.1 Proprietary Information. "Proprietary Information" means any data or
information regarding (i) the business operations of a party which is
not generally known to the public and affords such party a competitive
advantage, including but not limited to, information regarding its
products and product development, suppliers, marketing strategies,
finance, operations, customers, sales, and internal performance
results; (ii) proprietary software, including but not limited to:
concepts, designs, documentation, reports, data, specifications, source
code, object code, flow charts, file record layouts, databases,
inventions and trade secrets, whether or not patentable or
copyrightable; and (iii) the terms and conditions of this Agreement.
8.2 Ownership and Protection. Each party agrees that it has no interest in
or right to use the Proprietary Information of the other except in
accordance with the terms of this Agreement. Each party acknowledges
that it may disclose Proprietary Information to the other in the
performance of this Agreement. The party receiving the Proprietary
Information shall (i) maintain it in strict confidence and take all
reasonable steps to prevent its disclosure to third parties, except to
the extent necessary to carry out the purposes of this Agreement, in
which case these confidentiality restrictions shall be imposed upon the
third parties to whom the disclosures are made; (ii) use at least the
same degree of care as it uses in maintaining the secrecy of its own
Proprietary Information (but no less than a reasonable degree of care);
and (iii) prevent the removal of any proprietary, confidential or
copyright notices placed on the Proprietary Information.
8.3 Limitation. Neither party shall have any obligation concerning any
portion of the Proprietary Information of the other which (i) is
publicly known prior to or after disclosure hereunder other than
through acts or omissions attributable to the recipient or its
employees or representatives; (ii) as demonstrated by prior written
records, is already known to the recipient at the time of disclosure
hereunder; (iii) is disclosed in good faith to the recipient by a third
party having a lawful right to do so; or (iv) is the subject of written
consent of the party which supplied such information authorizing
disclosure; or (v) is required to be disclosed by the receiving party
by applicable law or legal process, provided that the receiving party
shall immediately notify the other party so that it can take steps to
prevent its disclosure.
8.4 Remedies for Breach. In the event of a breach of this Section 8, the
parties agree that the non-breaching party may suffer irreparable harm
and the total amount of monetary damages for any injury to the
non-breaching party may be impossible to calculate and would therefore
be an inadequate remedy. Accordingly, the parties agree that the
non-breaching party may be entitled to temporary, preliminary and
permanent injunctive relief against the breaching party, its officers
or employees, in addition to such other rights and remedies to which it
may be entitled at law or in equity.
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<PAGE> 7
9. Termination; Dispute Resolution.
9.1 Term. This Agreement shall commence on the Effective Date and shall
continue in full force and effect for a period of five (5) years
("Initial Term") subject to the provisions hereof, unless earlier
terminated as provided for below. At or about the eighteenth month
after the Effective Date, the parties shall negotiate in good faith the
terms of renewing the Agreement, including those revenue splits
provisions herein which, as noted in Note 4 of the Schedule 1 hereto,
expire at the third anniversary of the Effective Date, except as noted
in Section 4.5.
9.2 Early Termination. Either party may terminate this Agreement
immediately by notice to the other party upon the occurrence of any of
the following events of default by the other party:
(a) The other party fails to observe, perform or fulfill any of
its obligations or warranties (other than confidentiality
obligations) under the Agreement and fails to cure such
default within ninety (90) days after the non-defaulting party
gives written notice of such failure;
(b) The other party fails to observe, perform or fulfill any
confidentiality obligation imposed hereunder and fails to cure
such default within ten (10) days after the non-defaulting
party gives notice of such failure; or
(c) The other party's business is liquidated, dissolved or
suspended.
(d) The other party's adverse change in financial condition that
materially impairs its ability to perform its obligations
under this Agreement.
9.3 Survival. The provisions of the Agreement, which by their nature are
intended to survive termination or expiration of this Agreement, shall
survive expiration or termination of this Agreement.
9.4 Dispute Resolution. In the event of a dispute between the parties and
for which dispute the parties are unable to reach a mutually agreeable
resolution, the dispute shall be submitted to arbitration under the
commercial arbitration rules of the American Arbitration Association
then in effect. There shall be one arbitrator mutually agreed to by
both parties; such arbitrator shall have experience in the area of
controversy. After the hearing, the arbitrator shall decide the
controversy and render a written decision setting forth the issues
adjudicated, the resolution thereof, and the reasons for the award. The
award of the arbitrator shall be conclusive. Payment of the expenses of
arbitration, including the fee of the arbitrator, shall be assessed by
the arbitrator based on the extent to which each party prevails.
10. Miscellaneous Provisions.
10.1 Independent Contractors. It is expressly agreed that WebMD and DuPont
are acting
-7-
<PAGE> 8
under this Agreement as independent contractors, and the relationship
established under this Agreement shall not be construed as a
partnership, joint venture or other form of joint enterprise. Neither
party is authorized to make any representations or create any
obligation or liability, expressed or implied, on behalf of the other
party, except as may be expressly provided for in this Agreement.
10.2 Comparable Terms. The fees charged DuPont Customers by WebMD for WebMD
Services and any non-price terms imposed shall not at any time be less
favorable than any price or non-price terms offered by WebMD to
customers of any third party which market the WebMD Services in
comparable volumes. In the event that WebMD offers any third party
distributor of the WebMD Services more favorable price or non-price
terms than those offered hereunder to DuPont, the WebMD shall so notify
DuPont, and the more favorable terms shall be immediately extended to
DuPont.
10.3 Access to Books and Records. The parties shall keep complete, accurate
and up-to-date books and records in accordance with generally accepted
accounting principles and sound business practices covering all
transactions relating to this Agreement. Either party and/or its
authorized representatives shall upon reasonable notice have the right
(not more than once annually) to inspect, audit, and/or copy such
records in order to determine whether all provisions of this Agreement
have been met. The parties agree that all information and records
obtained in such audit shall be considered Proprietary Information.
This right to audit shall be available to either party for up to two
(2) years following the termination of this Agreement.
10.4 Headings. The headings of the paragraphs of this Agreement are for
convenience only and shall not be a part of or affect the meaning or
interpretation of this Agreement.
10.5 Exhibits. This Agreement incorporates the attached Exhibits and any
subsequent Exhibits or schedules referencing this Agreement.
10.6 Assignment. This Agreement and any interest hereunder shall inure to
the benefit of and be binding upon the parties and their respective
successors, legal representatives and permitted assigns. Upon prior
notice to the other party, either party may assign this Agreement (i)
to any legal entity in connection with the merger or consolidation of
the assigning Party into such entity or the sale of all or
substantially all of the assets of the assigning Party to such entity;
or (ii) to any direct or indirect subsidiary of the assigning party in
connection with any corporate reorganization. Except as stated in the
previous sentence, neither party may assign or delegate this Agreement
without the other party's prior written consent, which consent shall
not be unreasonably withheld. Any attempt to assign, delegate or
otherwise transfer the Agreement in violation of this Section 10 is
voidable by the other party.
10.7 Notices. All notices, requests, demands and other communications
(collectively, "Notices") required or permitted by this Agreement shall
be in writing and shall be delivered by hand, telex, telegraph,
facsimile or like method of transmission or mailed
-8-
<PAGE> 9
by registered or certified mail, return receipt requested, first class
postage prepaid, addressed as follows:
If to DuPont:
Business Director, Nutritional Science
DuPont Nutrition and Health
P. O. Box 80038
Wilmington, DE 19880-0038
Fax: (302) 774-5383
All payments to DuPont shall be mailed to:
Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
Account #910-1-01-2723
If to WebMD:
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, Georgia 30326
Attn: General Counsel
Fax: (404) 479-7603
If delivered by hand, telex, telegraph, facsimile or like method of
transmission, the date on which a Notice is actually delivered shall be
deemed the date of receipt and if delivered by mail, the date on which
a Notice is actually received shall be deemed the date of receipt.
Either party may change the address or designated person for receiving
Notices by providing notice in accordance with this Section 10.7.
10.8 Severability. If any term of this Agreement is held as invalid or
unenforceable, the remainder of this Agreement shall not be affected,
and each term and provision shall be valid and enforced to the fullest
extent permitted by law.
10.9 Entire Agreement/Amendments. This Agreement, the Warrant Agreement and
the Investment Agreement executed on the Effective Date hereof,
including all exhibits attached hereto, contains the entire agreement
between the parties and supersedes all prior and contemporaneous
proposals, discussions and writings by and between the parties and
relating to the subject matter hereof. None of the terms of this
Agreement shall be deemed to be waived by either party or amended or
supplemented unless such waiver, amendment or supplement is written and
signed by both parties. The invalidity or unenforceability of any
particular provision of this agreement, as determined by any
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<PAGE> 10
court of competent jurisdiction or any appropriate legislature, shall
not affect the other provisions hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision
had been omitted. No usage of trade or industry course of dealing shall
be relevant to explain or supplement any term expressed in this
Agreement.
10.10 Except as expressly provided herein, each party shall bear its own
costs incurred in performing under this Agreement. Without limiting the
generality of the foregoing sentence, WebMD represents and warrants to
DuPont, and DuPont represents and warrants to WebMD that no broker,
finder, investment banker or other party is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement.
10.11 This Agreement is subject to the execution and delivery of the
Investment Agreement and Warrant Agreement on or before March 31, 1999.
10.12 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware, without regard to its principles of
conflict of law.
IN WITNESS WHEREOF, WebMD and DuPont, intending to be legally bound by
the terms of this Agreement, have caused this Agreement to be executed by their
duly authorized representatives.
E. I. duPont de Nemours and Company WebMD, Inc.
By: /s/ By: /s/
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------- -------------------------------
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<PAGE> 11
Schedule 1
DuPont's Share of Revenues
<TABLE>
<CAPTION>
CONSUMER PROFESSIONAL
-------- ------------
<S> <C> <C> <C>
1. Advertising/Sponsorship [*]% [*]% until DuPont
recovers its out of
pocket subscription fees
less payments form Life
Science partners; [*]%
thereafter
2. Carriage Fees [*]% [*]% Lounge and Library only
3. Upsales on Services N/A [*]% on net revenue
4. e-Commerce
a. bought through WebMD [*]% of net [*]% of net proceeds
proceeds
b. bought through DuPont [*]% of net [*]% of net proceeds
proceeds
c. E*Trade payments to WebMD [*]% of net [*]% of net proceeds
based on commissions on revenue
deposit accounts and
securities trading commissions
(the carriage fees element of
the E*Trade relationship are
covered in #2 above)
</TABLE>
Notes
1. Revenue splits of advertising/sponsorship receipts shall be net of all
direct third party vendor costs (e.g., DoubleClick commissions).
2. Revenues derived from portal agreement (e.g., CNN, Lycos, MSN) are
applied [*]% to DuPont and [*]% to WebMD for the carriage fees paid
until WebMD recovers the portal fees paid, and are then applied as
shown above.
3. Revenue splits of e-commerce receipts shall be net of discounts, bad
debts, returns and direct costs such as advertising, sales, product
costs, distribution and other costs.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
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<PAGE> 12
4. Consumer split is for 3 years on e-commerce, and non-pharmaceutical
advertising, sponsorship and carriage, and 5 years on pharmaceutical
advertising, sponsorship and carriage; professional split is for 5
years except as otherwise noted in 4.5 of this Agreement.
5. WebMD and DuPont will negotiate in good faith for amendments to the
professional revenue split described above to accommodate proposals by
third parties to sponsor additional physician subscribers to WebMD.
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<PAGE> 1
EXHIBIT 10.38
DuPont
1007 Market Street
Wilmington, DE 19898
[LOGO]
Executive Vice President - DuPont
Chairman - DuPont Europe
March 30, 1999
Mr. Jeff Arnold
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road NE,
Atlanta, Georgia 30326
Dear Jeff,
COLLABORATION AGREEMENT; WARRANT AGREEMENT;
INVESTMENT AGREEMENT
Further to the above agreements which we have executed on the date of this
letter, we set out below our further agreement on two issues not expressly dealt
with in the above documents.
WebMD will provide appropriate DuPont personnel with access to information
relating to WebMD's business, including but not limited to the following:
documents of incorporation and related corporate records; litigation to which
WebMD is a party; copies of all relevant agreements between WebMD and third
parties, to the extent that WebMD is permitted to disclose them by the terms
thereof; and, WebMD's S1 filing, amendments thereto and the comments of the SEC.
Notwithstanding the provisions of Section 8.1 of the Collaboration
Agreement, DuPont confirms that WebMD may disclose the Collaboration Agreement,
or details of the terms thereof, to third parties during the course of due
diligence or negotiation of a relationship related to WebMD's internet service,
provided that any copies of the Collaboration Agreement, or details of the terms
thereof, so disclosed are redacted or edited in order to prevent disclosure of
DuPont as a party thereto. After the signature of a letter of intent or similar
document with any such third party, WebMD may disclose un-redacted or unedited
copies of the Collaboration Agreement, or details of the terms thereof, provided
that any such third party is bound by obligations of confidentiality to WebMD.
Kindly indicate your acceptance of the above by countersigning the enclosed
copy of this letter.
Sincerely,
/s/
Kurt M. Landgraf
Executive Vice President
Countersigned:
/s/
Jeff Arnold
CEO WebMD, Inc.
<PAGE> 1
EXHIBIT 10.39
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, THE
GEORGIA SECURITIES ACT OF 1973, AS AMENDED, OR THE SECURITIES LAWS OF ANY OTHER
STATE. THIS WARRANT AND ANY OF SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF REGISTRATION
UNDER SAID ACTS AND ALL OTHER APPLICABLE SECURITIES LAWS UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON EXERCISE AND TRANSFER CONTAINED
IN ARTICLE IV HEREOF.
WARRANT TO PURCHASE SHARES
OF
COMMON STOCK
OF
WEBMD, INC.
Date of Issuance: March 30, 1999
THIS CERTIFIES that, for value received, WebMD, Inc., a Georgia
corporation (the "Company"), hereby grants to E.I. du Pont de Nemours and
Company, a Delaware corporation, or its registered assigns (the "Holder"), the
right to purchase, at any time and from time to time prior to the fifth (5th)
anniversary of the Date of Issuance indicated above, up to 4,000,000 shares in
the aggregate of Common Stock Series D, no par value per share (the "Common
Stock"), subject to the terms and conditions set forth herein. This warrant is
hereinafter referred to as the "Warrant".
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"Act": the federal Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder, all as the same shall
be in effect at the time.
"Additional Shares of Common Stock": all shares of Common Stock issued
by the Company after the Date of Issuance, other than the Warrant Shares.
"Common Stock": as defined on the first page hereof.
<PAGE> 2
"Commission": the Securities and Exchange Commission or any other
federal agency then administering the Act.
"Company": WebMD, Inc., a Georgia corporation, located at 400 The Lenox
Building, 3399 Peachtree Road, Atlanta, Georgia, 30326, and any other
corporation assuming or required to assume the Warrant pursuant to Article V.
"Convertible Securities": evidence of indebtedness, shares of stock or
other securities that are convertible or exchangeable for Additional Shares of
Common Stock.
"Date of Issuance": the issue date of this Warrant, as set forth on the
first page hereof.
"Exercise Price": $20.00 per Warrant Share.
"Holder": as defined on the first page hereof.
"Initial Public Offering": as defined in the Company's Articles of
Incorporation.
"Person": any individual, corporation, partnership, limited liability
company, trust, unincorporated organization and any government, and any
political subdivision, instrumentality or agency thereof.
"Stock Unit": one share of Common Stock, as such stock is constituted
on the Date of Issuance and thereafter the number of shares of Common Stock as
shall result from the adjustments specified in Article V.
"Warrant": as defined on the first page hereof.
"Warrant Office": as defined in Section 3.1.
"Warrant Shares": the shares of Common Stock purchasable by the Holder
upon the exercise of this Warrant.
Following the occurrence of an Initial Public Offering, all references in this
Warrant to "Common Stock" shall be deemed to refer to the Company's authorized
Common Stock, no par value per share, without designation as to series, by
virtue of the automatic conversion of the Common Stock Series D into Common
Stock that will occur pursuant to the Company's Articles of Incorporation.
ARTICLE II
EXERCISE OF WARRANT
2.1 Method of Exercise. To exercise this Warrant, the Holder shall
deliver to the Company at the Warrant Office designated pursuant to Section 3.1,
(a) a Notice of Exercise
2
<PAGE> 3
substantially in the form attached hereto as Exhibit A duly executed by the
Holder specifying the number of Warrant Shares to be purchased, (b) payment of
an amount equal to the aggregate Exercise Price for all such Warrant Shares,
which shall be made in cash or by certified or bank cashier's check payable to
the order of the Company or by wire transfer of immediately available funds, and
(c) this Warrant. The number of Warrant Shares to be purchased in any exercise
hereunder shall be no fewer than 250,000 or the total number of Warrant Shares
available for purchase at the date of exercise, whichever is less. The Company
shall, as promptly as practicable, and in any event within five (5) days
thereafter, cause to be issued and delivered to the Holder (or its nominee) or
the transferee designated in the Notice of Exercise a certificate or
certificates representing the number of Warrant Shares specified in the Notice
of Exercise. The stock certificate or certificates so delivered shall be in
denominations of shares as may be specified in said notice and shall be issued
in the name of the Holder or such other name as shall be designated in said
notice. At the time of delivery of the certificate or certificates, appropriate
notation shall be made on the Warrant Shares Purchase Schedule attached to this
Warrant designating the number of shares purchased, and this Warrant shall then
be returned to the Holder if this Warrant has been exercised only in part. The
Holder or transferee so designated in the Notice of Exercise shall be deemed to
have become the Holder of record of such Warrant Shares for all purposes as of
the close of business on the date on which the Notice of Exercise is delivered
to the Warrant Office, provided that an amount equal to the aggregate Exercise
Price and this Warrant shall have also been delivered to the Company. The
Company shall pay all expenses, taxes (excluding capital gains and income taxes)
and other charges payable in connection with the preparation, issuance and
delivery of stock certificates, except that, in case stock certificates shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes payable upon the issuance of stock
certificates shall be paid by the Holder promptly upon receipt of a written
request of the Company therefor.
2.2 Shares to be Fully Paid and Non-Assessable. All Warrant Shares
issued upon the exercise of this Warrant and the payment therefor shall be
validly issued, fully paid, non-assessable and free from preemptive rights.
2.3 No Fractional Shares to be Issued. The Company shall not be
required upon any exercise of this Warrant to issue a certificate representing
any fraction of a share of Common Stock.
2.4 Legend on Warrant Shares. Each certificate for Warrant Shares
issued upon exercise of this Warrant, unless at the time of exercise such shares
are registered under the Act, shall bear substantially the following legend (and
any additional legend required by any national securities exchanges upon which
such shares may, at the time of such exercise, be listed or under applicable
securities laws):
The securities represented by this certificate have not been registered
under the federal Securities Act of 1933, as amended, or the Georgia
Securities Act of 1973, as amended ("the Acts"), or the securities laws
of any state. They may not be sold, transferred, assigned, pledged,
hypothecated, encumbered, or otherwise disposed of unless, in the
opinion of counsel reasonably acceptable to the issuer,
3
<PAGE> 4
such transfer would be pursuant to an effective registration statement
under said Acts or pursuant to an exemption from such registration.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of counsel to the Company, the securities represented thereby need
no longer be subject to the restrictions on transferability. In addition, the
provisions of Article IV shall be binding upon all subsequent holders of this
Warrant.
2.5 Acknowledgment of Continuing Obligation. The Company shall, at
the time of any exercise of this Warrant in whole or in part, upon request of
the Holder, acknowledge in writing its continuing obligation to such holder in
respect of any rights to which the Holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure of
the Holder to make any such request shall not affect the continuing obligation
of the Company to the Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION
OR COMBINATION OF WARRANTS
3.1 Warrant Office. The Company shall maintain an office for
certain purposes specified herein (the "Warrant Office"), which office shall
initially be the Company's location set forth in Article I hereof, and may
subsequently be such other office of the Company or of any transfer agent of the
Common Stock in the continental United States as to which written notice has
previously been given to all of the Holders of the Warrants.
3.2 Ownership of Warrant. The Company may deem and treat the
Person in whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in this Article III.
3.3 Transfer of Warrant. The Company agrees to maintain at the
Warrant Office books for the registration of permitted transfers of this
Warrant. Subject to the provisions of Article IV, this Warrant and all rights
hereunder are transferable, in whole or in part, on the books at that office,
upon surrender of this Warrant at that office, together with a written
assignment of this Warrant duly executed by the Holder or his, her or its duly
authorized agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of the transfer. Subject to Article IV, upon surrender
and payment, the Company shall execute and deliver a new Warrant in the name of
the assignee, noting thereon the number of Warrant Shares theretofore purchased
under this Warrant, and this Warrant shall promptly be canceled. To the extent
this Warrant is transferred in part, the Company shall execute and deliver a new
Warrant in the name of the Holder for the balance of the Warrant Shares not
transferred to the assignee. A Warrant may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
4
<PAGE> 5
3.4 Division or Combination of Warrants. Except as provided in
Section 3.3 above, this Warrant may not be divided or combined with any other
warrant.
3.5 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
ARTICLE IV
RESTRICTIONS ON EXERCISE AND TRANSFER
4.1 Restrictions on Exercise and Transfer. Notwithstanding any
provisions contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable except upon the conditions specified in this Article
IV, which conditions are intended, among other things, to insure compliance with
the provisions of the Act in respect of the exercise or transfer of the Warrant.
The Holder, by acceptance hereof, agrees that he, she or it will not exercise or
transfer this Warrant prior to delivery to the Company of any required opinion
of the Holder's counsel (as the opinion and counsel are described in Section 4.2
hereof).
4.2 Opinion of Counsel. In connection with any exercise or
transfer of this Warrant, the following provisions shall apply:
(a) If, in the written opinion of counsel to the Holder
(which opinion and counsel must be reasonably acceptable to the Company), the
proposed exercise or transfer of this Warrant may be effected without
registration of this Warrant or the Common Stock issuable hereunder under the
Act, the Holder shall be entitled to exercise or transfer this Warrant as
proposed. In no event shall the Company be obligated (i) to effect a
registration under the Act or any state securities law so as to permit the
proposed exercise or transfer of this Warrant, (ii) to qualify to do business or
to file a general consent to service of process in any state or other
jurisdiction where the Company has not already done so, (iii) to effect a
transfer to more than three transferees, provided that each such transfer is for
at least 1,000,000 Warrant Shares, or (iv) to effect a transfer to any
transferee that is not a qualified institutional buyer, an institutional
accredited investor, an accredited investor or another person reasonably
acceptable to the Company.
(b) If in the opinion of such counsel, the proposed
exercise or transfer of this Warrant may not be effected without registration of
this Warrant under the Act, the Holder shall not be entitled to exercise or
transfer this Warrant until registration is effective or until exercise or
transfer may be effected without registration, in the opinion of such counsel as
set forth in Section 4.2(a) above.
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<PAGE> 6
ARTICLE V
ADJUSTMENTS
5.1 Adjustments to Number of Stock Units. The number of shares of
Common Stock comprising a Stock Unit shall be subject to adjustment from time to
time as set forth in this Section 5.1.
(a) Stock Dividends, Subdivision and Combination. In case
at any time or from time to time the Company shall:
(i) take a record of the holders of its Common
Stock of any series for the purpose of entitling them to receive a dividend
payable in, or other distribution of, Common Stock,
(ii) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock;
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any such event shall be adjusted so as to consist of the
number of shares of Common Stock that a record holder of the number of shares of
Common Stock comprising a Stock Unit immediately prior to the happening of such
event would own or be entitled to receive after the happening of such event. The
adjustments required by this subsection shall be made whenever and as often as
any specified event requiring an adjustment shall occur.
(b) Certain Other Dividends and Distributions. In case at
any time or from time to time the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of
(i) cash (other than a cash distribution made
as a dividend payable out of the net earnings or net profits of the Company
realized during the year of such distribution or the last preceding year and
accumulated net earnings or net profits of the Company from the date hereof to
the time of such distribution, computed in accordance with generally accepted
accounting principles employed by the Board of Directors of the Company for
purposes of financial reports to shareholders of the Company), or
(ii) any evidences of its indebtedness, any
shares of its stock or any other securities or property of any nature whatsoever
(other than cash);
then at least fifteen (15) business days prior to the record date to determine
shareholders entitled to receive such dividend or distribution, the Company
shall give notice of such proposed
6
<PAGE> 7
dividend or distribution to the Holder for the purpose of enabling the Holder to
exercise the same, and thereby participate in such dividend or distribution.
(c) Issuance of Additional Shares of Common Stock. In
case at any time prior to the date of the occurrence of the Initial Public
Offering the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock for a consideration per share less than the
Exercise Price, then the number of shares of Common Stock thereafter comprising
a Stock Unit shall be adjusted to that number determined by multiplying the
number of shares of Common Stock comprising a Stock Unit immediately prior to
such adjustment by a fraction (i) the numerator of which shall be the number of
shares of Common Stock issued and outstanding plus the number of Additional
Shares of Common Stock deemed to be outstanding pursuant to Subsection 5.1(d)
immediately prior to the issuance of such Additional Shares of Common Stock plus
the number of such Additional Shares of Common Stock so issued, and (ii) the
denominator of which shall be the number of shares of Common Stock issued and
outstanding plus the number of Additional Shares of Common Stock deemed to be
outstanding pursuant to Subsection 5.1(d) immediately prior to the issuance of
such Additional Shares of Common Stock plus the number of shares of Common Stock
that the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at the Exercise Price. The provisions
of this Subsection 5.1(c) shall not apply to any issuance of Additional Shares
of Common Stock for which an adjustment is provided under Subsection 5.1(a). No
adjustment of the number of shares of Common Stock comprising a Stock Unit shall
be made under this subsection upon the issuance of any Additional Shares of
Common Stock that are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights or
upon the issuance of such Convertible Securities (or upon the issuance of any
warrant or other rights therefor) pursuant to Subsection 5.1(d).
(d) Issuance of Warrants, Convertible Securities or Other
Rights. In case at any time or from time to time the Company shall issue or sell
any warrants or other rights to subscribe for or purchase any Additional Shares
of Common Stock or any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
consideration per share for which Additional Shares of Common Stock, may at any
time thereafter be issuable pursuant to such warrants or other rights or
pursuant to the terms of such Convertible Securities shall be lower than the
Exercise Price, then the number of shares of Common Stock thereafter comprising
a Stock Unit shall be adjusted as provided in Subsection 5.1(c) and the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received and receivable by
the Company for the issuance of such Additional Shares of Common Stock pursuant
to such warrants or other rights or pursuant to the terms of such Convertible
Securities. No adjustment of the number of shares of Common Stock comprising a
Stock Unit shall be made under this Subsection 5.1(d) upon the issuance of any
Convertible Securities that are issued pursuant to the exercise of any warrants
or other subscription or purchase rights therefor, if any such adjustment shall
previously been made upon the issuance of such warrants or other rights pursuant
to this Subsection 5.1(d).
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<PAGE> 8
(e) Superseding Adjustment of Stock Unit. Upon the
expiration of any options, warrants or rights to purchase any Additional Shares
of Common Stock, the termination of any rights to convert or exchange for any
Additional Shares of Common Stock, the expiration of any options related to such
Convertible Securities, or any increase in the consideration per share for any
Additional Shares of Common Stock are issuable on account of which any
adjustment of the number of shares of Common Stock comprising a Stock Unit shall
have been made pursuant to the foregoing Subsection 5.1(d) or any new
adjustments of the number of shares of Common Stock comprising a Stock Unit
shall have been made pursuant to this Subsection 5.1(e), then such previous
adjustment shall be rescinded and annulled and the Additional Shares of Common
Stock that were deemed to have been issued by virtue of the computation made in
connection with the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation. Thereupon, a
recomputation shall be made of the effect of such rights or options or other
Convertible Securities on the basis of the issuance of only the number of
Additional Shares of Common Stock actually issued upon the exercise of such
options, warrants or other Convertible Securities or upon the conversion or
exchange of such Convertible Securities or upon the rights related to such
Convertible Securities for the consideration actually paid.
(f) Other Provisions Applicable to Adjustment Under This
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock comprising a Stock Unit
hereinbefore provided for in this Section 5.1:
(i) Treasury Stock. The sale or other
disposition of any issued shares of Common Stock owned or held by or for the
account of the Company shall be deemed an issuance thereof for the purposes of
this Section 5.1.
(ii) Computation of Consideration. To the extent
that any Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional Shares of
Common Stock or any Convertible Securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Shares of Common Stock or Convertible Securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends (but without deduction of any
compensation, discounts or expenses paid or incurred by the Company for and in
the underwriting of, or otherwise in connection with, the issuance thereof). To
the extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined in good faith by the Board of Directors of
the Company (but without deduction of any compensation, discounts or expenses
paid or incurred by the Company for and in the underwriting of, or otherwise in
connection with, the issuance thereof). In case any Additional Shares of Common
Stock or Convertible Securities or any warrants or other rights to subscribe for
or purchase such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the
8
<PAGE> 9
Company issues any securities, the amount of consideration therefor shall be
deemed to be the fair value, as determined in good faith by the Board of
Directors of the Company, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible Securities,
warrants or other rights, as the case may be. In the event of any consolidation
or merger of the Company in which the Company is not the surviving corporation
or in the event of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company shall be
deemed to have issued a number of Additional Shares of Common Stock or
Convertible Securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated, and the
consideration received for such issuance shall be equal to the fair market
value, as determined in good faith by the Board of Directors of the Company, on
the date of such transaction, of such stock or securities of the other
corporation, and if any such calculation results in adjustment of the number of
shares of Common Stock comprising a Stock Unit immediately prior to such merger,
conversion or sale for purposes of this Subsection 5.1(f), such merger,
conversion or sale shall be deemed to have been made after giving effect to such
adjustment. The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants or
other rights, plus the additional consideration payable to the Company upon the
exercise of such warrants or other rights. The consideration for any Additional
Shares of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for issuing any
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Company in respect of
the subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to the Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case of
the issuance at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class of stock
other than the Common Stock, the Company shall be deemed to have received for
such Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(iii) When Adjustments to be Made. The adjustments
required by the preceding subsections of this Section 5.1 shall be made whenever
and as often as any specified event requiring an adjustment shall occur, except
that no adjustment of the number of shares of Common Stock comprising a Stock
Unit that would otherwise be required shall be made (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for in
Subsection 5.1(a)) unless and until such adjustment, either by itself or with
other adjustments not previously made, adds or subtracts at least 1/20th of a
share to or from the number of shares of Common Stock comprising a Stock Unit
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount (except as aforesaid) shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this section and not previously made, would result in a minimum
adjustment. For the purpose of any adjustment, any specified event shall be
deemed to have occurred at the close of business on the date of its occurrence.
9
<PAGE> 10
(iv) Fractional Interests. In computing
adjustments under this section, fractional interests in Common Stock shall be
taken into account to the nearest one-thousandth of a share.
(v) When Adjustment Not Required -- Abandonment
of Plan for Dividend and the Like. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to shareholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(g) Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case the Company shall reorganize its
capital, reclassify its capital stock, merge or consolidate into another
corporation, then the number of shares of stock purchasable upon exercise of
this Warrant shall be adjusted to consist of the number of shares of stock or
other securities that a record holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such event would
own or be entitled to receive immediately after such event.
(h) No Adjustment. Notwithstanding the foregoing, an
adjustment as provided in this Section 5.1 shall not be made if (a) the Company
offers securities to the public pursuant to a registration statement under the
Securities Act, (b) the Company issues securities pursuant to the acquisition by
the Company of any product, technology, know-how or another corporation by
merger, purchase of all or substantially all of the assets, or any other
reorganization whereby the Company owns over fifty percent (50%) of the voting
power of such corporation, (c) the Company issues any shares of Common Stock of
the Company pursuant to options, warrants or rights granted either before or
after the Date of Issuance to purchase shares of such common stock, in favor of
employees, directors, officers or consultants of the Company or any subsidiary
thereof pursuant to a stock option plan or agreement approved by the Company's
Board of Directors; provided that such stock options thereunder, if granted
after the Date of Issuance, are granted at a conversion or exercise price that
the Company's Board of Directors determines in good faith is not less than the
fair market value of the securities into which they are exercisable as of the
date of grant, or (d) the conversion of any securities of the Company into
Common Stock pursuant to the Company's Articles of Incorporation, as amended.
5.2 Notice to Holder. Whenever the Company takes any action that
causes the composition of a Stock Unit to change under Sections 5.1(a) through
5.1(g), the Company shall provide the Holder with written notice of such change
and the number of Warrant Shares for which this Warrant is or will become
exercisable. Such notice will be provided not more than ten (10) days after any
such action has occurred.
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<PAGE> 11
ARTICLE VI
ADDITIONAL NOTICES TO WARRANT HOLDER
In addition to any other notice required hereunder, the Company shall
provide the Holder with a copy of any notice that the Company is required to
provide those Persons holding shares of Common Stock on the same date such
Persons receive such notice.
ARTICLE VII
EXPIRATION
This Warrant shall continue in effect until the earlier of: (i) the
date on which the Warrant has been exercised or cancelled with respect to all of
the Warrant Shares, and (ii) the fifth (5th) anniversary of the Date of
Issuance.
ARTICLE VIII
CERTAIN COVENANTS
8.1 Covenants of the Company. The Company has taken all action
necessary to authorize the issuance of this Warrant and the issuance of shares
of Common Stock upon exercise hereof. The Company covenants and agrees that it
will reserve and set apart and have at all times, free from preemptive rights, a
number of shares of authorized but unissued Common Stock or other securities
deliverable upon the exercise of this Warrant from time to time sufficient to
enable it at any time to fulfill all its obligations hereunder.
8.2 Covenants of the Holder. In the event that the exercise of
this Warrant for Common Stock would require any filing by the Holder under the
Hart Scott Rodino Antitrust Improvements Act of 1976 or any successor law and
rules and regulations issued pursuant to that Act or any successor law (the "HSR
Act"), then, before such exercise, either (i) the parties shall have been
granted early termination of the waiting period under the HSR Act, or (ii) the
applicable waiting period shall have expired without any agency having sought
injunctive relief with respect to the effectiveness of the voting rights. In
addition, if the Holder desires to exercise this Warrant prior to the Initial
Public Offering, the Holder covenants and agrees to execute and deliver to the
Company a joinder agreement pursuant to which the Holder and the Warrant Shares
will be subject to the Company's Restated Shareholders Agreement dated October
18, 1996, as amended, prior to such exercise.
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Warrant contains the entire agreement
between the Holder and the Company with respect to the purchase of the Warrant
Shares and supersedes all prior arrangements or understandings with respect
thereto.
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9.2 Waiver and Amendment. Any term or provision of this Warrant
may be waived at any time by the party that is entitled to the benefits thereof,
and any term or provision of this Warrant may be amended or supplemented at any
time by agreement of the holder hereof and the Company, except that any waiver
of any term or condition, or any amendment or supplementation, of this Warrant
must be in writing. A waiver of any breach or failure to enforce any of the
terms or conditions of this Warrant shall not in any way affect, limit or waive
a party's rights hereunder at any time to enforce strict compliance thereafter
with any term or condition of this Warrant.
9.3 Illegality. In the event that any one or more of the
provisions contained in this Warrant shall be determined to be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
9.4 Filing of Warrant. A copy of this Warrant shall be filed in
the records of the Company.
9.5 Notices. Any notice or other document required or permitted to
be given or delivered to the Holder shall be delivered personally, or sent by
certified or registered mail, to the Holder at the last address shown on the
books of the Company maintained at the Warrant Office for the registration of,
and the registration of transfer of, the Warrant or at any more recent address
of which any Holder shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to the Company
shall be delivered at, or sent by certified or registered mail to, the Warrant
Office, attention: Chief Executive Officer, or such other address within the
United States of America as shall have been furnished by the Company to the
Holder hereof.
9.6 Limitation of Liability; Not Shareholders. No provision of
this Warrant shall be construed as conferring upon the Holder the right to vote,
consent, receive dividends or receive notice other than as herein expressly
provided in respect of meetings of shareholders for the election of directors of
the Company or any other matter whatsoever as a shareholder of the Company. No
provision hereof, in the absence of affirmative action by the Holder to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of such Holder for the purchase price
of any Warrant Shares or as a shareholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
9.7 Loss, Destruction, Etc. of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of the
Warrant, and in the case of any such loss, theft or destruction, upon delivery
of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Warrant, the Company shall make and deliver a new
warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 9.7 in lieu of
any Warrant alleged to be lost, destroyed or stolen, or in
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lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its Chief Executive Officer and its corporate seal to be impressed
hereon as of the 30th day of March, 1999.
WEBMD, INC.
By: /s/ Jeffrey T. Arnold
---------------------------------------
Jeffrey T. Arnold
Its: Chief Executive Officer
[CORPORATE SEAL]
Attest:
By: /s/ W. Michael Heekin
-------------------------------
Name: W. Michael Heekin
-----------------------------
Title: Executive Vice President
----------------------------
14
<PAGE> 15
WARRANT SHARES PURCHASE SCHEDULE
<TABLE>
<CAPTION>
NO. OF SHARES PURCHASED DATE OF PURCHASE NOTATION BY COMPANY OFFICER
<S> <C> <C>
- - - - - ------------------------- -------------------- --------------------------------
- - - - - ------------------------- -------------------- --------------------------------
- - - - - ------------------------- -------------------- --------------------------------
- - - - - ------------------------- -------------------- --------------------------------
- - - - - ------------------------- -------------------- --------------------------------
- - - - - ------------------------- -------------------- --------------------------------
</TABLE>
<PAGE> 16
EXHIBIT A
NOTICE OF EXERCISE
Dated:________________
The undersigned hereby irrevocably elects to exercise its right to
purchase _____ shares of the Common Stock, no par value per share, of WebMD,
Inc., such right being pursuant to a Warrant dated __________,1999, as issued to
E.I. du Pont de Nemours and Company, for up to 4,000,000 shares of Common Stock,
and remits herewith the sum of $_______ in payment for same in accordance with
said Warrant. After giving effect to the foregoing election to exercise, there
shall remain unexercised the right to purchase _____ shares of the Common Stock,
no par value per share (subject to adjustment) under this Warrant.
INSTRUCTIONS FOR REGISTRATION OF COMMON STOCK
Name
----------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------------
Signature:
---------------------------------
Shares Heretofore Purchased
Under Warrant:
- - - - - -----------------------------------
<PAGE> 1
EXHIBIT 10.40
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
SECOND AMENDMENT TO COLLABORATION AGREEMENT
This Amendment (the "Amendment") to that certain Collaboration
Agreement (the "Agreement") entered into as of the 30th day of March, 1999, by
and between WebMD, Inc., a Georgia corporation ("Company"), and E.I. du Pont de
Nemours and Company, a Delaware corporation ("DuPont") is made on the 28th day
of May, 1999.
RECITALS
1. DuPont and WebMD are parties to the Agreement;
2. DuPont and WebMD have agreed upon certain additional terms
with regard to the division of certain revenues according to the terms of the
Agreement; and
3. DuPont and WebMD desire to enter into this Amendment to
provide for such additional terms.
TERMS OF AMENDMENT
1. Schedule 1 of the Agreement is hereby deleted and replaced in
its entirety by the Schedule 1 attached hereto.
IN WITNESS WHEREOF, DuPont and WebMD have executed this Amendment
effective as of the date hereof.
E.I. du Pont de Nemours and Company
By: /s/
-------------------------------------
Its:
-------------------------------------
WebMD, Inc.
By: /s/
-------------------------------------
Its:
-------------------------------------
<PAGE> 2
Schedule 1
DuPont's Share of Revenues
<TABLE>
<CAPTION>
CONSUMER PROFESSIONAL
-------- ------------
<S> <C> <C> <C>
1. Advertising/Sponsorship [*]% [*]% until DuPont recovers
its out of pocket
subscription fees less
payments from Life Science
partners; [*]% thereafter
2. Carriage Fees [*]% [*]% Lounge and Library only
3. Upsales on Services N/A [*]% on net revenue
4. e-Commerce
a. bought through WebMD [*]% of net proceeds [*]% of net proceeds
b. bought through DuPont [*]% of net proceeds [*]% of net proceeds
c. E*Trade payments to WebMD [*]% of net revenue [*]% of net proceeds
based on commissions on
deposit accounts and
securities trading
commissions (the carriage
fees element of the E*Trade
relationship are covered in
#2 above)
</TABLE>
Notes
1. Revenue splits of advertising/sponsorship receipts shall be net of all
direct third party vendor costs (e.g., DoubleClick commissions).
2. Revenues derived from portal agreements (e.g., CNN, Lycos, MSN) are
applied [*]% to DuPont and [*]% to WebMD for the carriage fees paid
until WebMD recovers the portal fees paid, and are then applied as
shown above.
3. Revenue splits of e-commerce receipts shall be net of discounts, bad
debts, returns and direct costs such as advertising, sales, product
costs, distribution and other costs.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS.
-2-
<PAGE> 3
4. Consumer split is for 3 years on e-commerce, and non-pharmaceutical
advertising, sponsorship and carriage, and 5 years on pharmaceutical
advertising, sponsorship and carriage; professional split is for 5
years except as otherwise noted in Section 4.5 of this Agreement.
5. WebMD and DuPont will negotiate in good faith for amendments to the
professional revenue split described above to accommodate proposals by
third parties to sponsor additional physician subscribers to WebMD.
6. DuPont's portion of the revenue derived from the professional site
shall be one-half of the percentages stated in the "Professional"
column of this Schedule 1 pertaining to or derived from the physicians
subscribers to the WebMD service to be sponsored by DuPont under this
Agreement and/or the physician subscribers to the WebMD service to be
sponsored by Microsoft Corporation under that certain Microsoft
Collaboration and Cross-Promotion Agreement between Microsoft
Corporation and WebMD, Inc., dated May 6, 1999.
7. DuPont's right to the revenue derived from Advertising/Sponsorship on
the professional site shall begin on the day it begins sponsorship of
physician subscribers to the WebMD service other than those subscribers
referred to on Schedule 2 of this Agreement.
-3-
<PAGE> 1
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
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THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 30th day
of September, 1998, by and between WebMD, INC., a Georgia corporation ("WebMD")
and JEFFREY T. ARNOLD, an individual (the "Executive"), and is effective as of
the date hereof.
WHEREAS, Executive has made and is expected to continue to make a
significant contribution to the success and development of WebMD in his role as
Chairman and Chief Executive Officer of WebMD; and
WHEREAS, Executive is willing to render services to WebMD on the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Executive and WebMD including,
without limitation, the promises and covenants described herein, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
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EMPLOYMENT
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SECTION 1.1 Term of Employment. The term of Executive's employment
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hereunder shall continue for a period of two (2) years from the effective date
hereof, unless earlier terminated as provided in this Agreement. At the end of
the second year of the initial two-year term, and at the end of each year-long
extension hereof, this Agreement shall automatically be extended for an
additional one-year term unless either party hereto shall give written notice of
its or his intent to terminate three
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hundred sixty (360) days prior to the end of the initial two-year term or any
year-long extension hereof.
SECTION 1.2 Duties and Responsibilities of Executive. Executive is
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hereby employed full time as the Chairman and Chief Executive Officer of WebMD,
shall do and perform all services and acts necessary or advisable to fulfill the
duties of such offices, and shall conduct and perform such additional services
and activities as may be determined from time to time by the Board of Directors
of WebMD. During the term of this Agreement, Executive shall devote his full
time, energy and skill to the business of WebMD and to the promotion of WebMD's
interests, and Executive acknowledges that he has a duty of loyalty to WebMD and
shall not engage in, directly or indirectly, any other business or activity that
could materially and adversely affect WebMD's business or the Executive's
ability to perform his duties under this Agreement.
In his capacity as an officer of WebMD, Executive shall report to the
Board of Directors of WebMD. Executive's authority and responsibility in WebMD
shall at all times be subject to the review and discretion of the Board of
Directors, who shall have the final authority to make decisions regarding the
business of WebMD.
SECTION 1.3 Compensation. For all services to be rendered by
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Executive under this Agreement, WebMD shall pay Executive as follows:
(a) Base Salary. Executive shall be paid an annual gross salary of
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$180,000 payable bi-weekly. At the sole discretion of the Board of Directors of
WebMD, Executive's annual gross salary may be increased, from time to time,
throughout the term of this Agreement, the amount of any such increase to be
determined by the Board of Directors (or by the Compensation Committee thereof).
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(b) Annual Bonus. Executive shall be paid an annual bonus in an
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amount approved by the Board of Directors of WebMD (or by the Compensation
Committee thereof).
SECTION 1.4 Benefits.
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(a) Vacation. Executive shall be entitled to four weeks paid vacation
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annually. Any vacation not used during any calendar year shall be forfeited
except that one week's unused vacation may be carried forward to the year
following the year in which such vacation entitlement accrued.
(b) Life, Disability and Retirement Programs. Executive shall be
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entitled to participate in any life, disability and retirement programs that are
generally offered to or provided for the senior management personnel of WebMD,
said programs to be approved by the Board of Directors.
(c) Group Insurance. Executive shall be entitled to participate in
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such group health and dental insurance programs (including family coverage) as
may from time to time be offered generally to all of the other members of the
senior management personnel of WebMD and its subsidiaries. Executive's
participation shall be on the same basis (including cost provisions) as such
other members of senior management.
SECTION 1.5 Stock Options. WebMD shall grant Executive options to
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purchase One Million (1,000,000) shares of Common Stock, Series D, of WebMD (the
"Options"), such Options to be subject to the terms and conditions set forth
below. The Options shall be adjusted for any change in the total issued common
shares of WebMD (of any class) due to stock splits, stock dividends and similar
transactions.
(a) Grant, Vesting and Exercise. Options to purchase One
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Million (1,000,000) shares of Common Stock, Series D, shall be granted as of the
effective date of this Agreement and at
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the exercise price of fifteen dollars ($15.00) per share. Said Options shall
vest and become exercisable in accordance with the following schedule and shall
remain exercisable through the fourth anniversary of the effective date of this
Agreement, at which time such Options shall expire unless earlier terminated in
accordance with the provisions hereof.
<TABLE>
<CAPTION>
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OPTIONS FOR NUMBER OF SHARES DATE VESTED AND EXERCISABLE
<S> <C>
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333,333 September 30, 1998
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166,667 September 30, 1999
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166,667 September 30, 2000
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333,333 September 30, 2001
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</TABLE>
At the effective time and date of a registration statement filed under
the 1933 Act for a public offering of any series of WebMD's shares, one-half (
1/2) of the Options held by Executive which then have not vested and become
exercisable under the above vesting schedule will immediately vest and become
exercisable. All Options shall vest and become exercisable upon a Change of
Control of WebMD. For purposes of this Section 1.5(a), a "Change of Control"
shall mean a change of the possession, direct or indirect, of the power to
direct or cause the direction of management and policies of WebMD, whether
through ownership of voting securities, by contract (other than a commercial
contract for goods or non-management services), or otherwise. Without
limitation, a Change of Control shall be deemed to have occurred if any person
or entity that is not on the date hereof the beneficial owner of any securities
of WebMD becomes the beneficial owner, directly or indirectly, of 20% or more of
the combined voting power of WebMD's outstanding voting securities ordinarily
having the right to vote for the election of directors of WebMD.
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(b) Return of Options and Repurchase of Shares.
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(i) In the event that Executive voluntarily resigns his
employment with WebMD prior to September 30, 2000, other than in a resignation
following a Constructive Termination (as defined in Section 3.2(b) below) all
then outstanding Options that have been issued to Executive shall be canceled as
of the date of Executive's notice of voluntary resignation. In the event that
Executive voluntarily resigns his employment with WebMD after September 30,
2000, or if Executive resigns his employment with WebMD prior to September 30,
2000 in a resignation following a Constructive Termination, all then outstanding
and exercisable options shall remain exercisable in full for a period of 120
days after the date of such notice of voluntary resignation. WebMD shall have
the option at its sole discretion to purchase any unexercised Options from the
Executive at a price per share equal to the difference between the exercise
price of such Options and the per share Fair Market Value of the shares of
Common Stock underlying such Options determined as of or before the thirtieth
(30/th/) day following the date such notice of voluntary resignation was given,
with the Fair Market Value of such shares of Common Stock to be determined in
the manner set forth in clause (iv) of this Subsection 1.5(b) set forth below.
Furthermore, in the event Executive voluntarily resigns his employment with
WebMD and no registration statement filed under the 1933 Act for a public
offering of any series of WebMD's shares has become effective, then WebMD in its
sole discretion may repurchase any shares of Common Stock purchased by Executive
through the exercise of any Options for an amount equal to the Fair Market Value
of such shares of Common Stock. Any such repurchase of shares by WebMD shall be
accomplished within 180 days after such receipt of such notice of resignation.
(ii) In the event that Executive's employment with WebMD shall be
terminated by WebMD for Cause (as defined in Section 3.1) after September 30,
1999 or at any time without Cause, all then outstanding and unexercised Options
shall become exercisable in full as of the date such notice of termination was
given by WebMD and shall remain exercisable in full for a
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period of 120 days after the date such notice of termination was given by WebMD.
WebMD shall have the option at its sole discretion to purchase any unexercised
Options from the Executive at a price per share equal to the difference between
the exercise price of such Options and the per share Fair Market Value of the
shares of Common Stock underlying such Option determined as of or before the
thirtieth (30/th/) day following the date such notice of termination was given
by WebMD, with the Fair Market Value of such shares of Common Stock to be
determined in the manner set forth in clause (iv) of Subsection 1.5(b) appearing
below. Furthermore, if no registration statement filed under the 1933 Act for a
public offering of any series of WebMD's Common Stock has become effective, then
WebMD in its sole discretion may repurchase any shares of Common Stock purchased
by Executive through the exercise of any Options for an amount equal to the Fair
Market Value of the shares of Common Stock. Any such repurchase of the shares of
Common Stock shall be accomplished within 180 days after the date such notice of
termination was given by WebMD.
(iii) In the event Executive's employment with WebMD shall be
terminated by WebMD for Cause on or before September 30, 1999, all then
outstanding Options will be canceled.
(iv) The Fair Market Value of a share of Common Stock, Series D,
on the date specified by WebMD shall mean (i) the closing sales price of the
Common Stock of WebMD on such date on the national securities exchange (treating
the Nasdaq National Market System as a national securities exchange) having the
greatest volume of trading in the Common Stock during the thirty (30) day period
preceding the day the value is to be determined or, if such exchange was not
open for trading on such date, the next preceding date on which it was open;
(ii) if the Common Stock is not traded on any national securities exchange, the
average of the closing high bid and low asked prices of the Common Stock on the
over-the-counter market, in arms-length transactions not involving an affiliate
of WebMD, on the day such value is to be determined, or in the absence of
closing bids on such day, the closing bids on the next preceding day on which
there were bids; (iii) if
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the Common Stock also is not traded on the over-the-counter market, the average
net proceeds per share received or the price paid by WebMD with respect to
shares of Common Stock of any series sold or purchased by WebMD in arms length
transactions during the ninety (90) days preceding the day the value is to be
determined; or (iv) if no such purchases or sale transactions by WebMD have
occurred within such ninety (90) day period, the Fair Market Value as determined
in good faith by the Board of Directors of WebMD based on (a) such relevant
facts as may be available to such Board, which may include opinions of
independent experts, the price at which recent purchases or sales have been made
by third parties, the per share book value of the Common Stock, and WebMD's
current and future earnings or (b) an independent appraisal, conducted at
WebMD's expense, by a qualified financial appraiser who is reasonably
satisfactory to both WebMD and Executive, provided that the selection of method
(a) or (b) shall be by mutual agreement of the Board and Executive.
(c) Initial Public Offering. In the event that WebMD shall undertake
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an initial public offering ("IPO") of any series of its stock, pursuant to which
it files a registration statement in accordance with the 1933 Act, notice of the
filing of such registration statement shall be provided to Executive, and upon
the effective date of such registration statement (i) pursuant to and in
accordance with the Restated Shareholders Agreement, each one (1) outstanding
share of Common Stock, Series D, will become one (1) share of Common Stock
without series designation, (ii) pursuant to and in accordance with Section
1.5(a) above, one-half ( 1/2) of the Executive's then-unvested Options shall
immediately vest and become exercisable, and (iii) WebMD shall have no right to
repurchase any shares of Common Stock obtained by his exercise of any Options.
SECTION 1.6 Business Expenses. Executive shall be entitled to reimbursement
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of all ordinary and necessary business expenses reasonably incurred for business
travel, communications (including cell phone and pager), entertainment and meals
in connection with the performance of Executive's duties under this Agreement in
accordance with WebMD's established policies for reimbursement of business
expenses including an automobile allowance of Seven Hundred Dollars
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($700.00) per month. WebMD will also pay the initiation fees, membership dues
and assessments for Executive's family membership in a club in the Atlanta area
acceptable to WebMD and Executive which would permit Executive to engage in
business entertainment for the benefit of WebMD. WebMD expects Executive to
attend and participate in continuing education seminars and courses with respect
to the health industry and business management related to his duties, and WebMD
will reimburse all ordinary and necessary expenses of such attendance and
participation.
ARTICLE II
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COVENANTS OF EXECUTIVE
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SECTION 2.1 Confidentiality. Executive recognizes the interest of WebMD
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in maintaining the confidential nature of its proprietary and other business and
commercial information. In connection therewith, Executive covenants that
during the term of his employment with WebMD under this Agreement, and for a
period of one (1) year thereafter, Executive shall not, directly or indirectly,
except as authorized by the Board of Directors, publish, disclose or use for his
own benefit or for the benefit of a business or entity other than WebMD or
otherwise, any secret or confidential matter, or proprietary or other
information not in the public domain that was acquired by Executive during his
employment, relating to WebMD, or any of its subsidiaries' businesses,
operations, customers, suppliers, products, employees, financial affairs or
industrial practices, technology, know-how or intellectual property or other
similar information (the "Proprietary Information").
Executive will abide by WebMD's policies and regulations, as established
from time to time, for the protection of its Proprietary Information. Executive
acknowledges that all records, files, data, documents and the like relating to
suppliers, customers, costs, prices, systems, methods, personnel, technology and
other materials relating to WebMD or its affiliated entities shall be and remain
the sole property of WebMD and/or such affiliated entity and shall, upon the
request of WebMD, turn
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over all copies of such Proprietary Information to WebMD (together with a
written statement certifying as to his compliance with the foregoing).
SECTION 2.2 Non-Solicitation of Customers and Non-Competition. During
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the term of his employment with WebMD, and for a period of one (1) year
thereafter, Executive shall not directly or indirectly, through one or more
intermediaries or otherwise, solicit or accept, or attempt to solicit or accept
any business from any customer or client of WebMD, including actively sought
prospective customers, with whom Executive had material contact, for the purpose
of providing services or products to such customer or client which are
competitive with the services or products offered or provided by WebMD.
During the Executive's employment with WebMD, and for the one (1) year
period following the termination of Executive's employment with WebMD for any
reason, Executive shall not, without the prior written consent of the Board of
Directors, which consent may be withheld at the sole discretion of the Board of
Directors, perform the Services (as defined below) in the Territory (as defined
below) on behalf of any entity (other than WebMD) in the Business (as defined
below). For purposes hereof, "Services" means the oversight and management of
sales, marketing, strategic planning and operations. For purposes hereof,
"Territory" means the geographic area within a 50 mile radius of the current
principal executive offices of WebMD. For purposes hereof, "Business" means the
delivery of information and communications services to the healthcare industry.
SECTION 2.3 Non-Solicitation of Employees. During the term of
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Executive's employment with WebMD, and for a period of one (1) year thereafter,
Executive shall not, directly or indirectly, through one or more intermediaries
or otherwise, employ, induce, solicit for employment, or assist others in
employing, inducing or soliciting for employment, any individual who is or was
an employee of WebMD and with whom Executive had material contact in an attempt
to have any such individual work in any other entity in the Business (as defined
above).
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SECTION 2.4 Trade Secrets. The Executive shall not, at any time, either
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during the term of his employment or after any termination of employment, use or
disclose any Trade Secrets (as defined under applicable law) of WebMD or its
subsidiaries, except in fulfillment of his duties as the Executive during his
employment, for so long as the pertinent information or data remain Trade
Secrets, whether or not the Trade Secrets are in written or tangible form.
ARTICLE III
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TERMINATION OF EMPLOYMENT
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SECTION 3.1 Termination by Company. Executive's employment may be
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terminated by WebMD by giving notice during the term of this Agreement upon the
occurrence of one or more of the following events:
(a) Executive's death or disability which renders Executive incapable
of performing his duties for more than one hundred twenty (120) calendar days in
one calendar year or within consecutive calendar years (termination under this
Section 3.1(a) shall be deemed termination without Cause);
(b) for any reason (other than those set forth in Section 3.1(c))
following a determination by the Board of Directors of WebMD to terminate
Executive's employment (termination under this Section 3.1(b) shall be deemed
termination without Cause); or
(c) "for Cause," which for purposes of this Agreement shall mean that
the Executive shall have committed or engaged in:
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(i) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with WebMD;
(ii) any intentional wrongful damage to any material assets of
WebMD;
(iii) any intentional wrongful disclosure of Proprietary Information
or Trade Secrets of WebMD or its affiliates;
(iv) a felony or any similar crime involving dishonesty or moral
turpitude; or
(v) the habitual and debilitating use of alcohol or drugs.
SECTION 3.2 Severance. For purpose of this Agreement, Executive's
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entitlement to any severance payments upon termination of his employment shall
be as set forth below:
(a) Termination Without Cause. Executive shall be entitled to 12
-------------------------
months salary continuation, payable in bi-weekly installments, and continued
participation in WebMD's group health and dental insurance program upon the
timely periodic payment of the amount required by WebMD for employees to
maintain family coverage for such programs, as severance pay in the event that
the Executive's employment is terminated without Cause, commencing as of the
date of Executive's death or disability for purposes of Section 3.1(a), or the
date specified in a notice given under Section 3.1(b), or the date of
Constructive Termination (as defined below). Executive's resignation following
a Constructive Termination shall be deemed a termination without Cause.
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(b) Voluntary Termination. Executive shall not receive any
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severance pay in the event that he voluntarily resigns his employment with WebMD
(other than a resignation following a Constructive Termination) unless such
severance pay is approved by the Board of Directors of WebMD in its sole
discretion. Executive shall provide a minimum of thirty (30) days prior notice
to the Board of Directors of his resignation. In the event Executive shall
provide thirty (30) days prior written notice of his intent to resign, WebMD may
accept such resignation effective as of any date during such thirty (30) day
period as WebMD deems appropriate, provided that Executive shall receive from
WebMD his salary and be entitled to participate at WebMD's expense in any
company-sponsored benefit programs in which he was a participant as of the
effective date of his resignation for the duration of such thirty (30) day
period. For purposes of this Agreement, "Constructive Termination" shall mean:
(i) Such change in duties or position as:
(a) The assignment (other than an occasional temporary
assignment) to Executive of any duties not commensurate with Executive's
position, duties, responsibilities and status with WebMD;
(b) A material change in Executive's reporting
responsibilities, (i.e., reporting to a lower tier) or a diminution in
Executive's titles or offices; or
(c) A material diminution of Executive's authority or
responsibilities.
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(ii) A reduction in Executive's base salary specified in Section 1.3(a)
for the calendar year 1998, and a reduction in Executive's base salary in effect
for the prior calendar year for all succeeding years (other than pro rata
reductions in compensation for all senior management of WebMD and its
subsidiaries).
(iii) The requirement that Executive be based anywhere other than
within 50 miles of WebMD's current offices.
(c) For Cause. Executive shall not be entitled to any severance pay
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whatsoever in the event that his employment is terminated "for Cause" pursuant
to Section 3.1(c) of this Agreement, unless severance pay is approved by the
Board of Directors of WebMD in its sole discretion.
ARTICLE IV
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GENERAL PROVISIONS
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SECTION 4.1 Withholding of Taxes. WebMD may withhold from any amounts
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payable under this Agreement all federal, state, city or other taxes and
withholdings as shall be required pursuant to any applicable law, rule or
regulation.
SECTION 4.2 Notice. For purposes of this Agreement, all communications
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including, without limitation, notices, consents, requests or approvals,
provided for herein shall be in writing and shall be deemed to have been duly
given (i) when personally delivered, (ii) on the day of transmission when given
by facsimile transmission with confirmation of receipt, (iii) on the following
day if submitted to a nationally recognized courier service, or (iv) five (5)
business days after having been mailed by United States registered mail or
certified mail, return receipt requested,
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postage prepaid, addressed to WebMD (to the attention of the Secretary of WebMD)
at its principal executive office or to Executive at his principal residence, or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
SECTION 4.3 Governing Law. The validity, interpretation, construction,
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performance and enforcement of this Agreement shall be governed by the laws of
the State of Georgia, without giving effect to the principles of conflict of law
of such State.
SECTION 4.4 Validity. If any provision of this Agreement or the application
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of any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it valid, enforceable and legal; provided, however, if the provision so
held to be invalid, unenforceable or otherwise illegal constituted a material
inducement to a party's execution and delivery of this Agreement, such provision
shall not be reformed unless prior to any reformation that party agrees to be
bound by the reformation.
SECTION 4.5 Entire Agreement. This Agreement supersedes any other
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agreements, oral or written, between the parties with respect to the subject
matter hereof, and contains all of the agreements and understandings between the
parties with respect to the employment of Executive by WebMD. Any waiver or
modification of any term of this Agreement shall be effective only if it is set
forth in a writing signed by all parties hereto.
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SECTION 4.6 Successors and Binding Agreement.
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(a) This Agreement shall be binding upon and inure to the benefit of
WebMD and any Successor of or to WebMD, but shall not be otherwise be assignable
or delegable by WebMD. "Successor" shall mean any successor in interest,
including, without limitation, any entity, individual or group of persons
acquiring directly or indirectly all or substantially all of the business or
assets of WebMD, whether by sale, merger, consolidation, reorganization or
otherwise.
(b) WebMD shall require any Successor to agree at the time of becoming
a Successor to perform this Agreement to the same extent as the original parties
would be required if no succession had occurred.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators, heirs,
distributees and legatees.
(d) This Agreement is personal in nature and neither of the parties
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
this Section 4.6.
SECTION 4.7 Captions. The captions in this Agreement are solely for
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convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
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SECTION 4.8 Miscellaneous. No provisions of this Agreement may be modified,
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waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Executive and WebMD. No waiver by a party hereto at any
time of any breach by another party hereto or compliance with any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
SECTION 4.9 Counterparts. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
WebMD, INC.
By: /s/ W. Michael Heekin
------------------------------
W. Michael Heekin
Chief Operating Officer
EXECUTIVE
/s/ Jeffrey T. Arnold
---------------------------------
Jeffrey T. Arnold
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EXHIBIT 10.42
JEFFREY T. ARNOLD
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, GA 30326
May 20, 1999
WebMD, Inc. Healtheon Corporation
400 The Lenox Building 4600 Patrick Henrey Road
3399 Peachtree Road, NE Santa Clara, CA 95054
Atlanta, GA 30326
Ladies and Gentlemen:
Reference is hereby made to the Agreement and Plan of Reorganization
by and among Healtheon Corporation, Water Acquisition Corp. and WebMD, Inc.,
dated as of the date hereof (the "Merger Agreement") and to the Employment
Agreement by and between WebMD, Inc. and mo. dated as of September 30, 1998
(the "Employment Agreement"). Capitalized terms used herein which are not
defined herein shall have their respective meanings set forth in the Employment
Agreement. This letter is to confirm that, subject to the terms and conditions
set forth below, I hereby waive the acceleration of vesting and exercisability
of my Options granted pursuant to the Employment Agreement which occur upon the
consummation of the transactions contemplated by the Merger Agreement (the
"Merger"). Notwithstanding the foregoing, if at any time following such Merger,
I am terminated other than for Cause, including, without limitation, if I am
terminated in a Constructive Termination, then all of my Options granted
pursuant to the Employment Agreement shall immediately vest and become fully
exercisable on the date of such termination.
With respect to the Offer to Purchase, I hereby confirm that I will
mutually agree with W. Michael Long with respect to the number of shares of
Series F Preferred Stock that I may tender to Microsoft.
Very truly yours,
/s/ Jeffrey T. Arnold
---------------------------------------
Jeffrey T. Arnold
ACKNOWLEDGED AND AGREED:
<TABLE>
<S> <C>
WEBMD, INC. HEALTHEON CORPORATION
By: /s/ W. Michael Heekin By: /s/ Jack Dennison
----------------------------------- -----------------------------------
Name: W. Michael Heekin Name: Jack Dennison
Title: Executive Vice President Title: Vice President
Date: May 20, 1999 Date: May 20, 1999
</TABLE>
<PAGE> 1
EXHIBIT 10.43
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND AS
SUCH MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO SUCH WARRANT OR SECURITIES, OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144
PROMULGATED UNDER THE ACT OR UNLESS THE COMPANY SHALL RECEIVE AN OPINION FROM
COUNSEL TO HOLDER, REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER CONTAINED IN ARTICLE IV
HEREOF.
WARRANT TO PURCHASE SECURITIES
OF HEALTHEON/WEBMD, INC.
THIS CERTIFIES that, for value received, Healtheon/WebMD Corporation,
a Delaware corporation (the "COMPANY"), hereby grants to Gleacher & Co. LLC or
its registered assigns (the "HOLDER"), the right to purchase up to 706,247
shares of Common Stock, par value $0.0001 per share (the "COMMON STOCK"), of
the Company subject to the terms and conditions set forth herein. This warrant
is hereinafter referred to as the "WARRANT."
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"ACT": the federal Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.
"COMMISSION": the Securities and Exchange Commission or any other
federal agency then administering the Act.
"COMPANY": Healtheon/WebMD Corporation, a Delaware corporation,
located at 400 The Lenox Building, 3399 Peachtree Road, Atlanta, Georgia,
30326, and any other corporation assuming or required to assume the Warrant
pursuant to Article V.
"EXERCISE PRICE": $8.04 per share.
"HOLDER": as defined on the first page hereof.
"LETTER AGREEMENT": Letter Agreement dated January 27, 1999 between
the Company and Gleacher NatWest regarding the provision of financial advisory
services by Gleacher NatWest to the Company.
<PAGE> 2
"MARKET PRICE": with respect to a share of Common Stock on any
business day: (a) if such security is listed or admitted for trading on any
national securities exchange, the last sale price of such security, regular
way, or the average of the closing bid and asked prices thereof if no such sale
occurred, in each case as officially reported on the principal securities
exchange on which such security is listed, or (b) if not reported as described
in clause (a), the average of the closing bid and asked prices of such security
in the over-the-counter market as shown by the National Association of
Securities Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then in common use,
if so quoted, as reported by any member firm of the New York Stock Exchange
selected by the Company, or (c) if not quoted as described in clause (b), the
average of the closing bid and asked prices for such security as reported by
the National Quotation Bureau Incorporated or any similar successor
organization, as reported by any member firm of the New York Stock Exchange
selected by the Company. If such security is quoted on a national securities or
central market system in lieu of a market or quotation system described above,
the closing price shall be determined in the manner set forth in clause (a) of
the preceding sentence if actual transactions are reported and in the manner
set forth in clause (b) of the preceding sentence if bid and asked prices are
reported but actual transactions are not.
"PERSON": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political subdivision,
instrumentality or agency thereof.
"STOCK UNIT": one share of Common Stock, as such stock is constituted
on the date hereof and thereafter the number of shares of Common Stock as shall
result from the adjustments specified in Article V.
"VESTING DATE": each date on which rights to purchase shares of Common
Stock pursuant to this warrant may vest.
"WARRANT OFFICE": as defined in Section 3.1.
"WARRANT SHARES": the shares of Common Stock purchasable by the Holder
upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 VESTING AND EXERCISABILITY. The right to purchase shares of Common
Stock shall immediately vest and become exercisable on the date hereof. Absent
an adjustment pursuant to the terms of this Warrant, the maximum aggregate
number of shares of Common Stock that may be subject to purchase hereunder
shall be 706,247.
2.2 METHOD OF EXERCISE. To the extent this Warrant is exercisable from
time to time, to exercise this Warrant, the Holder shall deliver to the Company
at the Warrant Office designated to Section 3.1 (a) a Notice of Exercise
substantially in the form attached hereto as Exhibit A duly executed by the
Holder specifying the number of Warrant Shares to be purchased; (b) payment of
an amount equal to the aggregate Exercise Price for all such Warrant Shares,
which shall be made (i) in cash or by certified or bank cashier's check payable
to the order of the Company, or (ii) by delivery to the Company of that number
of shares of Common Stock having a value computed based upon the Market
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<PAGE> 3
Price, equal to the then applicable Exercise Price multiplied by the number of
Warrant Shares then being purchased, and (c) this Warrant. In the alternative,
this Warrant may be exercised on a net basis, such that, without the exchange
of any funds, the Holder receives that number of Warrant Shares subscribed to
less that number of Warrant Shares having an aggregate value computed based
upon the Market Price equal to the aggregate Exercise Price that would
otherwise have been paid by such Holder for the number of Warrant Shares
subscribed to. The Company shall, as promptly as practicable, and in any event
within five (5) days thereafter, cause to be issued and delivered to the Holder
(or its nominee) or the transferee designated in the Notice of Exercise a
certificate or certificates representing the number of Warrant Shares specified
in the Notice of Exercise. The stock certificate or certificates so delivered
shall be in denominations of shares as my be specified in said notice and shall
be issued in the name of the Holder or such other name as shall be designated
in said notice. At the time of delivery of the certificate or certificates,
appropriate notation shall be made on the Warrant Shares Purchase Schedule
attached to this Warrant designating the number of shares purchased, and this
Warrant shall then be returned to the Holder if this Warrant has been exercised
only in part. The Holder or transferee so designated in the Notice of Exercise
shall be deemed to have become the Holder of such Warrant Shares for all
purposes as of the close of business on the date on which the Notice of
Exercise is delivered to the Warrant Office, provided that an amount equal to
the aggregate Exercise Price and this Warrant shall have also been delivered to
the Company. The Company shall pay all expenses, taxes, (excluding capital
gains and income taxes) and other charges payable in connection with the
preparation, issuance and delivery of stock certificates, except that, in case
stock certificates shall be registered in a name or names other than the name
of the Holder, funds sufficient to pay all stock transfer taxes payable upon
the issuance of stock certificates shall be paid by the Holder promptly upon
the receipt of a written request of the Company therefor.
2.3 SHARES TO BE FULLY PAID AND NON-ASSESSABLE. All Warrant Shares
issued upon the exercise of this Warrant shall validly issued, fully paid,
non-assessable and free from preemptive rights.
2.4 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not be
required upon any exercise of this Warrant to issue to certificate representing
any fraction of a share of Common Stock.
2.5. LEGEND ON WARRANT SHARES. Each certificate for Warrant Shares
issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Act, shall bear substantially the following
legend (and any additional legend required by any national securities exchanges
upon which such shares may, at the time of such exercise, be listed or under
applicable securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND AS SUCH MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO SUCH WARRANT OR SECURITIES, OR UNLESS SOLD IN
FULL COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT OR UNLESS THE
COMPANY SHALL RECEIVE AN OPINION FROM COUNSEL TO HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of counsel to the Company, the securities represented
thereby need no
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<PAGE> 4
longer be subject to the restrictions on transferability. In addition, the
provisions of Article IV shall be binding upon all subsequent holders of this
Warrant.
2.6 ACKNOWLEDGMENT OF CONTINUING OBLIGATION. The Company shall, at the
time of any exercise of this Warrant in whole or in part, upon request of the
Holder, acknowledge in writing its continuing obligation to such holder in
respect of any rights to which the Holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure
of the Holder to make any such request shall not affect the continuing
obligation of the Company to the Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER, DIVISION
OR COMBINATION OF WARRANTS
3.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "WARRANT OFFICE"), which office shall initially
be the Company's location set forth in Article I hereof, and may subsequently
be such other office of the Company or of any transfer agent of the Common
Stock in the continental United States as to which written notice has
previously been given to all of the Holders of the Warrants.
3.2 OWNERSHIP OF WARRANT. The Company may deem and treat the Person in
whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant for registration of
transfer as provided in this Article III.
3.3 TRANSFER OF WARRANT. The Company agrees to maintain at the Warrant
Office books for the registration of permitted transfers of this Warrant.
Subject to the provisions of Article IV, this Warrant and all rights hereunder
are transferable, in whole or in part, on the books at that office, upon
surrender of this Warrant at that office, together with a written assignment of
this Warrant duly executed by the Holder or his or its duly authorized agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of the transfer. Subject to Article IV, upon surrender and payment, the Company
shall execute and deliver a new Warrant in the name of the assignee, noting
thereon the number of Warrant Shares theretofore purchased under this Warrant,
and this Warrant shall promptly be canceled. A warrant may be exercised by a
new Holder for the purchase of shares of Common Stock without having a new
warrant issued.
3.4 DIVISION OR COMBINATION OF WARRANTS. This Warrant may not be
divided or combined with any other warrant.
3.5 EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all
expenses, taxes (other than transfer taxes), and other charges payable in
connection with the preparation, issuance and delivery of new Warrants
hereunder.
4
<PAGE> 5
ARTICLE IV
RESTRICTION ON TRANSFER
4.1 RESTRICTIONS ON EXERCISE AND TRANSFER. Notwithstanding any
provisions contained in this Warrant to the contrary, this Warrant shall not be
exercisable or transferable except upon the conditions specified in this
Article IV, which conditions are intended, among other things, to insure
compliance with the provisions of the Act in respect of the exercise or
transfer of the Warrant.
4.2 OPINION OF COUNSEL. In connection with any exercise or transfer of
this Warrant, the following provisions shall apply:
(a) If in the written opinion of counsel to the Holder
delivered to the Company (which opinion and counsel must be reasonably
acceptable to the Company), proposed exercise or transfer of this Warrant may
be effected without registration of this Warrant or the Common Stock issuable
hereunder under the Act, the Holder shall be entitled to exercise or transfer
this Warrant as proposed. In no event shall the Company be obligated (i) to
effect a registration under the Act or any state securities law so as to permit
the proposed exercise or transfer of this Warrant or (ii) to qualify to do
business or to file a general consent to service of process in any state or
other jurisdiction.
(b) If in the opinion of such counsel, the proposed exercise
or transfer of this Warrant may not be effected without registration of this
Warrant under the Act, the Holder shall not be entitled to exercise or transfer
this Warrant until registration is effective or until exercise or transfer may
be effected without registration, in the opinion of such counsel as set forth
in Section 4.2(a) above.
ARTICLE V
ADJUSTMENTS
5.1 ADJUSTMENTS TO NUMBER OF STOCK UNITS. The number of shares of
Common Stock comprising a Stock Unit shall be subject to adjustment from time
to time as set forth in this Section 5.1.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATION. In case at
any time or from time to time the Company shall: (i) take a record of the
holders of its Common Stock of any series for the purpose of entitling them to
receive a dividend payable in, or other distribution of, Common Stock, or (ii)
subdivide its outstanding shares of Common Stock into a larger number of shares
of Common Stock, or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock; then the number of shares of Common
Stock comprising a Stock Unit immediately after the happening of any such event
shall be adjusted so as to consist of the number of shares of Common Stock that
a record holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to the happening of such event would own or be entitled to
receive after the happening of such event. The adjustments required by this
subsection shall be made whenever and as often as any specified event requiring
an adjustment shall occur.
(b) CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. In case at any
time or from time to time the Company shall take a record of the holders of its
Common Stock for the purpose of entitling
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<PAGE> 6
them to receive any dividend or other distribution of: (i) cash (other than a
cash distribution made as a dividend payable out of the net earnings or net
profits of the Company realized during the year of such distribution or the
last preceding year and accumulated net earnings or net profits of the Company
from the date hereof to the time of such distribution, computed in accordance
with generally accepted accounting principles employed by the Board of
Directors of the Company for purposes of financial reports to shareholders of
the Company); or (ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever (other than
cash); then at least five (5) business days prior to the record date to
determine shareholders entitled to receive such dividend or distribution, the
Company shall give notice of such proposed dividend or distribution to the
Holder for the purpose of enabling the Holder to exercise the same, and thereby
participate in such dividend or distribution.
(c) OTHER PROVISIONS APPLICABLE TO ADJUSTMENT UNDER THIS
SECTION. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock comprising a Stock Unit
hereinbefore provided for in this Section 5.1:
(i) When Adjustments to be Made. The adjustments
required by the preceding subsections of this Section 5.1 shall be made
whenever and as often as any specified event requiring an adjustment shall
occur, except that no adjustment of the number of shares of Common Stock
comprising a Stock Unit that would otherwise be required shall be made (except
in the case of a subdivision or combination of shares of the Common Stock, as
provided for in Subsection 5.1 (a)) unless and until such adjustment, either by
itself or with other adjustments not previously made, adds or subtracts at
least 1/20th of a share to or from the number of shares of Common Stock
comprising a Stock Unit immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) shall be carried forward and made as soon as such adjustment,
together with other adjustments required by this section and not previously
made, would result in a minimum adjustment. For the purpose of any adjustment,
any specified event shall be deemed to have occurred at the close of business
on the date of its occurrence.
(ii) Fractional Interests. In computing adjustments
under this section, fractional interests in Common Stock shall be taken into
account to the nearest one-thousandth of a share.
(iii) When Adjustment Not Required - Abandonment of
Plan for Dividend and the Like. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to shareholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made in respect
thereof shall be rescinded and annulled.
(d) REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION
OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, merge or consolidate into another corporation,
then the number of shares of stock purchasable upon exercise of this Warrant
shall be adjusted to consist of the number of shares of stock or other
securities that a record holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such event would
own or be entitled to receive immediately after such event.
5.2. NOTICE TO HOLDER. Whenever the Company takes any action that
causes the
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<PAGE> 7
composition of a Stock Unit to change under Sections 5.1(a) through
5.1(d), the Company shall provide the Holder with written notice of such change
and the number of Warrant Shares for which this Warrant is or will become
exercisable. Such notice will be provided not more than ten days after any such
action has occurred.
ARTICLE VI
ADDITIONAL NOTICES TO WARRANT HOLDER
In addition to any other notice required hereunder, the Company shall
provide the Holder with a copy of any notice that the Company is required to
provide those Persons holding shares of Common Stock on the same date such
persons receive such notice.
ARTICLE VII
EXPIRATION
Rights to purchase shares under this Warrant shall expire and may not
be exercised after January 27, 2004, with respect to 84,562 shares, and January
27, 2005, with respect to 621,685 shares.
ARTICLE VIII
CERTAIN COVENANTS OF THE COMPANY
The Company has taken all action necessary to authorize the issuance
of this Warrant and the issuance of shares of Common Stock upon exercise
hereof. The Company covenants and agrees that it will reserve and set apart and
have at all times, free from preemptive rights, a number of shares of
authorized but unissued Common Stock or other securities deliverable upon the
exercise of this Warrant from time to time sufficient to enable it at any time
to fulfill all its obligations hereunder.
ARTICLE IX
MISCELLANEOUS
9.1. ENTIRE AGREEMENT. This Warrant and the Letter Agreement contain
the entire agreement between the Holder and the Company with respect to the
purchase of the Warrant Shares and supersede all prior arrangements or
understandings with respect thereto.
9.2. WAIVER AND AMENDMENT. Any term or provision of this Warrant may
be waived at any time by the party that is entitled to the benefits thereof,
and any term or provision of this Warrant may be amended or supplemented at any
time by agreement of the holder hereof and the Company, except that any waiver
of any term or condition, or any amendment or supplementation, of this Warrant
must be in writing. A waiver of any breach or failure to enforce any of the
terms or conditions of this Warrant shall not in any way affect, limit or waive
a party's rights hereunder at any time to enforce strict compliance thereafter
with any term or condition of this Warrant. In the event this Warrant is ever
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<PAGE> 8
divided and held by more than one person, the "Holder" for such purposes shall
mean the holders of a majority of the Warrant Shares.
9.3. ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
9.4. FILING OF WARRANT. A Copy of this Warrant shall be filed in the
records of the Company.
9.5 NOTICE. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered personally, or sent by
certified or registered mail, to the Holder at the 1ast address shown on the
books of the Company maintained at this Warrant Office for the registration of
the Warrant or at any more recent address of which any Holder shall have
notified the Company in writing. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered at, or
sent by certified or registered mail to, the Warrant Office, attention: Chief
Executive Officer, or such other address within the United States of America as
shall have been finished by the Company to the Holder hereof.
9.6 LIMITATION OF LIABILITY; NOT SHAREHOLDERS. No provision of this
Warrant shall be construed as confirming upon the Holder the right to vote,
consent, receive dividends, or receive notice other than as herein expressly
provided in respect of meetings of shareholders for the election of directors
of the Company or any other matter whatsoever as a shareholder of the Company.
No provision hereof, in the absence of affirmative action by the Holder to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of the Holder, shall give rise to any liability of such Holder for the purchase
price of any Warrant Shares or as a shareholder of the Company, whether such
liability is asserted by the Company or by the creditors of the Company.
9.7 LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
the Warrant, and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such firm and amount shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Warrant, the Company shall make and deliver a new
warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 9.7 in lieu of
any Warrant alleged to be lost, destroyed or stolen, or in lieu of any
mutilated Warrant, shall constitute an original contractual obligation on the
part of the Company.
[SIGNATURES FOLLOW ON THE NEXT PAGE]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its Chief Executive Officer and its corporate seal to be
impressed hereon as of the 9th day of March, 2000.
<TABLE>
<S> <C>
[CORPORATE SEAL] HEALTHEON/WEBMD CORPORATION
Attest:
By: /s/ L. Scott Askins By: /s/ K. Robert Draughon
------------------------------------ ------------------------------------
Name: L. Scott Askins Name: K. Robert Draughon
Title: Assistant General Counsel Title: Executive Vice President
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
NO. OF SHARES PURCHASED DATE OF PURCHASE NOTATION BY COMPANY OFFICER
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</TABLE>
<PAGE> 11
EXHIBIT A
TO WARRANT
NOTICE OF EXERCISE
Dated:______________
The undersigned hereby irrevocably elects to exercise its right to
purchase ______ shares of the Common Stock, par value $0.0001 per share, of
Healtheon/WebMD Corporation, such right being pursuant to a Warrant dated
__________ , 2000, as issued to Gleacher & Co. LLC, for up to 706,247 shares of
such Common Stock, and (i) remits herewith the sum of $_______ in payment for
same in accordance with said warrant or (ii), in accordance with Section 2.2 of
the Warrant, elects to receive such number of shares by having credited to the
undersigned the Market Value (as such term is defined in the Warrant) of a
sufficient number of additional shares of Common Stock for which the Warrant
could otherwise be exercised such that such Market Value equals the Exercise
Price for such shares of Common Stock.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------
Signature:
--------------------------------------------------
Shares Heretofore Purchased Under Warrant:
--------------------------------------------------------
<PAGE> 1
EXHIBIT 10.44
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND AS
SUCH MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO SUCH WARRANT OR SECURITIES, OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144
PROMULGATED UNDER THE ACT OR UNLESS THE COMPANY SHALL RECEIVE AN OPINION FROM
COUNSEL TO HOLDER, REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED.
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER CONTAINED IN ARTICLE IV
HEREOF.
WARRANT TO PURCHASE SECURITIES
OF HEALTHEON/WEBMD, INC.
THIS CERTIFIES that, for value received, Healtheon/WebMD Corporation,
a Delaware corporation (the "COMPANY"), hereby grants to Eric J. Gleacher (the
"HOLDER"), the right to purchase up to 418,627 shares of Common Stock, par
value $0.0001 per share (the "COMMON STOCK"), of the Company subject to the
terms and conditions set forth herein. This warrant is hereinafter referred to
as the "WARRANT."
ARTICLE I
CERTAIN DEFINITIONS
For all purposes of this Warrant, unless the context otherwise
requires, the following terms shall have the following respective meanings:
"ACT": the federal Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect at the time.
"COMMISSION": the Securities and Exchange Commission or any other
federal agency then administering the Act.
"COMPANY": Healtheon/WebMD Corporation, a Delaware corporation,
located at 400 The Lenox Building, 3399 Peachtree Road, Atlanta, Georgia,
30326, and any other corporation assuming or required to assume the Warrant
pursuant to Article V.
"EXERCISE PRICE": $8.04 per share.
"HOLDER": as defined on the first page hereof.
"MARKET PRICE": with respect to a share of Common Stock on any
business day: (a) if such security is listed or admitted for trading on any
national securities exchange, the last sale price of such security, regular
way, or the average of the closing bid and asked prices thereof if no such sale
occurred, in each case as officially reported on the principal securities
exchange on which such security
<PAGE> 2
is listed, or (b) if not reported as described in clause (a), the average of
the closing bid and asked prices of such security in the over-the-counter
market as shown by the National Association of Securities Dealers, Inc.
Automated Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, as reported
by any member firm of the New York Stock Exchange selected by the Company, or
(c) if not quoted as described in clause (b), the average of the closing bid
and asked prices for such security as reported by the National Quotation Bureau
Incorporated or any similar successor organization, as reported by any member
firm of the New York Stock Exchange selected by the Company. If such security
is quoted on a national securities or central market system in lieu of a market
or quotation system described above, the closing price shall be determined in
the manner set forth in clause (a) of the preceding sentence if actual
transactions are reported and in the manner set forth in clause (b) of the
preceding sentence if bid and asked prices are reported but actual transactions
are not.
"PERSON": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political subdivision,
instrumentality or agency thereof.
"STOCK UNIT": one share of Common Stock, as such stock is constituted
on the date hereof and thereafter the number of shares of Common Stock as shall
result from the adjustments specified in Article V.
"VESTING DATE": each date on which rights to purchase shares of Common
Stock pursuant to this warrant may vest.
"WARRANT OFFICE": as defined in Section 3.1.
"WARRANT SHARES": the shares of Common Stock purchasable by the Holder
upon the exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 VESTING AND EXERCISABILITY. The right to purchase shares of Common
Stock shall immediately vest and become exercisable on the date hereof. Absent
an adjustment pursuant to the terms of this Warrant, the maximum aggregate
number of shares of Common Stock that may be subject to purchase hereunder
shall be 418,627.
2.2 METHOD OF EXERCISE. To the extent this Warrant is exercisable from
time to time, to exercise this Warrant, the Holder shall deliver to the Company
at the Warrant Office designated to Section 3.1 (a) a Notice of Exercise
substantially in the form attached hereto as Exhibit A duly executed by the
Holder specifying the number of Warrant Shares to be purchased; (b) payment of
an amount equal to the aggregate Exercise Price for all such Warrant Shares,
which shall be made (i) in cash or by certified or bank cashier's check payable
to the order of the Company, or (ii) by delivery to the Company of that number
of shares of Common Stock having a value computed based upon the
2
<PAGE> 3
Market Price, equal to the then applicable Exercise Price multiplied by the
number of Warrant Shares then being purchased, and (c) this Warrant. In the
alternative, this Warrant may be exercised on a net basis, such that, without
the exchange of any funds, the Holder receives that number of Warrant Shares
subscribed to less that number of Warrant Shares having an aggregate value
computed based upon the Market Price equal to the aggregate Exercise Price that
would otherwise have been paid by such Holder for the number of Warrant Shares
subscribed to. The Company shall, as promptly as practicable, and in any event
within five (5) days thereafter, cause to be issued and delivered to the Holder
(or its nominee) a certificate or certificates representing the number of
Warrant Shares specified in the Notice of Exercise. The stock certificate or
certificates so delivered shall be in denominations of shares as my be
specified in said notice and shall be issued in the name of the Holder or such
other name as shall be designated in said notice. At the time of delivery of
the certificate or certificates, appropriate notation shall be made on the
Warrant Shares Purchase Schedule attached to this Warrant designating the
number of shares purchased, and this Warrant shall then be returned to the
Holder if this Warrant has been exercised only in part. The Holder shall be
deemed to have become the Holder of such Warrant Shares for all purposes as of
the close of business on the date on which the Notice of Exercise is delivered
to the Warrant Office, provided that an amount equal to the aggregate Exercise
Price and this Warrant shall have also been delivered to the Company. The
Company shall pay all expenses, taxes, (excluding capital gains and income
taxes) and other charges payable in connection with the preparation, issuance
and delivery of stock certificates.
2.3 SHARES TO BE FULLY PAID AND NON-ASSESSABLE. All Warrant Shares
issued upon the exercise of this Warrant shall validly issued, fully paid,
non-assessable and free from preemptive rights.
2.4 NO FRACTIONAL SHARES TO BE ISSUED. The Company shall not be
required upon any exercise of this Warrant to issue to certificate representing
any fraction of a share of Common Stock.
2.5. LEGEND ON WARRANT SHARES. Each certificate for Warrant Shares
issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Act, shall bear substantially the following
legend (and any additional legend required by any national securities exchanges
upon which such shares may, at the time of such exercise, be listed or under
applicable securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND AS SUCH MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO SUCH WARRANT OR SECURITIES, OR UNLESS SOLD IN
FULL COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT OR UNLESS THE
COMPANY SHALL RECEIVE AN OPINION FROM COUNSEL TO HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act of the securities represented thereby) shall also bear the above legend
unless, in the opinion of counsel to the Company, the securities represented
thereby need no longer be subject to the restrictions on transferability. In
addition, the provisions of Article IV shall be binding upon all subsequent
holders of this Warrant.
2.6 ACKNOWLEDGMENT OF CONTINUING OBLIGATION. The Company shall, at the
time of any exercise of this Warrant in whole or in part, upon request of the
Holder, acknowledge in writing its continuing obligation to such holder in
respect of any rights to which the Holder shall continue to be entitled after
exercise in accordance with this Warrant; provided, however, that the failure
of the Holder to make any such request shall not affect the continuing
obligation of the Company to the
3
<PAGE> 4
Holder in respect of such rights.
ARTICLE III
WARRANT OFFICE; TRANSFER; DIVISION
OR COMBINATION OF WARRANTS
3.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "WARRANT OFFICE"), which office shall initially
be the Company's location set forth in Article I hereof, and may subsequently
be such other office of the Company or of any transfer agent of the Common
Stock in the continental United States as to which written notice has
previously been given to all of the Holders of the Warrants.
3.2 OWNERSHIP OF WARRANT. The Company may deem and treat the Person in
whose name this Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary.
3.3 DIVISION OR COMBINATION OF WARRANTS. This Warrant may not be
divided or combined with any other warrant.
3.4 EXPENSES OF DELIVERY OF WARRANTS. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
issuance and delivery of new Warrants hereunder.
ARTICLE IV
RESTRICTION ON TRANSFER
4.1 RESTRICTIONS ON EXERCISE. Notwithstanding any provisions contained
in this Warrant to the contrary, this Warrant shall not be exercisable except
upon the conditions specified in this Article IV, which conditions are
intended, among other things, to insure compliance with the provisions of the
Act in respect of the exercise of the Warrant.
4.2 OPINION OF COUNSEL. In connection with any exercise of this
Warrant, the following provisions shall apply:
(a) If in the written opinion of counsel to the Holder
delivered to the Company (which opinion and counsel must be reasonably
acceptable to the Company), proposed exercise of this Warrant may be effected
without registration of this Warrant or the Common Stock issuable hereunder
under the Act, the Holder shall be entitled to exercise this Warrant as
proposed. In no event shall the Company be obligated (i) to effect a
registration under the Act or any state securities law so as to permit the
proposed exercise of this Warrant or (ii) to qualify to do business or to file
a general consent to service of process in any state or other jurisdiction.
(b) If in the opinion of such counsel, the proposed exercise
of this Warrant may not
4
<PAGE> 5
be effected without registration of this Warrant under the Act, the Holder
shall not be entitled to exercise this Warrant until registration is effective
or until exercise may be effected without registration, in the opinion of such
counsel as set forth in Section 4.2(a) above.
4.3 RESTRICTIONS ON TRANSFER. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be
transferable.
ARTICLE V
ADJUSTMENTS
5.1 ADJUSTMENTS TO NUMBER OF STOCK UNITS. The number of shares of
Common Stock comprising a Stock Unit shall be subject to adjustment from time
to time as set forth in this Section 5.1.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATION. In case at
any time or from time to time the Company shall: (i) take a record of the
holders of its Common Stock of any series for the purpose of entitling them to
receive a dividend payable in, or other distribution of, Common Stock, or (ii)
subdivide its outstanding shares of Common Stock into a larger number of shares
of Common Stock, or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock; then the number of shares of Common
Stock comprising a Stock Unit immediately after the happening of any such event
shall be adjusted so as to consist of the number of shares of Common Stock that
a record holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to the happening of such event would own or be entitled to
receive after the happening of such event. The adjustments required by this
subsection shall be made whenever and as often as any specified event requiring
an adjustment shall occur.
(b) CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. In case at any
time or from time to time the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution of: (i) cash (other than a cash distribution made as a dividend
payable out of the net earnings or net profits of the Company realized during
the year of such distribution or the last preceding year and accumulated net
earnings or net profits of the Company from the date hereof to the time of such
distribution, computed in accordance with generally accepted accounting
principles employed by the Board of Directors of the Company for purposes of
financial reports to shareholders of the Company); or (ii) any evidences of its
indebtedness, any shares of its stock or any other securities or property of
any nature whatsoever (other than cash); then at least five (5) business days
prior to the record date to determine shareholders entitled to receive such
dividend or distribution, the Company shall give notice of such proposed
dividend or distribution to the Holder for the purpose of enabling the Holder
to exercise the same, and thereby participate in such dividend or distribution.
(c) OTHER PROVISIONS APPLICABLE TO ADJUSTMENT UNDER THIS
SECTION. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock comprising a Stock Unit
hereinbefore provided for in this Section 5.1:
(i) When Adjustments to be Made. The adjustments
required by the preceding subsections of this Section 5.1 shall be made
whenever and as often as any specified event
5
<PAGE> 6
requiring an adjustment shall occur, except that no adjustment of the number of
shares of Common Stock comprising a Stock Unit that would otherwise be required
shall be made (except in the case of a subdivision or combination of shares of
the Common Stock, as provided for in Subsection 5.1 (a)) unless and until such
adjustment, either by itself or with other adjustments not previously made,
adds or subtracts at least 1/20th of a share to or from the number of shares of
Common Stock comprising a Stock Unit immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such minimum
amount (except as aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this section and not
previously made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(ii) Fractional Interests. In computing adjustments
under this section, fractional interests in Common Stock shall be taken into
account to the nearest one-thousandth of a share.
(iii) When Adjustment Not Required - Abandonment of
Plan for Dividend and the Like. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to shareholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or
purchase rights, then thereafter no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made in respect
thereof shall be rescinded and annulled.
(d) REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION
OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, merge or consolidate into another corporation,
then the number of shares of stock purchasable upon exercise of this Warrant
shall be adjusted to consist of the number of shares of stock or other
securities that a record holder of the number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such event would
own or be entitled to receive immediately after such event.
5.2. NOTICE TO HOLDER. Whenever the Company takes any action that
causes the composition of a Stock Unit to change under Sections 5.1(a) through
5.1(d), the Company shall provide the Holder with written notice of such change
and the number of Warrant Shares for which this Warrant is or will become
exercisable. Such notice will be provided not more than ten days after any such
action has occurred.
ARTICLE VI
ADDITIONAL NOTICES TO WARRANT HOLDER
In addition to any other notice required hereunder, the Company shall
provide the Holder with a copy of any notice that the Company is required to
provide those Persons holding shares of Common Stock on the same date such
persons receive such notice.
6
<PAGE> 7
ARTICLE VII
EXPIRATION
Rights to purchase shares under this Warrant shall expire and may not
be exercised after January 27, 2004.
ARTICLE VIII
CERTAIN COVENANTS OF THE COMPANY
The Company has taken all action necessary to authorize the issuance
of this Warrant and the issuance of shares of Common Stock upon exercise
hereof. The Company covenants and agrees that it will reserve and set apart and
have at all times, free from preemptive rights, a number of shares of
authorized but unissued Common Stock or other securities deliverable upon the
exercise of this Warrant from time to time sufficient to enable it at any time
to fulfill all its obligations hereunder.
ARTICLE IX
MISCELLANEOUS
9.1. ENTIRE AGREEMENT. This Warrant contains the entire agreement
between the Holder and the Company with respect to the purchase of the Warrant
Shares and supersedes all prior arrangements or understandings with respect
thereto.
9.2. WAIVER AND AMENDMENT. Any term or provision of this Warrant may
be waived at any time by the party that is entitled to the benefits thereof,
and any term or provision of this Warrant may be amended or supplemented at any
time by agreement of the holder hereof and the Company, except that any waiver
of any term or condition, or any amendment or supplementation, of this Warrant
must be in writing. A waiver of any breach or failure to enforce any of the
terms or conditions of this Warrant shall not in any way affect, limit or waive
a party's rights hereunder at any time to enforce strict compliance thereafter
with any term or condition of this Warrant. In the event this Warrant is ever
divided and held by more than one person, the "Holder" for such purposes shall
mean the holders of a majority of the Warrant Shares.
9.3. ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
9.4. FILING OF WARRANT. A Copy of this Warrant shall be filed in the
records of the Company.
9.5 NOTICE. Any notice or other document required or permitted to be
given or delivered to the Holder shall be delivered personally, or sent by
certified or registered mail, to the Holder at the 1ast address shown on the
books of the Company maintained at this Warrant Office for the registration
7
<PAGE> 8
of the Warrant or at any more recent address of which any Holder shall have
notified the Company in writing. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered at, or
sent by certified or registered mail to, the Warrant Office, attention: Chief
Executive Officer, or such other address within the United States of America as
shall have been finished by the Company to the Holder hereof.
9.6 LIMITATION OF LIABILITY; NOT SHAREHOLDERS. No provision of this
Warrant shall be construed as confirming upon the Holder the right to vote,
consent, receive dividends, or receive notice other than as herein expressly
provided in respect of meetings of shareholders for the election of directors
of the Company or any other matter whatsoever as a shareholder of the Company.
No provision hereof, in the absence of affirmative action by the Holder to
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of the Holder, shall give rise to any liability of such Holder for the purchase
price of any Warrant Shares or as a shareholder of the Company, whether such
liability is asserted by the Company or by the creditors of the Company.
9.7 LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
the Warrant, and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such firm and amount shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Warrant, the Company shall make and deliver a new
warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Warrant. Any Warrant issued under the provisions of this Section 9.7 in lieu of
any Warrant alleged to be lost, destroyed or stolen, or in lieu of any
mutilated Warrant, shall constitute an original contractual obligation on the
part of the Company.
[SIGNATURES FOLLOW ON THE NEXT PAGE]
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its Chief Executive Officer and its corporate seal to be
impressed hereon as of the 9th day of March, 2000.
<TABLE>
<S> <C>
[CORPORATE SEAL] HEALTHEON/WEBMD CORPORATION
Attest:
By: /s/ L. Scott Askins By: /s/ K. Robert Draughon
----------------------------------- -----------------------------------
Name: L. Scott Askins Name: K. Robert Draughon
Title: Assistant General Counsel Title: Executive Vice President
</TABLE>
9
<PAGE> 10
WARRANT SHARES PURCHASE SCHEDULE
<TABLE>
<CAPTION>
<S> <C> <C>
NO. OF SHARES PURCHASED DATE OF PURCHASE NOTATION BY COMPANY OFFICER
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
- - - - - ----------------------- -------------------------- ---------------------------
</TABLE>
<PAGE> 11
EXHIBIT A
TO WARRANT
NOTICE OF EXERCISE
Dated: ________________
The undersigned hereby irrevocably elects to exercise its right to
purchase ______ shares of the Common Stock, par value $0.0001 per share, of
Healtheon/WebMD Corporation, such right being pursuant to a Warrant dated
__________ , 2000, as issued to Eric J. Gleacher, for up to 418,627 shares of
such Common Stock, and (i) remits herewith the sum of $_______ in payment for
same in accordance with said warrant or (ii), in accordance with Section 2.2 of
the Warrant, elects to receive such number of shares by having credited to the
undersigned the Market Value (as such term is defined in the Warrant) of a
sufficient number of additional shares of Common Stock for which the Warrant
could otherwise be exercised such that such Market Value equals the Exercise
Price for such shares of Common Stock.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
--------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------
Signature:
--------------------------------------------------
Shares Heretofore Purchased Under Warrant:
--------------------------------------------------------
<PAGE> 1
EXHIBIT 10.45
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT (this "Sublease") is made and entered into as of
the 15 day of December, 1997, by and between PREMIERE COMMUNICATIONS, INC., a
Florida corporation, (the "Sublandlord") and ENDEAVOR TECHNOLOGIES, INC., a
Georgia corporation (the "Subtenant"), to be effective as of the "Commencement
Date", as hereinafter defined.
WITNESSETH:
-----------
WHEREAS, Sublandlord, by Agreement of Lease dated March 3, 1997, (the
"Master Lease"), leased from Corporate Property Investors (the "Landlord") the
entire 4th floor comprising 20,838 rentable square feet (the "Premises"), along
with additional space on other floors, of that certain building commonly known
as the Lenox Building, located at 3399 Peachtree Road, N.E., Atlanta, Georgia
(the "Building"), such Premises being more particularly described on Exhibit B
to the Master Lease (a copy of which Master Lease is attached hereto as Exhibit
-------
"A" and made a part hereof); and
-
WHEREAS, Subtenant desires to sublease the Premises on the terms and
conditions set forth below;
NOW THEREFORE, for and in consideration of the sum of TEN and NO/100
Dollars, the mutual promises set forth below, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, do hereby agree as follows:
1. Premises; Term
--------------
Sublandlord hereby subleases to Subtenant, and Subtenant hereby subleases
from Sublandlord, the Premises for a term (the 'Sublease Term") commencing on
the date (the "Commencement Date") which is the earlier of (i) the date of
occupancy agreed to by Sublandlord and Subtenant, or (ii) February 1, 1998, and
ending on the date which is two (2) years from such date (the "Expiration Date")
unless sooner terminated according to the terms hereof.
2. Subordination
-------------
This Sublease is hereby expressly made subject and subordinate to the
Master Lease and shall be upon the same terms, covenants and conditions provided
in the Master Lease as applicable to the Premises (except such as by their
nature are inapplicable to or inconsistent with this Sublease). Subtenant
acknowledges that its possession and use of the Premises shall at all times. be
subject to the rights of Landlord set forth in the Master Lease. Sublandlord
shall have no liability to Subtenant for any acts of the Landlord pursuant to
the Master Lease. The provisions of the Master Lease pertaining to the Premises
are deemed included herein and made a part hereof ("Sublandlord" being
substituted for "Landlord" and "Subtenant" being substituted for "Tenant"),
except that Subtenant's obligations for each subject addressed in this Sublease,
including rental obligations, are limited to the terms of this Sublease.
3. Obligations-Under Master Lease
------------------------------
For the purposes of this Sublease only, Subtenant hereby assumes all of the
responsibilities and obligations to be performed on the part of Sublandlord as
tenant under the Master Lease with respect to the Premises for the entire
Sublease Term (other than the obligations to pay rent and additional rent and
other
-1-
<PAGE> 2
amounts which are governed by this Sublease). Such undertaking shall in no way
relieve Sublandlord of its obligations under the Master Lease. Both Sublandlord
and Subtenant covenant and agree not to do, permit or allow any act which would
violate or constitute a breach of or a default under the Master Lease. Upon any
breach by Subtenant of any of the terms, covenants, or agreements to be
performed or observed under this Sublease by Subtenant, Sublandlord may exercise
any of the rights given to the Landlord under the Master Lease, subject to the
limitations thereof and hereof, and the exercise thereof shall not be in
derogation of, but shall be in addition to any other remedies available to
Sublandlord, hereunder or under law or equity.
4. Termination
-----------
A. Termination of Master Lease
---------------------------
In the event the Master Lease is terminated pursuant to its terms prior to
the expiration of the term of this Sublease, this Sublease shall automatically
cease and terminate as of the date upon which the Master Lease is terminated.
Upon any such termination of the Master Lease, all rent due hereunder shall be
prorated from the first day of the month of termination, and neither p shall
have any further obligation or liability to the other arising out of this
Sublease ex for the payment by Subtenant of such amounts of rent as so prorated
and any other amounts accrued as of the date of termination, and except for
rights or obligations that had accrued prior to the effective date of the
termination of this Sublease. To the extent that Sublandlord has over (30)
days' notice of such termination, Sublandlord agrees to give Subtenant
reasonable notice at least thirty (30) days prior to any such termination date.
B. Other Termination
-----------------
In the event of termination of that certain Equipment Lease between
Sublandlord and Subtenant dated of even date herewith (the "Equipment Lease") or
that certain Co-Marketing and Integration Agreement between Sublandlord and
Subtenant dated of even date herewith (the "Co-Marketing Agreement"), either
party hereto, provided it is not responsible for a default causing such
termination, shall have the right to terminate this Sublease upon written notice
to the other party, which termination shall be effective on the date on which
such other agreement terminates, unless the parties may agree to another
effective date. In the event of such termination on, Subtenant shall surrender
the Premises to Sublandlord in the manner described in the Master Lease, and
neither party shall have any further rights or obligations under this Sublease,
except for rights or obligations that had accrued prior to the effective date of
the term on of this Sublease.
5. Rent
----
A. Base Rent for Premises
----------------------
Subtenant shall pay Sublandlord as the annual base rent (the "Base Rent")
for the Premises during the Sublease Term the sum of Four Hundred Thirty, Seven
Thousand Five Hundred Ninety Eight Dollars ($437,598.00) payable in advance in
equal monthly installments of Thirty Six Thousand Four Hundred Sixty Six and
501100 ($36,466.50) beginning on the Commencement Date and continuing on the day
ten (10) days in advance of each payment to be made under the Master Lease
(recognizing that payments due under the Master Lease a re due in advance on the
first day of the month) during the Sublease Term ("Due Date"), and continuing
each and every month thereafter, without demand, deduction, set-off or abatement
whatsoever, said payments of Base Rent to be made directly to Sublandlord at the
address of Sublandlord set forth herein. Appropriate prorations shall be made
in the event the Commencement Date is not a Due Date or in the event that the
Sublease terminates prior to a Due Date.
-2-
<PAGE> 3
B. Additional Rent for Premises
----------------------------
Subtenant shall also pay Sublandlord, as additional rent, as and when the
same shall become due and payable under the provisions of the Master Lease all
costs and expenses including, without limitation, all taxes and assessments, all
insurance costs and repair costs pertaining specifically to the Premises or
prorated in the event the same applies to the entire leasehold interest of
Sublandlord under the Master Lease due under the Master Lease for each year
during the Sublease Term (collectively, the "Additional Rent"). Sublandlord
agrees to provide Subtenant with an invoice and the corresponding bill from the
Landlord for the Additional Rent.
C. Late Charge
-----------
Any rental amounts not paid when due shall bear interest at the rate of one
and one-half percent (1.5%) per month until paid.
6. Condition of Premises
---------------------
Subtenant represents that it has made a thorough examination and inspection
of the Premises and is familiar with the condition of such property, and
Subtenant agrees to accept the Premises in their "as is" condition, as of the
date of this Sublease. Except as provided in the Co-Marketing Agreement,
Subtenant agrees that it enters into this Sublease without any representations
or warranties by Sublandlord, its agents, representatives, servants or employees
or any other person, as to the condition or use by Subtenant of the Premises.
7. Exclusion from Master Lease
---------------------------
The following Articles or Sections of the Master Lease are expressly
excluded from this Sublease and shall not apply to Subtenant: any renewal
options, or options to lease additional space in the Building, or rights of
first refusal with regard to space in the Building. Subtenant acknowledges and
agrees the such rights are personal to Sublandlord and that Subtenant shall have
no rights to exercise such options and renewals, if any, contained in the Master
Lease.
8. Services, Utilities, Maintenance and airs
-----------------------------------------
Subtenant acknowledges and agrees that Sublandlord shall provide, only via
the Landlord, maintenance or repair of the Premises, utilities or r services
described as being provided by the Landlord in the Master Lease. Subtenant
agrees that, in cooperation with the Sublandlord, it shall look solely to the
Landlord and not to Sublandlord for the rendition of all such services and the
performance of all obligations required to be furnished and performed in the
Premises. Subtenant shall receive directly from the Landlord all services and
utilities and the performance of all obligations which the Landlord is required
to provide in and for the benefit of the Premises, and Sublandlord shall have no
liability whatsoever in event that Landlord fails to furnish or perform any such
services or obligations during the Sublease Term. However, Sublandlord agrees
to cooperate with Subtenant in good faith, in dealings with and notices to
Landlord regarding services, utilities, maintenance and repair of the Premises.
9. Additional Services
-------------------
Subtenant covenants and agrees to pay any fees and expenses assessed by
Landlord pursuant to the Master Lease resulting from Subtenant's use and
occupancy of the Premises. In addition, if other services
-3-
<PAGE> 4
not provided by Landlord (the "Other Services") are obtained for the joint
benefit of Subtenant and Sublandlord, as mutually agreed to by the parties, the
parties shall share the cost of such services on a fair and equitable basis. If
Other Services are desired, solely for the benefit of Subtenant, Subtenant shall
bear all of such costs, and Sublandlord agrees to cooperate with Subtenant, to
the extent reasonably requested, in obtaining such Other Services, provided same
are at no cost to Sublandlord.
10. Use of Premises
---------------
Subtenant shall use the Premises only for the "Permitted Use' as defined in
the Master Lease, and shall not use the Premises for any use or purpose which
would violate the Master Lease. Subtenant shall not change its use of the
Premises without the prior written consent of the Sublandlord, in its reasonable
discretion and Landlord, in the manner provided in the Master Lease. During the
Sublease Term, Subtenant agrees to assume any responsibility previously borne by
Sublandlord in its capacity as tenant under the Master Lease regarding the
Occupational Safety Health Act, the Americans with Disabilities Act, and the
legal use or adaptability of the Premises and the compliance thereof to all
applicable laws and regulations enforced during the Sublease Term.
11. Alterations
-----------
Subtenant shall make no alterations, additions, installations or
improvements of any kind ("Alterations") to the Premises without the prior
written consent of Landlord (in accordance with the Master Lease) and
Sublandlord, in its reasonable discretion. Except as provided in the Co-
Marketing Agreement, any Alterations made to the Premises With consent shall be
at the sole cost and expense of Subtenant, and Subtenant agrees to restore the
Premises to their original condition at its sole cost if so requested by
Sublandlord or Landlord at the end of the Sublease Term. Any and all approved
Alterations shall be made in conformity with the applicable terms and conditions
of the Master Lease. Subtenant shall submit is proposed Alterations,
simultaneously to Landlord and Sublandlord for consent, subject to the
provisions of the Master Lease.
12. Assignment and Subletting
-------------------------
A. Consent Required
----------------
Subtenant shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, or otherwise transfer or encumber all or any part of
Subtenant's interest in this Sublease or the Premises without the prior written
consent of the Landlord (in accordance with the apple provisions of the Master
Lease) and Sublandlord, in Sublandlord's reasonable discretion. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall be void, and shall constitute a breach of this Sublease.
B. No Release
----------
Regardless of any consent by Sublandlord, no subletting or assignment shall
release Subtenant of Subtenant's obligation, or alter the primary liability of
Subtenant to pay the Base Rent, Additional Rent, and to perform all other
obligations to be performed by Subtenant hereunder. The acceptance of rent by
Sublandlord from any other person shall not be deemed a waiver by Sublandlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Subtenant or any successor of Subtenant in the
performance of any of the terms hereof, Sublandlord may proceed directly against
Subtenant without the necessity of exhausting remedies against said assignee or
such additional sublessee.
-4-
<PAGE> 5
C. Fees
----
In the event Subtenant shall assign or sublet the Premises or request the
consent of Sublandlord to any assignment or subletting, or if Subtenant shall
request the consent of Sublandlord for any act that Subtenant proposes to do,
then Subtenant shall reimburse Sublandlord for any fees Sublandlord is required
to pay as tenant pursuant to the Master Lease, by reason of such act.
13. Consents and Approvals
----------------------
Sublandlord shall not be liable for any damages if Sublandlord withholds or
delays any consent or approval requested by Subtenant, and as to any consent or
approval which the Sublandlord has agreed in writing not to unreasonably
withhold or delay, Subtenant shall have only the remedy of specific performance
or injunction.
14. Indemnity
---------
Subtenant shall indemnify and hold harmless Sublandlord and the Landlord
from and against any and all claims arising from Subtenant's use of the
Premises, or from the conduct of Subtenant's business or from any activity, work
or thing done, permitted or suffered by Subtenant in or about the Premises or
elsewhere, except to the extent resulting from a material breach of
Sublandlord's obligations under the Co-Marketing Agreement, and shall further
indemnify and hold harmless the Sublandlord and the Landlord from and against
any all claims arising from any breach or default in the performance of any
obligation on Subtenant's part to be performed under the terms of this Sublease,
or arising from any negligence of Subtenant or any of Subtenant's agents,
contractors, or employees, (excluding Sublandlord to the extent it is a
contractor of Subtenant under the Co-Marketing Agreement), and from and against
all costs, attorneys' fees, expenses and liabilities incurred in the defense of
any such claim or any action or proceeding brought thereon. Subtenant agrees
that should any action or proceeding be brought against Sublandlord or the
Landlord by reason of any such claim, upon notice from Sublandlord or the
Landlord, Subtenant shall defend the same at Subtenant's expense by counsel
reasonably satisfactory to Sublandlord.
Subtenant, as a material part of the consideration to Sublandlord, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises arising from Subtenant's use of the Premises, subject to the terms
of the Equipment Lease as to damages to property addressed therein, and
Subtenant hereby waives all claims in respect thereof against Sublandlord.
Subtenant hereby agrees that Sublandlord shall not be liable for injury to
Subtenant's business or any loss of income, therefrom or for damage to the
goods, wares, merchandise or other property of Subtenant, Subtenant's
shareholders, employees, invitees, customers; or any other person in or about
the Premises, nor shall Sublandlord be liable for injury to any person including
Subtenant's shareholders, employees, agents or contractors, whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause whether the said damage or injury results from
conditions arising upon the Premises or upon portions of the Building, or from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Subtenant.
Sublandlord shall not be liable for any damages arising from any act, omission
or neglect of the Landlord or any tenant of the Building.
-5-
<PAGE> 6
15. Insurance
---------
Sublandlord shall have no obligation to provide insurance or perform any
repair, replacement, or any other requirement imposed upon the Landlord as
landlord pursuant to the Master Lease in the event of damage to all of or any
part of the Building. However, Sublandlord agrees to keep in place, for the
Premises, such policies of insurance as are required of it as tenant pursuant to
the Master Lease. Subtenant shall obtain and maintain insurance policies
identical to those required to be maintained by Sublandlord as tenant pursuant
to the Master Lease (but only with regard to the Premises herein described and
not the entirety of the premises leased pursuant to the Master Lease), and
Sublandlord and Landlord shall be named as additional insureds. Subtenant
acknowledges and agrees that the Landlord and Sublandlord shall not be
responsible or liable to Subtenant for any loss or damage at the Premises.
16. Estoppel Certificate
--------------------
A. Requirements
------------
Subtenant shall, at any time, upon not less than ten (10) days' prior
written notice from Sublandlord, execute, acknowledge and deliver to Sublandlord
a statement in writing (i) certifying that this Sublease is unmodified and in
full force and effect (or, if modified, stating the nature of such modification
and certifying that this Sublease, as so modified, is in full force and effect)
and the extent to which the rent and other charges are paid in advance, if any;
and (ii) acknowledging that there are not, to Subtenant's knowledge, any uncured
defaults on the part of Sublandlord hereunder, or specifying such defaults if
any are claimed. Any such statement may be conclusively relied upon by any
prospective assignee or mortgagees of the Premises.
B. Failure to Comply
-----------------
Subtenant's failure to provide such statement within such times shall be a
default by Subtenant under this Sublease, and shall be conclusive upon Subtenant
(i) that this Sublease is in full force and effect, without modification except
as may be represented by Sublandlord; (ii) that there are no uncured defaults in
the performance by Sublandlord or Landlord; and (iii) that not more than one
month's rent has been paid in advance.
17. Eminent Domain
--------------
In the event of any condemnation of the Premises, all awards and
compensation, or proceeds payable to Sublandlord pursuant to the Master Lease
shall be the property of Sublandlord. No part of any condemnation awards,
compensation or proceeds shall be payable to Subtenant.
18. Rules and Regulations
---------------------
Subtenant shall faithfully observe and comply with all rules and
regulations described in or annexed to the Master Lease, as amended from time to
time.
19. Tax on Tenant's Personal Property
---------------------------------
Subtenant shall pay all taxes levied or assessed upon Subtenant's personal
property and shall deliver satisfactory evidence of such payment to Sublandlord,
if requested.
-6-
<PAGE> 7
20. Right to Additional Space
-------------------------
Subtenant acknowledges that it shall have no rights under this Sublease to
lease any other space in the Building.
21. Option to Extend
----------------
If Subtenant and Sublandlord mutually agree (and Landlord consents),
Subtenant shall have the option to renew this Sublease for one (1) additional
one-year period under the same terms and conditions as this Sublease, except
that the Base Rent to be paid hereunder shall be adjusted upward by the amount
of the increase under the Master Lease, if any.
22. Arbitration
-----------
Any dispute arising out of this Sublease shall, at the option of either
party, be settled by arbitration. Within ten (10) days after either party shall
have requested arbitration in writing, the parties shall agree on an impartial
arbitrator, and failing agreement, he shall be selected by the American
Arbitration Association at the request of either party. The arbitration shall
be conducted in accordance with the then current rules of commercial arbitration
of the American Arbitration Association, and judgment upon the award granted by
the arbitrator may be entered in any court having jurisdiction thereof. Fees,
costs and expenses of the arbitrator shall be borne by the party against whom
the arbitration shall be determined, or in such proportions as the arbitrator
shall designate.
23. Abatement of Rent
-----------------
Subtenant shall receive no abatement of any rent due under this Sublease
for any part of the Sublease Term.
24. Severability
------------
The invalidity of any provision of this Sublease as determined by a court
of competent jurisdiction shall in no way affect the validity of any other
provision hereof.
25. Time of Essence
---------------
Time is of the essence of this Sublease.
26. Captions
--------
Captions of Articles or subdivisions thereof are not a part hereof and are
intended for reference purposes.
27. Notices
-------
All notices or demands given or required to be given hereunder shall be in
writing and shall be sent by hand delivery, overnight courier, or by certified
or registered mail, return receipt requested, addressed to the parties'
addresses set forth below or to each other address as either party may specify
in writing in accordance with this notice provision. Any such notice so given
shall be deemed given and shall be effective on the day of its receipt by the
respective party.
-7-
<PAGE> 8
PRIOR TO OCCUPANCY:
- - - - - ------------------
Sublandlord: Premiere Communications, Inc.
-----------
3399 Peachtree Road, N.E.
Lenox Building, Suite 400
Atlanta, Georgia 30326
Attention: Patrick G. Jones
with a copy to:
Premiere Communications, Inc.
3399 Peachtree Road, N.E.
Lenox Building, Suite 400
Atlanta, Georgia 30326
Attention: Julianne F. Vaio
Subtenant: Endeavor Technologies, Inc.
---------
1100 Lake Hearn Drive, Suite 370
Atlanta, Georgia 30342-1524
Attention: W. Michael Heekin
AFTER OCCUPANCY:
- - - - - ---------------
Sublandlord: Premiere Communications, Inc.
-----------
3399 Peachtree Road, N.E.
Lenox Building, Suite 700
Atlanta, Georgia 30326
Attention: Patrick G. Jones
with a copy to:
Premiere Communications, Inc.
3399 Peachtree Road, N.E.
Lenox Building, Suite 400
Atlanta, Georgia 30326
Attention: Julianne F. Vaio
Subtenant: Endeavor Technologies; Inc.
---------
3399 Peachtree Road, N.E.
Lenox Building, Suite 400
Atlanta, Georgia 30326
Attention: W. Michael Heekin
28. Brokers
-------
Subtenant warrants and represents to Sublandlord that it has dealt with no
broker or real estate agent or made no agreement or created any liability with
respect to this Sublease and/or the Premises or in connection with the payment
of brokerage or other commissions to anyone, and Subtenant hereby agrees to
indemnify, defend and hold Sublandlord harmless from and against all liability,
cost, or expense arising out
-8-
<PAGE> 9
of the claims of any other broker or real estate agent claiming by, through or
under Subtenant for a commission in connection with this Sublease and/or the
transaction contemplated by this Sublease.
Sublandlord warrants and represents to Subtenant that it has dealt with no
broker or real estate agent or made no agreement or created any liability with
respect to this Sublease and/or the Premises or in connection with the payment
of brokerage or other commissions to anyone, and Sublandlord hereby agrees to
indemnify, defend and hold Subtenant harmless from and against all liability,
cost, or expense rising out of the claims of any other broker or real estate
agent claiming by, through or under Sublandlord for a commission in connection
with this Sublease and/or the transaction contemplated by this Sublease.
29. Consents Required
-----------------
This Sublease is expressly conditioned upon the written consent of the
Landlord. Upon execution of this Sublease, Sublandlord will promptly request
such written consent. If such consent has not been received by Sublandlord
within (30) days from the date of hereof, then, at the option of either party,
upon written notice to the other at anytime after such 30-day period, this
Sublease shall be deemed canceled, null and void and of no further force and
effect, and neither party shall have any claim of any kind or nature against the
other provided such notice is sent before the Landlord's written consent is
delivered to Sublandlord. In no event shall Sublandlord be obligated to deliver
possession of the Premises to Subtenant until date upon which Sublandlord
notifies Subtenant that it has received the written consent of the Landlord.
30. Condition of Premises on Termination
------------------------------------
Upon the expiration or other termination of the term of this Sublease,
Subtenant covenants and agrees that it shall quit and surrender the Premises in
the condition required pursuant to the terms of the Master Lease, shall remove
all Subtenant's Personal property therefrom (except such items, including,
without limitation, such fixtures, equipment, improvements and Alterations,
which are required to remain a part of the Premises pursuant to the Master
Lease), and shall make any repairs or restorations required by reason of each
removal to put the Premises in the condition required pursuant to the Master
Lease.
31. Waivers
-------
No waiver by Sublandlord of any provision hereof shall be deemed a waiver
of any provision hereof or of any subsequent breach by Subtenant of the same or
any provision. The consent or approval by Sublandlord of any act shall not be
deemed to render unnecessary obtaining subsequent consent or approval from
Sublandlord or any subsequent act by Subtenant. The acceptance of rent
hereunder by Sublandlord shall not be a waiver of any preceding breach by
Subtenant of any provision hereof, regardless of knowledge by Sublandlord of
such preceding breach at the time of acceptance of each rent.
32. Recording
---------
Subtenant shall not record this Sublease, and such recordation shall, at
the option of Sublandlord, constitute a non-curable default of Subtenant
hereunder.
33. Holding Over
------------
Subtenant shall have no right to hold over at the Premises beyond the
Expiration Date or earlier termination of this Sublease. If Subtenant remains
in possession after the expiration or earlier termination of the Sublease Term
without the express written consent of Sublandlord, such occupancy shall, at the
-9-
<PAGE> 10
Sublandlord's option, be deemed an act of trespass, and Subtenant shall pay as
liquidated damages (and not as rent) an amount equal to three times the Base
Rent in effect at the time for the expiration or termination of this Sublease,
prorated on a daily basis for each such day of continued occupancy, plus all
other charges payable hereunder. In the event of any such holdover, Subtenant
shall also pay as liquidated damages (and not as rent) all amounts payable by
Sublandlord to Landlord incurred as a result of such holdover, including but not
limited to all amounts payable by Sublandlord to the Landlord pursuant to the
Master Lease as a result of such continued occupancy by Subtenant. Nothing
herein shall be deemed to limit Sublandlord's rights to forcibly evict
Subtenant, or any other rights or remedies available to Sublandlord. No receipt
of money by Sublandlord form Subtenant after expiration or termination of this
Sublease shall reinstate or extend this Sublease.
34. Cumulative Remedies
-------------------
No remedy or election Hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
35. Covenants and Conditions
------------------------
Each provision of this Sublease performable by Subtenant shall be deemed
both a covenant and a condition.
36. Choice of Law
-------------
This Sublease shall be governed by the laws of the State of Georgia.
37. Attorneys' Fees
---------------
In the event Sublandlord, without any fault on its part, is a party to any
litigation commenced by or against Subtenant or by or against any parties in
possession of the Premises or any part thereof claiming under Subtenant,
Subtenant shall pay, as additional rent, all costs including, without implied
limitation, reasonably attorneys' fees incurred by or imposed by or upon
Sublandlord in connection with such litigation, and the costs of enforcement of
this Sublease against Subtenant.
38. Sublandlord's Access
--------------------
Sublandlord and its agents shall have the right to enter the Premises at
reasonable times, upon reasonable notice to Subtenant, for the purpose of
inspecting the same, showing the same to prospective assignees, lenders or
lessees, all without undue interruption to Subtenant's business. In addition,
Sublandlord shall have the right to enter the Premises to perform such actions
as are required of it as tenant pursuant to the Master Lease. Notwithstanding
the foregoing, without notice, Sublandlord shall have the right to enter the
Premises to repair, maintain, inspect or otherwise deal with any equipment in or
improvements to the Premises necessary for Sublandlord to operate in the
remainder of the office space covered by the Master Lease, including, without
limitation, repair or additions of wiring to riser space between floors of the
Building. Subject to the above, and provided Subtenant is not in default
hereunder or under the Master Lease, Sublandlord covenants that Subtenant shall
have the right to possession and quiet enjoyment of the Premises during the term
of this Sublease.
-10-
<PAGE> 11
39. Security Deposit
----------------
Upon the execution of this Sublease, Subtenant shall pay to Sublandlord the
sum of $0.00 as security for Subtenant's performance of its obligations under
----
this Sublease. Upon termination of this Sublease, provided Subtenant is not
then in default of any of the terms hereof, the security deposit shall be
returned to Subtenant, without interest, less any amounts due Sublandlord upon
termination.
40. Corporate Authority
-------------------
Each individual executing this Sublease on behalf of Subtenant or
Sublandlord represents and warrants that he is duly authorized to execute and
deliver this Sublease on behalf of such party.
41. Amendments
----------
This Sublease may be modified only in writing, signed by the parties in
interest at the time of the modification.
42. Landlord's Liability
--------------------
Subtenant acknowledges and agrees to the following with respect to the
Landlord:
A. In the event of a sale or transfer of all or any portion of the
Building or any undivided interest therein, or in the event of the making of a
lease of all or substantially all of the Building, or in the event of a sale or
transfer of the Landlord's fee or leasehold estate, the grantor, transferor or
lessor, as the case may be, shall thereafter be entirely relieved of all terms,
covenants and obligations thereafter to be performed by Landlord under the
Master Lease and this Sublease to the extent of the interest or portion so sold,
transferred or leased. Upon the termination of any such lease, the lessor
thereunder shall become and remain liable as Landlord hereunder only so long as
there shall not be made another such lease.
B. Subtenant agrees that it has no direct rights to Landlord, but if it
did, that it shall look solely to the estate and property of Landlord in the
Building and the land constituting the "Building Parcel", as such term is
defined in the Master Lease (subject of prior rights, if any, of holders of
superior interests) for the collection of any judgment (or other judicial
process requiring the payment of money by Landlord in the event of any default
or breach by Landlord with respect to any of the terms, covenants and conditions
of this Lease to be observed or performed by Landlord; and no other assets of
Landlord or any Person (as defined in the Master Lease) having any interest in
Landlord shall be subject to levy, execution or other procedures for the
satisfaction of Subtenant's remedies.
C. Corporate Property Investors is the designation of the Trustees under
a Declaration of Trust dated June 24, 1971, as amended, and neither the
shareholders nor the Trustee, officers, employees or agents of the Trust created
thereby shall be liable hereunder and, subject to Section 6.2B of the Master
Lease, all persons shall look solely to the trust estate for the payment of any
c hereunder or for the performance hereof.
[remainder of this page intentionally left blank]
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the day and year first above written.
SUBLANDLORD:
-----------
Signed, sealed and delivered PREMIERE COMMUNICATIONS, INC.,
this 15th day of December, 1997, a Florida corporation
in the presence of:
/s/ Wade H. Stribling By: /s/ Patrick G. Jones
- - - - - -------------------------------- -----------------------------
Witness
Title: Senior Vice President
--------------------------
/s/ Pamela Callon Evans
- - - - - --------------------------------
Notary Public
My Commission Expires
9-14-2000
- - - - - --------------------------------
[NOTARIAL SEAL] [CORPORATE SEAL]
SUBTENANT:
---------
Signed, sealed and delivered ENDEAVOR TECHNOLOGIES, INC.,
this 15th day of December, 1997, a Georgia corporation
in the presence of:
/s/ Wade H. Stribling By: /s/ W. Michael Heekin
- - - - - -------------------------------- -----------------------------
Witness
Title: Chief Operating Officer
--------------------------
/s/ Sherry D. Hall
- - - - - --------------------------------
Notary Public
My Commission Expires
Notary Public, Fulton County, Georgia
- - - - - -------------------------------------
My Commission Expires October 23, 2000
- - - - - --------------------------------------
[NOTARIAL SEAL] [CORPORATE SEAL]
[consent of Landlord on following page]
-12-
<PAGE> 13
CONSENT OF LANDLORD
-------------------
Corporate Property Investors, as Landlord under the Master Lease, hereby
consents to the within Sublease by Endeavor Technologies, Inc., pursuant to
Article 7.2(c) of the Master Lease and further acknowledges that any right to
terminate the Master Lease by virtue of the granting of this Sublease is hereby
waived.
LANDLORD:
CORPORATE PROPERTY INVESTORS, a
Massachusetts business trust
Dated: December 16, 1997 By: /s/
----------------- ---------------------------------
Title:
-------------------------------
-13-
<PAGE> 14
EXHIBIT A
MASTER LEASE
(SEE ATTACHED)
-14-
<PAGE> 15
Leasepgs.LB as of 3/3/97
Premier.LB
AGREEMENT OF LEASE
BETWEEN
CORPORATE PROPERTY INVESTORS
AND
PREMIERE COMMUNICATIONS, INC.
15
<PAGE> 16
AGREEMENT OF LEASE made as of , 1996 between CORPORATE
PROPERTY INVESTORS, a Massachusetts business trust, having its principal place
of business at 3 Dag Hammarskjold Plaza (305 East 47th Street), New York, N. Y.
l00l7 (Landlord) and Premiere Communications, Inc., a Georgia Corporation,
having its principal place of business at 3399 Peachtree Road, N.E., Atlanta,
Georgia (Tenant).
R E C I T A L
- - - - - - -
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord, the Premises, located in the Building known as The Lenox Building,
3399 Peachtree Road, N.E., Atlanta, Georgia 30326, for the Term commencing on
the Commencement Date, subject to the terms, covenants, conditions and
provisions of this Lease. If the Commencement Date is not the first day of a
month, Rent for the month in which the Commencement Date occurs shall be
prorated to the end of the month, the first full monthly installment of Rent
shall be due on the first day of the next month and after the expiration of the
number of years in the Term, the Term shall expire on the last day of the same
month in which the Commencement Date occurred.
ARTICLE l. DEFINITIONS
Whenever used in this Lease, the following terms shall have the meanings
indicated below.
<TABLE>
<S> <C>
Premises - Suite No. 300 and 400, Third (3rd) and as
Fourth (4th) Floors - shown on Exhibit B
Term - Seven (7) years, expiring on August 31,
2004
Commencement Date - September 1, 1997
Size of the Premises - 40,886 square feet of rentable floor space
Tenant's Pro Rata Share - 11.17 percent
Fixed Rent - $858,606.00 per year from September 1,
1997 through March 31, 2001;
$899,492.00 per year from April 1, 2001
through August 31, 2004.
Guarantor - None
Broker - Tramell Crow Company, 3101 Tower Creek
Parkway, Suite 400, Atlanta, Georgia 30339
Permitted Use - Only for executive, administrative and/or
general office use.
Security Deposit - None, except that Tenant shall deposit
with Landlord the first (1st) months'
Fixed Rent, upon execution and delivery of
this Lease.
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
Additional Rent - All amounts, except Fixed Rent, payable by Tenant
under Articles 3, 5, 7 and 9 of this Lease.
Affiliate - Any Person which controls or is controlled by the
Person in question or is controlled by the same
Persons which shall then control the Person in
question and any Person which is a member with
the Person in question in a relationship of joint
venture, partnership or other form of business
association; the term "control" means, with
respect to a corporation, the ownership of stock
possessing, or the right to exercise, at least
twenty-five (25%) percent of the total combined
voting power of all classes of the controlled
corporation, issued, outstanding and entitled to
vote for the election of directors, whether such
ownership be direct ownership or indirect
ownership through control of another corporation
or corporations.
Auxiliary Areas - The Entry Plaza, the Lobby Court, the Loop System
and the Promenade, as shown on Exhibit A.
Building - The Lenox Building
Atlanta, Georgia, as shown on
Exhibit A.
Building Parcel - The area designated as such on
Exhibit A.
Entry Plaza - The area designated as such on
Exhibit A.
Event of Default - As defined in Section 9.1
Governmental Authority - The United States, the State of Georgia, the City
of Atlanta, and any political subdivision thereof
or any local public or quasi-public authority,
agency, department, commission, board, bureau or
instrumentality of any of them including, with
respect to matters pertaining to insurance,
boards of fire underwriters to the extent they
have power to impose conditions on the issuance
of policies or the coverage thereof.
Governmental Requirements - Any law, ordinance, code, order, rule or
regulation of any Governmental Authority.
Landlord - The party named as Landlord herein until a sale,
transfer or lease, and thereafter the Person or
Persons who shall, for the time being, be liable
for the obligations of Landlord under the
provisions of Section 6.2 of this Lease.
Landlord's Additional Work - None.
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
Landlord's Standard Work - None.
Landlord's Work - None
Lobby Court - The area designated as such on
Exhibit A.
Loop System - The area designated as such on
Exhibit A.
Necessary Approvals - Any permit, license, certificate or approval or
other evidence of compliance with any requirement
necessary to the lawful occupancy of the Premises
and the issuance of the insurance required to be
carried hereunder for the Permitted Uses.
Operating Costs - As defined in Section 3.2 H.
Parking Garage - The decked parking structure located on the
Building Parcel, as shown on Exhibit A.
Person - A natural person, firm, partnership, association
or corporation, as the case may be.
Promenade - The area designated as such on
Exhibit A.
Rent - The Fixed Rent and the Additional Rent.
Standard Building Hours - 8:00 AM to 6:00 PM Monday
and Days through Friday and 8:00 AM to 1:00 PM on
Saturdays, or any combination thereof of days and
hours selected by Landlord but in no event to
exceed 55 hours in the aggregate from Monday
through Saturday. Standard Building Hours and
Days shall be deemed to exclude holidays, curfews
or other restricted days designated as such by
Governmental Authority.
Taxes - As defined in Section 3.2 D.
Tenant Improvement - As set forth in Exhibit C.
Agreement
Tenant's Plan - As defined in the Tenant Improvement Agreement.
Exhibit A - Site Plan
Exhibit B - Floor Plan
Exhibit C - None
Exhibit D - Parking Space Exhibit
Exhibit E - Commencement Date and Ratification of Lease
Agreement.
</TABLE>
18
<PAGE> 19
Exhibit F - Cleaning Schedule
Exhibit G - Building Rules and Regulations
ARTICLE 2. CONSTRUCTION - COMMENCEMENT DATE
Section 2.l Preparation of the Premises.
---------------------------
(A) Landlord shall perform Landlord's Work, as set forth in the Tenant
Improvement Agreement annexed hereto as Exhibit C. Tenant agrees to comply with
all of the terms and provisions of the Tenant Improvement Agreement.
(B) Landlord shall not be required to commence Landlord's Work unless
(i) the parties shall have agreed upon the cost of Landlord's Additional Work,
and (ii) said cost, less Landlord's Allowance, as defined in the Tenant
Improvement Agreement, is paid to Landlord.
(C) Landlord shall give Tenant ten (10) days' written notice of the
anticipated date of substantial completion of Landlord's Work, and Tenant shall
have the right during said ten-day period to enter into the Premises for the
purpose of installing its personal property and equipment and otherwise
preparing the Premises for its occupancy. During said ten-day period, (i)
neither Tenant nor its agents or employees shall interfere with Landlord's Work
or with any other work being done by Landlord and Landlord's agents and
employees in other parts of the Building, (ii) Tenant shall comply with all
reasonable rules and regulations promulgated by Landlord, its agents or
employees, (iii) the labor employed by Tenant shall be harmonious and compatible
with the labor employed by Landlord in the Building, it being agreed that if in
Landlord's judgment such labor is incompatible, Tenant shall forthwith upon
Landlord's demand withdraw Tenant's labor from the Premises, (iv) Tenant shall
procure and deliver to Landlord workmen's compensation, public liability,
property damage and such other insurance policies, in such amounts, as shall be
reasonably acceptable to Landlord in connection with the preparation work being
done by Tenant in the Premises, and shall cause Landlord to be named as an
insured thereunder, and (v) all the terms, provisions and agreements of this
Lease, except for the obligation to pay Rent, shall apply.
Section 2.2 Commencement Date.
-----------------
(A) The Term of this Lease shall commence on the date that Landlord
notifies Tenant that it has substantially completed Landlord's Work. Within ten
(10) days after the Commencement Date, Landlord's representative and Tenant's
representative shall jointly examine the Premises and shall compile a list of
any remaining items of work which Landlord may be obligated to complete ("punch
list items"). The taking of possession of the Premises by Tenant shall be
deemed an acceptance of the Premises and an acknowledgement that Landlord's Work
has been substantially completed, but Landlord shall thereafter complete the
punch list items.
(B) If Tenant takes possession of the Premises prior to the Commencement
Date, Tenant's obligation to pay Rent hereunder and to observe and perform all
other conditions and agreements hereunder shall commence on such earlier date of
possession, but the Term of the Lease shall not be affected thereby.
(C) In the event that substantial completion of Landlord's Work is
delayed by reason of delays caused or occasioned by Tenant, then at Landlord's
option the Term of this Lease shall commence on the date that this Lease would
have commenced had not the completion of Landlord's Work been so delayed by
Tenant (or as reasonably determined by Landlord) or such occurrence shall
constitute a default on the part of Tenant hereunder entitling Landlord to
exercise all rights and remedies provided for herein in the event of Tenant's
default.
19
<PAGE> 20
(D) Landlord's Work shall be deemed to have been substantially completed
when the Premises may be lawfully occupied and the heating, ventilation, air
conditioning, mechanical and elevator systems serving the Premises are operable.
(E) Tenant shall, upon the demand of Landlord, promptly execute,
acknowledge and deliver to Landlord an instrument substantially similar to that
annexed hereto as Exhibit E, confirming the dates of commencement and expiration
of the Term of this Lease and such other matters as are set forth on Exhibit E.
Section 2.3 Ownership of Improvements.
-------------------------
All installations, alterations, additions, improvements and fixtures now
or at any time hereafter attached to or located upon the Premises, made or
installed by either party, shall be the property of Landlord and shall, unless
Landlord otherwise elects by giving Tenant notice at least thirty (30) days
prior to the expiration or sooner termination of the Term, remain upon and be
surrendered with the Premises at the expiration or sooner termination of the
Term. None of the foregoing shall be deemed to include any of Tenant's
furniture and personal property which is removable without damage to the
Premises.
ARTICLE 3. RENT
Section 3.l Payment.
-------
All Rent shall be paid in the lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment, at the address of Landlord set forth in this Lease or at
such other place as Landlord in writing may designate, without any set-off or
deduction whatsoever and without any prior demand therefor. Tenant shall pay
the annual Fixed Rent in equal monthly installments in advance on the first day
of each calendar month included in the Term. Unless another time shall be
herein expressly provided, Additional Rent shall be due and payable on demand or
together with the next succeeding installment of Fixed Rent, whichever shall
first occur. For any portion of a calendar month included at the beginning or
end of the Term, Tenant shall pay l/30th of each monthly installment of Rent for
each day of such portion, payable in advance at the beginning of such portion.
Section 3.2 Additional Rent.
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(A) Tenant shall pay to Landlord, as Additional Rent, Tenant's Pro Rata
Share of Taxes which in any calendar year exceed the actual Taxes for the 1997
calendar year. Said amount shall be prorated if the Commencement Date does not
coincide with the beginning or the expiration date does not coincide with the
end of a calendar year.
(B) Commencing on the Commencement Date, Tenant shall pay, with each
monthly installment of Fixed Rent, one-twelfth (1/12) of the amount reasonably
estimated by Landlord to be due as Tenant's Pro Rata Share of excess Taxes for
the following calendar year. If Taxes for the following calendar year are not
known, monthly installments shall be based on the current calendar year with
immediate adjustment as soon as said Taxes become known. If at the time any
Taxes or installments thereof are required to be paid the total amount of
Tenant's monthly payments on account of excess Taxes are insufficient to pay
Tenant's Pro Rata Share thereof, Tenant shall pay such deficiency within five
(5) days after demand therefor. If any payment on account of excess Taxes shall
be due for the calendar year in which the Commencement Date occurs, Tenant shall
pay said amount to Landlord within thirty (30) days following Landlord's demand
therefor.
(C) Should any taxing authority impose any separate additional taxes on
the value of any improvements made by Tenant, or include machinery, equipment,
fixtures, inventory or other personal property or assets of Tenant, then Tenant
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shall pay the entire tax attributable to such items. Tenant shall pay any
sales, use, occupancy, value added (if the value added is not in lieu of Taxes
as described in Section 3.2D) or similar tax hereafter levied or imposed in
connection with the Fixed or Additional Rent payable by Tenant.
(D) The term Taxes shall mean (i) the total amount of Taxes payable with
respect to the Building and the Building Parcel and all improvements thereon,
including the Parking Garage, plus (ii) one-quarter (1/4) of the total amount of
Taxes payable with respect to or attributable to the Auxiliary Areas. Taxes
shall include all real estate taxes, assessments, water and sewer rents and
other governmental impositions and charges of every kind and nature whatsoever,
extraordinary as well as ordinary, foreseeable and unforeseeable, including any
and all fees or expenses incurred in connection with the institution,
prosecution, conduct and maintenance of negotiations, settlements, actions or
proceedings with respect to the amount of any Taxes, and each and every
installment thereof which shall or may during the Term of this Lease be levied,
assessed, imposed, become due and payable or a lien upon or arise in connection
with the use, occupancy or possession of or grow due or payable out of or for,
the Building, the Parking Garage, the land constituting the Building Parcel or
any part thereof or improvements thereon, and the Auxiliary Areas or any part
thereof or improvements thereon, but excluding, however, any of the foregoing
relating to any charge which is measured by the consumption by the actual user
of the item or service for which the charge is made. A Tax bill or copy thereof
submitted by Landlord to Tenant shall be conclusive evidence of the amount of
Taxes or installments thereof.
(E) Nothing herein contained shall be construed to include as part of
the Taxes described in Section 3.2 D any inheritance, estate, succession,
transfer, gift, franchise, corporation income or profit tax or capital levy that
is or may be imposed upon Landlord; provided, however, that if, at any time
during the Term, the method of taxation prevailing at the time of the execution
of this Lease shall be altered so that in lieu of or as a substitute for the
whole or any part of the Taxes now levied, assessed or imposed on real estate as
such, there shall be levied, assessed or imposed (i) a tax on the rents received
from real estate, or (ii) a license fee measured by the rents receivable by
Landlord for the Building or the Parking Garage or any portion thereof or (iii)
a tax or license fee imposed on Landlord which is otherwise measured by or
based, in whole or in part, upon the Building or the Parking Garage or any
portion thereof or (iv) any other tax or levy imposed in lieu of or as a
supplement to Taxes which are in existence as of the date of the execution of
this Lease, then the same shall be included in the determination of Tenant's Pro
Rata Share of excess Taxes, computed as if the amount of such tax or fee so
payable were that due if the Building, the Parking Garage, the Building Parcel
and Auxiliary Areas were the only property of Landlord subject thereto.
(F) In the event Landlord shall obtain a Tax refund as a result of tax
reduction proceedings, then, after the final conclusion of all appeals or other
remedies, Tenant shall, provided Tenant is not then in default, be entitled to
its Pro Rata Share of the net refund obtained, based upon any amount paid by
Tenant which is the subject of the refund. As used herein, the term "net
refund" means the refund plus interest thereon, if any, paid by the Governmental
Authority less appraisal, administrative, engineering, expert testimony,
attorney, printing and filing fees and all other costs and expenses of the
proceeding. Tenant shall not have the right to institute or participate in any
such proceedings, it being understood that the commencement, maintenance,
settlement, or conduct thereof shall be in the sole discretion of Landlord.
(G) Tenant shall pay to Landlord, as Additional Rent, Tenant's Pro Rata
Share of Operating Costs which in any calendar year exceed the actual Operating
Costs for the 1997 calendar year. Said amount shall be pro-rated if the
Commencement Date does not coincide with the beginning or the expiration date
does not coincide with the end of a calendar year. As soon as practicable after
the end of the calendar year in which the Commencement Date occurs, Landlord
shall notify Tenant as to the amount, if any, payable by Tenant as its Pro Rata
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Share of excess Operating Costs, and Tenant shall pay said amount to Landlord
within thirty (30) days thereafter. Commencing with the next calendar year and
for each succeeding calendar year (or portion thereof) during the Term of this
Lease, Tenant shall pay its Pro Rata Share of excess Operating Costs, as
reasonably estimated by Landlord, in equal monthly installments along with
Tenant's monthly installments of Fixed Rent. Estimates of Operating Costs shall
be revised annually by Landlord.
(H) The term Operating Costs shall mean (i) the total cost and expense
incurred by Landlord in operating and maintaining the Building and the land
constituting the Building Parcel and all improvements thereon, specifically
excluding the Parking Garage, plus (ii) one-quarter (1/4) of the total cost and
expense incurred by Landlord in operating and maintaining the Auxiliary Areas.
Operating Costs shall include, without limitation, costs for: (i) operation,
maintenance and repair of the Building and Auxiliary Areas, including the
equipment and machinery used in conjunction therewith and the costs of
inspection and depreciation thereof; (ii) maintenance, repair and replacement of
paved areas, curbs, walkways, landscaping, drainage and other outdoor facilities
on the Building Parcel and Entry Plaza; (iii) painting and redecorating; (iv)
security services and the regulation of automobile and pedestrian traffic; (v)
insurance, including, without limitation, public liability, property damage,
sign, casualty and rent insurance; (vi) utilities, including ordinary usage of
electricity, heat, air conditioning, ventilation, domestic water and sewer
facilities in tenant areas; (vii) refuse collection and removal; (viii)
janitorial and cleaning services, including ordinary cleaning of tenant areas
and janitorial supplies and equipment; (ix) sanitary control and extermination;
(x) capital improvements made to the Building and/or Auxiliary Areas which can
reasonably be expected to reduce Operating Costs, as well as capital
improvements made in order to comply with any statutes, rules, regulations or
directives hereafter promulgated by any Governmental Authority relating to
energy, conservation, public safety or security, as amortized by Landlord over
the useful life of the improvements; (xi) personnel to implement all of the
aforementioned, including fringe benefits and workmen's compensation insurance
covering such personnel; (xii) contractual management fees and other expenses
directly related to the on-site management of the Building and Auxiliary Areas;
and (xiii) other similar costs of the type incurred in the operation of
comparable properties.
(I) Not later than one hundred eighty (180) days after the end of each
calendar year, Landlord shall furnish to Tenant a statement showing in
reasonable detail the information necessary for the calculation and
determination of Landlord's actual Operating Costs. If the total of all monthly
charges paid by Tenant on account of excess Operating Costs during such calendar
year shall be less than Tenant's Pro Rata Share thereof for such calendar year,
as shown by such statement, Tenant shall pay to Landlord the difference within
thirty (30) days after receipt of such statement.
Section 3.3 Late Payments.
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From and after the due date of any payment of Rent, interest shall accrue
thereon at the rate of the lesser of 1 1/2% per month or the maximum rate
permitted by law.
ARTICLE 4. COMMON AREAS
Section 4.l Common Areas. Landlord hereby grants to Tenant a non-
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exclusive license to use (a) the hallways, elevators, lobby and other public
conveniences of the Building, (b) such other areas in or adjoining the Building
as may from time to time be designated by Landlord for use in common by Landlord
and the tenants of the Building, and (c) the Auxiliary Areas, individually and
collectively referred to as "common areas". Except for the Auxiliary Areas and
such other areas as may be specifically designated by Landlord, Tenant shall
have no rights whatsoever with respect to the use of adjacent property now or
hereafter owned or operated by Landlord.
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(A) No schedule, exhibit, plan, drawing, rendering, brochure, or the
like shall be deemed to create a warranty, representation or agreement on the
part of Landlord that the Building or common areas will be or will continue to
be exactly as indicated thereon. Landlord reserves the right to (i) increase,
reduce or change the number, type, size, location, elevation, nature and use of
any of the common areas and (ii) to make changes, additions, alterations, or
improvements in or to the Building and common areas. Except as herein provided,
Tenant shall have no rights with respect to the land or improvements below
exterior floor slab level or above the interior surface of the finished ceiling
of the Premises or air rights or any easements, in, on, about, below or above
the Premises. This Lease grants no parking rights to Tenant. Such rights, if
any, shall be created and governed by a separate written agreement.
(B) The common areas shall be subject to such reasonable rules and
regulations as Landlord may, from time to time, adopt. Landlord reserves the
right to close all or any portion of the common areas for the minimum length of
time as may, in the opinion of Landlord's counsel, be legally sufficient to
prevent a dedication thereof or the accrual of any rights of the public therein,
and to do and perform such other acts in and to the common areas as in the use
of Landlord's good business judgment will improve the use thereof.
ARTICLE 5. UTILITIES - SERVICES
Section 5.1 Electricity. Landlord will furnish electricity to the
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Premises, subject to the restrictions and limitations herein set forth. Except
as otherwise provided herein, the furnishing of electricity shall be included in
Operating Costs.
Section 5.2 Other Utilities. Except for electricity, domestic water and
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sewer services as provided herein and included in Operating Costs, Tenant shall
be solely responsible and shall pay separately for all charges for telephone and
for any other utilities used in the Premises.
Section 5.3 Practices. The following practices shall apply in
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connection with Landlord's obligation to furnish electricity and in connection
with Tenant's use thereof:
(A) Electricity shall be made available to Tenant during Standard
Building Hours and Days.
(B) Subject to Section 5.10 and paragraph (C) of this Section 5.3, it is
understood that Tenant shall use electricity only during Standard Building Hours
and Days, only for Building standard lighting and ordinary office equipment, and
not in excess of 5.0 watts per square foot of floor space.
(C) Landlord or Landlord's consultants shall have the right to inspect
the Premises in order to determine whether Tenant's use of electricity deviates
from or exceeds the conditions herein set forth. Each such inspection shall be
conducted in such a manner as to minimize interference with Tenant's operations
at the Premises. If Tenant's use of electricity deviates from or exceeds the
conditions set forth in this Lease, Tenant shall reimburse Landlord for the cost
of such inspection and Landlord shall have the right to require Tenant to pay,
from the date the condition first exists, the costs of excess electricity
consumption, as reasonably estimated by Landlord or Landlord's consultants or as
determined based on the consumption shown on an electric metering device
installed by Landlord at Tenant's expense, and/or to require Tenant to provide,
at Tenant's expense, all remedial action or equipment required to conform
Tenant's installations and operations to the conditions set forth in this Lease.
Any such charges payable by Tenant shall be deemed Additional Rent, payable to
Landlord within ten (10) days after demand.
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Section 5.4 Elevator Service.
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Landlord shall furnish elevator facilities during Standard Building
Hours and Days and at other times as reasonably required to provide access to
the Premises. Landlord may designate hours of use and elevators in the Building
for use for shipping and delivery, and Tenant agrees to use (and to cause any
Persons claiming through or under Tenant to use) only the elevator or elevators
so designated for all shipments and deliveries.
Section 5.5 Heat. When necessary, Landlord shall furnish heat to the
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Premises during Standard Building Hours and Days.
Section 5.6 Air Conditioning. During the Term of this Lease, Landlord
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shall furnish to the Premises (i) conditioned air at reasonable temperatures and
pressures and in reasonable volumes and velocities during Standard Building
Hours and Days, when considered necessary by Landlord for the comfortable
occupancy of the Premises, and (ii) mechanical ventilation during Standard
Business Hours and Days when conditioned air or heat is not being furnished.
Landlord shall not be responsible if the normal operation of the Building
air conditioning or heating systems shall fail to provide heat or conditioned
air at reasonable temperatures and pressures or in reasonable volumes or
velocities in any portions of the Premises (a) if any machinery or equipment
installed by or on behalf of Tenant or any Person claiming through or under
Tenant, shall have an electrical load in excess of the electric load
per square foot of floor space of the Premises for which the HVAC system was
designed, or by reason of a human occupancy factor in excess of one person per
100 square feet of floor space or (b) because of any rearrangement of
partitioning or other alterations made or performed by or on behalf of Tenant or
any Person claiming through or under Tenant. Whenever the air conditioning or
heating systems are in operation, Tenant shall cause all windows in the Premises
to be kept closed and cause all window blinds in the Premises to be kept down.
Tenant shall cooperate fully with Landlord and abide by all regulations and
requirements which Landlord may reasonably prescribe for the proper functioning
and protection of the ventilation, air conditioning and heating systems.
In the event the Premises shall contain a supplemental air conditioning
unit(s) (the "AC Unit"), Tenant shall, at its sole cost and expense, be
responsible for all maintenance, repair and replacement of the AC Unit. Tenant
shall throughout the Term of this Lease, maintain with a responsible company,
approved by Landlord, a service contract for the AC Unit.
Section 5.7 Cleaning.
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Landlord shall cause the Premises, (excluding any portions thereof
used for the storage, preparation, service or consumption of food or beverages)
to be cleaned and shall cause Tenant's ordinary office waste paper refuse to be
removed, all at regular intervals, in accordance with standards and practices
adopted from time to time by Landlord for the Building. Tenant understands that
the cost of ordinary cleaning is included in Operating Costs. Tenant shall pay
as Additional Rent, within five days after Landlord's billing, Landlord's
regularly established rates or, if there are no such rates, at reasonable rates,
for the removal of any of Tenant's refuse or rubbish other than ordinary office
waste paper refuse, and Tenant, at Tenant's expense, shall cause all portions of
the Premises used for the storage, preparation, service or consumption of food
or beverages to be cleaned daily and to be regularly exterminated against
infestation by vermin or insects.
Section 5.8 Water. Landlord shall furnish Tenant with domestic water
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for ordinary lavatory or drinking purposes and Tenant understands that the cost
of domestic water service is included in Operating Costs. If Tenant requires or
consumes water for any purpose in addition to ordinary lavatory and drinking
purposes, Tenant shall pay as Additional Rent the cost thereof as reasonably
estimated by Landlord, or Landlord may install, at Tenant's expense, hot and
cold
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water meters and thereby measure Tenant's consumption of water for all purposes.
Tenant shall keep any such meters and installation equipment in good working
order and repair, at Tenant's expense, and shall pay for water consumed as shown
on said meters and sewer charges thereon, as and when bills are rendered.
Section 5.9 Directory. Tenant shall be allotted Tenant's Pro Rata Share
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of the number of directory lines on the Building directory. The Building
directory shall list only the names of Persons who occupy the Premises in
compliance with this Lease.
Section 5.10 Extra Services. If Tenant requests Landlord to furnish or
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uses any electricity, elevator services, heat, conditioned air, mechanical
ventilation, cleaning, water or other services during hours or days other than
Standard Building Hours and Days, Tenant shall pay as Additional Rent, for such
services at the standard rates then fixed by Landlord for the Building or, if no
such rates are then fixed, at reasonable rates. Landlord shall not be required
to furnish any such services during such periods unless Landlord has received
reasonable advance notice from Tenant and Landlord is able to provide same.
Section 5.11 Interruption of Services. Landlord reserves the right to
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temporarily stop any service or facility provided by Landlord when necessary by
reason of construction in other parts of the Building, accident or emergency, or
for repairs, alterations, replacements or improvements, which, in Landlord's
judgment, are desirable or necessary, or required to be made by Landlord or
Tenant pursuant to this Lease, until said repairs, alterations, replacements or
improvements shall have been completed. The exercise of such right by Landlord
shall not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of Rent, or relieve Tenant from
any of its obligations under this Lease. Landlord shall prosecute such work
with continuity, diligence and dispatch and shall not be liable to any extent to
Tenant if any of said services or facilities is interrupted or otherwise
impaired.
Section 5.12 Security. Landlord reserves the right to lock all
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entrances to the Building at such times, other than Standard Building Hours, as
Landlord may deem advisable for the protection of the Building and its
occupants. Persons entering or leaving the Building at times when it is locked
may be required to sign the Building register, and the lobby attendant, if any,
may refuse to admit to the Building, while it is so locked, any person not
displaying satisfactory identification evidencing his or her right of access to
the Building. Landlord assumes no responsibility and shall not be liable for
any damages resulting from an error with respect to such identification, or from
admission to the Building of any unauthorized individual.
ARTICLE 6. LANDLORD'S ADDITIONAL COVENANTS
Section 6.1 Repairs by Landlord. Landlord shall keep the exterior,
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foundations, finish, downspouts, gutters, and roof of the Building and the
Building's plumbing, electrical, heating, ventilating, elevator and air
conditioning systems (except the components of such systems which exclusively
serve or operate within the Premises) in good order, condition and repair and
shall make necessary structural repairs to the exterior walls of the Building,
the dividing walls between the Premises and adjoining space occupied or to be
occupied by others, and the load-bearing walls and load-bearing columns, if any,
within the Premises; provided that Landlord shall not be obligated hereby to do
any work required to be done because of any damage caused by any act, misuse,
omission or negligence of Tenant and its invitees or licensees, their respective
officers, agents and employees or their visitors. Landlord shall not be
required to commence any such repair until after notice from Tenant that the
same is necessary, which notice, except in the case of an emergency, shall be in
writing and shall allow Landlord a reasonable time in which to commence such
repair.
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Section 6.2 Landlord's Liability.
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(A) In the event of a sale or transfer of all or any portion of the
Building or any undivided interest therein, or in the event of the making of a
lease of all or substantially all of the Building, or in the event of a sale or
transfer of the Landlord's fee or leasehold estate, the grantor, transferor or
lessor, as the case may be, shall thereafter be entirely relieved of all terms,
covenants and obligations thereafter to be performed by Landlord under this
Lease to the extent of the interest or portion so sold, transferred or leased;
provided that (i) any amount then due and payable to Tenant or for which
Landlord or the then grantor, transferor or lessor would otherwise then be
liable to pay to Tenant (it being understood that the owner of an undivided
interest in the fee or any such lease shall be liable only for his or its
proportionate share of such amount) shall be paid to Tenant, (ii) the interest
of the grantor, transferor or lessor, as Landlord, in any funds then in the
hands of Landlord or the then grantor, transferor or lessor in which Tenant has
an interest, shall be turned over, subject to such interest, to the then
grantee, transferee or lessee, and (iii) notice of such sale, transfer or lease
shall be delivered to Tenant. Upon the termination of any such lease, the
lessor thereunder shall become and remain liable as Landlord hereunder only so
long as there shall not be made another such lease.
(B) Tenant agrees that it shall look solely to the estate and property
of Landlord in the Building and the land constituting the Building Parcel
(subject to prior rights, if any, of holders of superior interests) for the
collection of any judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default or breach by Landlord with respect
to any of the terms, covenants and conditions of this Lease to be observed or
performed by Landlord; and no other assets of Landlord or any Person having any
interest in Landlord shall be subject to levy, execution or other procedures for
the satisfaction of Tenant's remedies.
(C) Corporate Property Investors is the designation of the Trustees
under a Declaration of Trust dated June 24, 1971, as amended, and neither the
shareholders nor the Trustees, officers, employees or agents of the Trust
created thereby shall be liable hereunder and, subject to Section 6.2B, all
persons shall look solely to the trust estate for the payment of any claims
hereunder or for the performance hereof.
ARTICLE 7. TENANT'S ADDITIONAL COVENANTS
Section 7.1 Affirmative Covenants.
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Tenant covenants that at all times during the Term Tenant, at its sole
cost and expense, shall:
(A) Use the Premises only for the Permitted Use and for no other purpose
and in no event shall Tenant permit the use of the Premises in violation of any
Governmental Requirements;
(B) Take good care of the Premises and the fixtures therein and make all
improvements, repairs and replacements to the Premises not required to be made
by Landlord as and when needed to preserve the Premises in good working order
and condition, except that Tenant shall not be required to make any structural
repairs or structural replacements to the Premises unless necessitated by the
acts or omissions of Tenant or any Persons claiming through or under Tenant, or
by the use or occupancy or manner of use or occupancy of the Premises by Tenant
or any such Person. All repairs and replacements made by or on behalf of Tenant
or any Person claiming through or under Tenant shall be at least equal in
quality and class to the original work or installation.
(C) Make all repairs, alterations, additions or replacements to the
Premises, including appurtenances, equipment, facilities and fixtures therein,
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arising out of Tenant's use or occupancy of the Premises necessary to satisfy
any Governmental Requirement; and otherwise comply with the orders and
regulations of any Governmental Authority.
(D) Pay promptly when due the cost of any work in or to the Premises, so
that the Premises and Building shall, at all times, be free of liens for labor
and materials; procure all Necessary Approvals before undertaking such work; do
all such work in a good and workmanlike manner acceptable to Landlord, employing
materials of good quality; comply with any Governmental Requirement relating
thereto. Tenant shall not, at any time prior to or during the Term, directly or
indirectly employ, or permit the employment of, any contractor, mechanic or
laborer in the Premises if such employment will interfere or cause conflict with
other contractors, mechanics, or laborers engaged in the construction,
maintenance or operation of the Building by Landlord, Tenant or others. In the
event of any such interference or conflict, Tenant, upon demand of Landlord,
shall cause all contractors, mechanics or laborers causing such interference or
conflict to leave the Building immediately.
(E) Indemnify and save Landlord harmless of and from all loss, cost,
liability, damage and expense, including, but not limited to, reasonable counsel
fees, penalties and fines, incurred in connection with or arising from (i) any
default by Tenant in the observance or performance of any of the terms,
covenants or conditions of this Lease on Tenant's part to be observed or
performed, or (ii) the use or occupancy or manner of use or occupancy of the
Building or Premises by Tenant or any Person claiming through or under Tenant,
or (iii) any acts, omissions or negligence of Tenant or any such Person, or the
contractors, agents, servants, employees, visitors or licensees of Tenant or any
such Person, in or about the Premises or the Building either prior to, during or
after the expiration of the Term, or (iv) any claims by any Persons by reason of
injury to persons or damage to property occasioned by any use, occupancy, act,
omission or negligence referred to herein.
(F) Maintain with responsible companies approved by Landlord (i)
comprehensive liability insurance, with contractual liability endorsement
covering the matters set forth in paragraph E above, against all claims, demands
or actions for injury to or death of person and damage to property, to the limit
of not less than $3,000,000 per occurrence and/or in the aggregate, arising
from, related to, or in any way connected with Tenant's use or occupancy of the
Premises, or caused by actions or omissions of Tenant, its agents, servants and
contractors, which insurance shall name Landlord and its agents as additional
insureds; and (ii) fire insurance, with such extended coverage, vandalism,
malicious mischief and sprinkler leakage endorsements attached as Landlord
reasonably may, from time to time, require, covering all trade fixtures and
equipment, furniture, furnishings, improvements or betterments installed or made
by Tenant in, on or about the Premises to the extent of at least 80% of their
replacement value, without deduction for depreciation, but in any event in an
amount sufficient to prevent Tenant from becoming a co-insurer under provisions
of applicable policies. Tenant's insurance shall be in form satisfactory to
Landlord and shall provide that it shall not be subject to cancellation,
termination or change except after at least ten (10) days' prior written notice
to Landlord. All policies required pursuant to this paragraph F or duly
executed certificates for the same shall be deposited with Landlord not less
than ten (10) days prior to the day Tenant is expected to take occupancy and any
renewals of said policies not less than fifteen (15) days prior to the
expiration of the term of such coverage. Landlord and Tenant mutually agree
that with respect to any loss which is covered by insurance then being carried
by them respectively, or required to be carried, or as to any coverage which
Landlord agrees need not be carried, the party suffering a loss releases the
other of and from any and all claims with respect to such loss; and they further
mutually agree that their respective insurance companies shall have no right of
subrogation against the other on account thereof.
(G) Landlord and its agents and employees shall not be liable for, and
Tenant waives all claims for, loss or damage to person or property sustained by
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Tenant resulting from any accident or occurrence (unless caused by the
negligence of Landlord, its agents, servants or employees other than accidents
or occurrences against which Tenant is insured) in or upon the Premises or the
Building, including, but not limited to, claims for damage resulting from: (i)
equipment or appurtenances becoming out of repair; (ii) injury occasioned by
wind; (iii) any defect in or failure of plumbing, heating, air conditioning or
ventilation equipment, electric wiring, gas, water, steam or other pipes,
stairs, porches, railings or walks; (iv) broken glass; (v) the backing up of any
pipe or downspout; (vi) the bursting, leaking or running of any pipe, drain or
tank in, upon or about the Building or the Premises; (vii) the escape of steam
or hot water; (viii) water, snow or ice upon or coming through the roof or
windows, walks or otherwise; (ix) the falling of any fixture, plaster, concrete,
glass, metal, tile or stucco; and (x) any act, omission or negligence of other
occupants of the Building.
(H) Permit Landlord and its agents to have access in and about the
Premises including, without limitation, the right (i) to enter the Premises to
examine the Premises and/or to perform any obligation of Landlord under this
Lease or any other lease to which Landlord is party and/or to exercise any right
or remedy reserved to Landlord in this Lease; (ii) to erect, install, use and
maintain in concealed locations columns, beams, pipes, ducts and conduits in and
through the Premises; (iii) to exhibit the Premises to others; (iv) to make such
repairs, alterations, improvements or additions, or to perform such maintenance
as Landlord may deem necessary or desirable; and (v) to take all materials into
and upon the Premises that may be required in connection with any such
decorations, repairs, alterations, improvements, additions or maintenance. All
parts (except surfaces facing the interior of the Premises) of all walls,
windows and doors bounding the Premises (including exterior Building walls, core
corridor walls, doors and entrances), all balconies, terraces and roofs adjacent
to the Premises, all space in or adjacent to the Premises used for shafts,
stairways, chutes, pipes, conduits, ducts, fan rooms, mechanical facilities,
service closets and other Building facilities, and the use thereof, as well as
access thereto through the Premises for the purposes of operation, maintenance,
alteration and repair, are hereby reserved to Landlord. Landlord also reserves
the right at any time to change the arrangement or location of entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets and other
public parts of the Building, provided any such change does not permanently and
unreasonably obstruct Tenant's access to the Premises. The exercise by Landlord
or its agents of any right reserved to Landlord in this paragraph shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of Rent, or relieve Tenant from any of its
obligations under this Lease.
(I) Pay on demand Landlord's expenses, including reasonable attorneys'
fees, resulting from the breach by Tenant of, or incurred in enforcing any
obligation of Tenant under this Lease, or in curing any default by Tenant
hereunder.
(J) Forthwith cause to be discharged of record, by payment, bonding or
otherwise, any mechanic's lien at any time filed against the Premises or the
Building for any work, labor, services or materials claimed to have been
performed at or furnished to the Premises for or on behalf of Tenant or anyone
holding the Premises through or under Tenant. Nothing contained in this Lease
shall be construed as a consent on the part of Landlord to subject Landlord's
estate in the Premises to any lien or liability under applicable law.
(K) Upon the expiration or other termination of the Term, quit and
surrender the Premises to Landlord, broom clean, in good order and condition,
ordinary wear and tear and casualty covered by Landlord's insurance excepted,
and at Tenant's expense, remove all property of Tenant and each alteration,
addition or improvement made by Tenant as to which Landlord shall have made the
election provided for in Section 2.3 hereof. Tenant shall repair all damages to
the Premises caused by such removal and restore the Premises to the same
condition as existed prior to the installation of the items so removed. Any
improvements
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or installations required to be but not so removed shall be deemed to have been
abandoned by Tenant and may be retained or disposed of, as Landlord shall
desire. However, Tenant shall be responsible for the cost of removal and
disposal and for restoration of the Premises.
(L) This Lease is and all of Tenant's rights hereunder are subject and
subordinate to any mortgages, security deeds or deeds of trust (collectively,
Mortgages) that now exist or may hereafter be placed upon the Building, the
Building Parcel or any part thereof and all advances made under any such
Mortgages and the interest thereon and all renewals, replacements, amendments,
modifications, consolidations and extensions thereof. If any mortgagee succeeds
to Landlord's interest under this Lease by foreclosure or otherwise, Tenant will
attorn to such mortgagee and will recognize such mortgagee as Tenant's landlord
under this Lease. Tenant shall execute and deliver, in recordable form,
whatever instruments may be required to acknowledge or further effectuate the
provisions of this paragraph. This Lease shall also be subject and subordinate
to any ground or underlying (including operating) lease that may hereafter be
placed on the Building Parcel or the Building and all renewals, replacements,
modifications and extensions thereof, and Tenant shall attorn to the lessee
thereunder and recognize such lessee as Tenant's landlord under this Lease.
However, termination of any such lease shall not result in the termination of
this Lease nor of Tenant's obligations hereunder.
(M) Conform and cause its employees to conform to all reasonable rules
and regulations promulgated by Landlord for the management and use of the
Building and Auxiliary Areas. Such rules and regulations shall be uniform and
shall not discriminate against Tenant or its employees.
Section 7.2 Negative Covenants.
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Tenant covenants at all times during the Term and such further time as
Tenant occupies the Premises or any part thereof:
(A) Tenant shall not use or occupy, or permit the use or occupancy of,
the Premises or any part thereof for any purpose other than for office purposes,
nor in any manner which shall adversely affect any services furnished by
Landlord to Tenant or to any other occupant of the Building. Tenant shall not
injure, overload, deface or otherwise harm the Premises or any part thereof or
any equipment or installation therein.
(B) Tenant shall not make or perform, or permit the making or
performance of, any alterations, subdivisions, installations, decorations,
improvements, additions or other physical changes in or about the Premises,
including those necessary to satisfy any Governmental Requirement (referred to
collectively as "alterations"), without Landlord's prior consent. Landlord
agrees not unreasonably to withhold its consent to any nonstructural alterations
proposed to be made by Tenant to adapt the Premises for Tenant's business
purposes. All alterations shall be made at Tenant's sole cost and expense and
at such time and in such manner as Landlord may, from time to time, designate;
alterations shall be made only by contractors or mechanics approved by Landlord,
such approval not unreasonably to be withheld; all business machines and
mechanical equipment shall be placed and maintained by Tenant in settings
sufficient to absorb and prevent vibration, noise and annoyance to other
occupants of the Building; Tenant shall submit to Landlord detailed plans and
specifications for each proposed alteration and shall not commence any such
alteration without first obtaining Landlord's approval of such plans and
specifications; all permits, approvals and certificates required by all
Governmental Authorities shall be timely obtained by Tenant and submitted to
Landlord; notwithstanding Landlord's approval of plans and specifications for
any alteration, alterations shall be made and performed in full compliance with
all Governmental Requirements; all materials and equipment to be incorporated in
the Premises as a result of all alterations shall be new and first quality; no
such materials or equipment shall be subject to any lien, encumbrance, chattel
mortgage or title retention or security agreement. In the event the cost of an
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alteration exceeds the amount of three monthly installments of Fixed Rent,
Landlord shall have the right to require Tenant to obtain performance and labor
and material payment bonds from surety companies and in such forms as Landlord
shall require in amounts at least equal to the cost of the proposed work.
(C) Not to assign, sell, mortgage, pledge, or in any manner transfer
this Lease or any interest therein, or sublet the Premises or parts thereof or
grant "desk space" privileges or any concession. A transfer or change in the
ownership of Tenant's or the Guarantor's stock or a change in the composition of
any noncorporate Tenant without, in either case, a legitimate business purposes
shall, unless such stock is publicly traded, be deemed an assignment. Consent
by Landlord to an assignment, subletting, concession or license shall not be
construed to relieve Tenant from obtaining the express consent of Landlord to
any further assignment or subletting or to the granting of any concession or
license for the use of any part of the Premises; nor shall the collection of
Rent by Landlord from any assignee, subtenant or other occupant, after default
by Tenant, be deemed a waiver of this covenant or the acceptance of the
assignee, subtenant or occupant as Tenant or a release of Tenant from the
further performance by Tenant of the covenants of this Lease on Tenant's part to
be performed.
Tenant may, in writing, request Landlord's consent to an assignment of
this Lease or a subletting of all (but not less than all) of the Premises
provided however, that (i) the proposed assignee or subtenant is not then (a) an
existing tenant or an Affiliate of an existing tenant in the Building or (b) a
person with whom Landlord is then negotiating, or has entered into negotiations
within the six months prior to Tenant's request for Landlord's consent, for
space in the Building and (ii) the rental rate for any subletting is no less
than the then going market rental rate (including Fixed Rent and Additional
Rent) for space in the Building which Landlord is then offering to Lease. Such
request shall include the name of the proposed assignee or subtenant, a copy of
the proposed instruments relating to the transaction, certified financial
statements of the proposed assignee or subtenant and its officers, directors and
stockholders, and such information as to the financial responsibility, business
and standing of the proposed assignee or subtenant as Landlord may reasonably
require. Upon receipt of such request and information from Tenant, Landlord
shall have the right, to be exercised in writing within thirty (30) days after
such receipt, to terminate this Lease, as of the date set forth in Landlord's
notice of its exercise of such right, which date of termination shall be not
less than sixty (60) nor more than one hundred twenty (120) days following the
service of Landlord's notice.
(i) In the event Landlord shall exercise such cancellation right,
Tenant shall surrender possession of the Premises on the date set forth in such
notice in accordance with the provisions of this Lease relating to surrender of
the Premises at the expiration of the Term. In no event shall the Premises be
subdivided or partially sublet nor any request made for permission to do so.
(ii) In the event that Landlord shall not exercise its right to cancel
this Lease as above provided, Landlord's consent to such request shall not be
unreasonably withheld, provided such sublease or assignment is effected by a
legal document in form and substance satisfactory to Landlord, and subparagraph
(iii) of this paragraph shall apply with respect to possible adjustment of
rentals. In no event shall any assignment or subletting to which Landlord may
have consented relieve Tenant from its obligations to perform all of the terms,
covenants and conditions of this Lease on its part to be performed.
(iii) If under an assignment or sublease consented to by Landlord the
rent, additional rent, other charges, and/or other consideration, money or thing
of value payable thereunder or payable in connection with the transaction exceed
the Rent provided in this Lease, Tenant or, at Landlord's option, the sublessee
or assignee shall pay said excess rent or other consideration to Landlord as
Additional Rent hereunder as and when the same becomes due under said assignment
or sublease.
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(iv) If Tenant is a corporation, Tenant shall have the right, without
the consent of Landlord, to assign its interest in this Lease to a parent or
wholly owned subsidiary of Tenant or any corporation which is a successor to
Tenant either by merger or consolidation, or in connection with a public
offering of Tenant's stock, provided that the successor shall have a tangible
net worth, determined in accordance with accepted accounting standards, at least
equal to the tangible net worth of Tenant at the time of the transaction.
However, no such assignment shall be valid unless within ten (10) days prior to
the effective date thereof Tenant shall deliver to Landlord (a) a duplicate
original instrument of assignment, in form and substance satisfactory to
Landlord, duly executed by Tenant, (b) an instrument in form and substance
satisfactory to Landlord, duly executed by the assignee, in which such assignee
shall assume observance and performance of and agree to be personally bound by,
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed and (c) evidence of compliance with the conditions of
this paragraph.
(D) Tenant shall have no right to affix any sign to the Premises or its
windows, or to any part of the common area or the Building unless and until the
sign has been approved by Landlord. Landlord shall have the right, at Tenant's
expense, to remove any sign affixed by Tenant prior to such approval.
(E) Not to obstruct or encumber or use the common areas for any purpose
other than ingress and egress to and from the Premises. Tenant shall not commit
or allow to be committed any waste upon the Premises, or any public or private
nuisance or other act or thing which disturbs the quiet enjoyment of any other
tenant in the Building.
ARTICLE 8. DESTRUCTION: CONDEMNATION
Section 8.1 Fire or Other Casualty.
----------------------
(A) Tenant shall give prompt notice to Landlord in case of fire or other
damage to the Premises or the Building.
(B) If the Premises or the Building shall be damaged by fire or other
casualty, Landlord, at Landlord's expense, but only to the extent of the net
insurance proceeds available for such purpose, shall repair such damage.
However, Landlord shall have no obligation to repair any damage to, or to
replace, Tenant's leasehold improvements or betterments, furniture, furnishings,
decorations or any other installations made by Tenant. If the Premises shall be
rendered untenantable by reason of any such damage, the Fixed Rent only shall
abate for the period from the date of such damage to the date when such damage
shall have been repaired by Landlord, and if only a part of the Premises shall
be so rendered untenantable, the Fixed Rent for such period shall abate in the
proportion which the part of the Premises rendered untenantable bears to the
total Premises. However, if, prior to the date when all of such damage shall
have been repaired by Landlord, any part of the Premises so damaged shall be
rendered tenantable and shall be used or occupied by Tenant or Persons claiming
through or under Tenant, then the amount by which the Fixed Rent shall abate
shall be equitably apportioned for the period from the date of any such use or
occupancy to the date when Landlord shall have repaired all such damage.
Notwithstanding the foregoing provisions of this paragraph, if prior to or
during the Term, (i) the Premises shall be rendered wholly untenantable by fire
or other casualty and Landlord shall decide not to restore the Premises, or (ii)
the Building shall be so damaged by fire or other casualty that, in Landlord's
opinion, substantial alteration, demolition, or reconstruction of the Building
shall be required (whether or not the Premises shall have been rendered
untenantable), then, in either of such events, Landlord, at Landlord's option,
may give to Tenant, within ninety (90) days after such fire or other casualty, a
five (5) day notice of termination and, if such notice is given, this Lease and
the Term hereof shall come to an end (whether or not said Term shall have
commenced) upon the expiration of said five (5) days with the same effect as if
the date of expiration of said five (5) days were the expiration date of this
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Lease. In such event, the Rent shall be apportioned as of such date and any
prepaid portion of Rent for any period after such date shall be refunded to
Tenant.
(C) If this Lease shall not be terminated as above provided, Landlord
shall, at its expense, repair or restore the Premises with reasonable diligence
and dispatch to the condition obtaining immediately prior to the casualty,
except that Landlord shall not be required to repair or restore any of Tenant's
furniture, furnishings, decorations or any installations or alterations, as
defined in paragraph 7.2B, made by Tenant. All insurance proceeds payable to
Tenant for such items shall be held in trust by Tenant and upon the completion
by Landlord of repair or restoration, Tenant shall prepare the Premises for
occupancy by Tenant in the manner obtaining immediately prior to the damage or
destruction, in accordance with the provisions of paragraph 7.2B.
Section 8.2 Eminent Domain.
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(A) If all or substantially all of the Building or the Premises shall be
acquired or condemned by eminent domain for any public or quasi-public use or
purpose, then this Lease and all rights of Tenant shall terminate as of the date
of title vesting in such proceeding.
(B) If part of the Building shall be acquired or condemned by eminent
domain for any public or quasi-public use or purpose, and such acquisition shall
affect a portion of the Premises or the access to same, then Landlord shall have
the option (i) to terminate this Lease as of the date of title vesting or (ii)
to repair and alter the Building, including the area leased to Tenant, and this
Lease shall not be affected thereby, except for proportional reduction of the
Fixed Rent if the leased area shall be diminished by such vesting.
(C) In case of any taking or condemnation, whether or not the Term of
this Lease shall terminate, the entire award shall be the property of Landlord,
and Tenant hereby assigns to Landlord all its right, title and interest in and
to any such award. However, Tenant shall be entitled to claim, prove and
receive in the condemnation proceeding such awards as may be allowed for
fixtures and other equipment installed by Tenant, relocation and loss of Lease,
but only if such awards shall be made by the condemnation court in addition to
the award made by it for the land and the Building or part thereof so taken.
(D) In the case of any taking or condemnation, the current Fixed Rent
and Additional Rent shall be apportioned as of the date of vesting of title and,
if the Term of this Lease shall not have been terminated as of said date, Tenant
shall be entitled to a pro rata reduction in the Fixed Rent payable hereunder
based on the proportion which the floor area so taken bears to the entire floor
area of the Premises immediately prior to such taking.
(E) If this Lease is not terminated pursuant to the provisions of this
Section 8.2, Landlord shall, at its expense, but only to the extent of an
equitable proportion of the net award or other compensation (after deducting
legal and all other fees in connection with obtaining said award) for the
portion of the Building taken or conveyed (excluding any award for land), make
such repairs of alterations as are in Landlord's reasonable judgment necessary
to constitute the Building a complete architectural and tenantable unit.
ARTICLE 9. DEFAULTS AND REMEDIES
Section 9.1 Default. The occurrence, at any time prior to or during the
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Term, of any one of the following events shall constitute an "Event of Default":
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(A) If Tenant shall default in the payment when due of any installment
of Fixed Rent or in the payment when due of any Additional Rent, and such
default shall continue for a period of ten (10) days after notice by Landlord to
Tenant of such default; or
(B) If Tenant shall default in the observance or performance of any
other term, covenant or condition of this Lease on Tenant's part to be observed
or performed and Tenant shall fail to remedy such default within twenty (20)
days after notice by Landlord to Tenant of such default; or if such default is
not capable of being cured within said twenty (20) day period, then if Tenant
shall fail to commence the cure within said period or shall not thereafter
diligently prosecute to completion all steps necessary to remedy such default;
or if the Premises shall become vacant, deserted or abandoned; or if Tenant
shall assign or sublet the Premises in violation of Section 7.2 C.
Upon the occurrence of any one or more such Events of Default, Landlord
may, at any time thereafter, give Tenant a five (5) day notice of termination of
this Lease and, in the event such notice is given, this Lease and the Term shall
come to an end (whether or not the Term shall have commenced) upon the
expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the expiration date of this Lease, but
Tenant shall remain liable for damages as herein provided.
Section 9.2 Remedies of Landlord.
--------------------
(A) If this Lease shall have been terminated, or if Tenant shall default
in the payment of Rent or in the observance of any other term, condition or
covenant and such default is continuing, then, in any of such events, Landlord
may without notice, institute, in accordance with the laws and service of
process requirements of the State of Georgia, dispossess or unlawful detainer
proceedings, dispossess Tenant or other occupants of the Premises, and remove
their effects and hold the Premises as if this Lease had not been made. Nothing
herein shall be deemed to require Landlord to give the notices herein provided
for prior to the commencement of a dispossess or unlawful detainer proceeding
for non-payment of Rent or a plenary action for the recovery of Rent on account
of any default in the payment of Rent, it being intended that such notices are
for the sole purpose of creating a conditional limitation hereunder pursuant to
which this Lease shall terminate and Tenant shall become a holdover Tenant.
(B) In case of any such default, re-entry, expiration and/or dispossess
or unlawful detainer proceedings or otherwise, in addition to any other remedy
now or hereafter available to Landlord, (i) the Rent shall become due thereupon
and be paid up to the time of such re-entry, dispossess and/or expiration; (ii)
Landlord may relet the Premises or any part thereof for a term which may be
less than or exceed the period which would otherwise have constituted the
balance of the Term, and may grant concessions of free rent; and (iii) Tenant or
the legal representative of Tenant shall also pay Landlord, as damages for the
failure of Tenant to observe and perform Tenant's covenants herein contained,
for each month of the period which would otherwise have constituted the balance
of the Term, any deficiency between (x) the sum of (a) one monthly installment
of Fixed Rent and (b) any Additional Rent that would have been payable for the
month in question but for such re-entry or termination and (y) the net amount,
if any, of the rents collected on account of the lease or leases of the Premises
for each month of the period which would otherwise have constituted the balance
of the Term. The reasonable refusal or failure of Landlord to relet the
Premises or any part thereof shall not release or affect Tenant's liability for
damages provided Landlord shall have made the same effort and on the same terms
to relet the Premises as with respect to other vacant space in the Building;
however, Landlord shall not be required to prefer the reletting of the Premises
over any other space in the Building. In computing such damages there shall be
added to the said deficiency all expenses actually incurred by Landlord in
connection with the reletting, including court costs, attorneys' fees and
disbursements, the cost of alterations for a new tenant, brokerage fees, and the
cost of putting the Premises in good order and otherwise preparing same for
reletting. Damages shall
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be paid in monthly installments by Tenant on the rent day specified in this
Lease and any suit brought to collect the amount of the deficiency for any month
shall not prejudice the rights of Landlord to collect the deficiency for any
subsequent or prior month by a similar proceeding. Landlord, at Landlord's
option, may make such alterations, repairs, replacements and/or decorations in
the Premises as Landlord considers advisable for the purpose of reletting the
Premises; and the making of such alterations and/or decorations shall not
release Tenant from liability hereunder as aforesaid.
(C) In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Landlord shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this Lease of any particular remedy shall not preclude Landlord from any other
remedy.
Section 9.3 Landlord's Right to Cure Defaults.
---------------------------------
Landlord may cure, after notice of default is served, any default by Tenant
under this Lease; and whenever Landlord so elects, all costs and expenses
incurred by Landlord in curing a default, including, without limitation,
reasonable attorneys' fees, together with interest on the amount of costs and
expenses so incurred at the rate provided in Section 3.3 hereof, shall be paid
by Tenant to Landlord on demand as Additional Rent.
Section 9.4 Waiver of Default. No consent or waiver, express or
-----------------
implied, by Landlord or Tenant to or of any breach of any covenant, condition or
duty of the other shall be construed as a consent or waiver to or of any other
breach of the same or any other covenant, condition or duty of the other, unless
in writing signed by the party against whom such waiver is sought.
Section 9.5 Security Deposit. Tenant has deposited with Landlord the
----------------
Security Deposit as security for the punctual performance by Tenant of each and
every obligation of Tenant under this Lease. In the event of any default by
Tenant, Landlord may apply or retain all or any part of the security to cure the
default or to reimburse Landlord for any sum which Landlord may spend by reason
of the default. In the case of every such application or retention, Tenant
shall, on demand, pay to Landlord the sum so applied or retained, which sum
shall be added to the Security Deposit so that the same shall be restored to its
original amount. If at the end of the Term Tenant shall not be in default under
this Lease, the Security Deposit, or any balance thereof, shall be returned to
Tenant within thirty (30) days. If Landlord shall sell the Building or shall
lease the Building, in either case subject to this Lease, or shall otherwise
assign or dispose of this Lease, Landlord may assign and turn over the Security
Deposit or any balance thereof to Landlord's grantee, lessee or assignee, and
Tenant hereby releases and relieves Landlord from any and all liability for the
return of said deposit and shall look solely to said grantee, lessee or
assignee; it being expressly agreed that this provision shall apply to each and
every sale, conveyance or lease of the Building or assignment or disposition of
this Lease.
ARTICLE 10. MISCELLANEOUS PROVISIONS
Section 10.1 Notices. Any notice or demand from Landlord to Tenant or
-------
from Tenant to Landlord shall be in writing and shall be deemed duly served if
mailed by registered or certified mail, return receipt requested, addressed, if
to Tenant, at the Building, or to such other address as Tenant shall have last
designated by notice in writing to Landlord, and if to Landlord, at the address
of Landlord set forth herein or such other address as Landlord shall have last
designated by notice in writing to Tenant. Notice shall be deemed served when
mailed.
Section 10.2 Brokerage. Tenant and Landlord warrant that they have had
---------
no dealings with any broker or agent in connection with this Lease other than
the Broker, if any, named herein, and each covenants to pay, hold harmless and
indemnify the other from and against any and all cost, expense or liability for
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any compensation, commissions and/or charges claimed by any other broker or
agent with whom they had dealings with respect to this Lease or the negotiation
thereof.
Section 10.3 Estoppel Certificates. Each of the parties agrees that it
---------------------
will, at any time and from time to time, within ten (10) business days following
written notice by the other party, execute, acknowledge and deliver to the other
party a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), and the dates
to which Rent and any other payments due hereunder from Tenant have been paid
and stating whether or not to the best of knowledge of the signer of such
certificate the other party is in default in performance of any covenant,
agreement or condition contained in this Lease, and, if so, specifying each such
default of which the signer may have knowledge.
Section 10.4 Applicable Law and Construction. The laws of the State of
-------------------------------
Georgia shall govern the validity, performance and enforcement of this Lease.
The invalidity or unenforceability of any provision of this Lease shall not
affect or impair any other provision. The submission of this document to Tenant
for examination does not constitute an offer to lease, or a reservation of or
option to lease, and becomes effective only upon execution and delivery thereof
by Landlord and Tenant. All negotiations, considerations, representations and
understandings between the parties are incorporated in this Lease. Landlord or
Landlord's agents have made no representations or promises with respect to the
Building or the Premises, except as herein expressly set forth. The headings of
the several articles and sections contained herein are for convenience only and
do not define, limit or construe the contents of such articles or sections.
Whenever herein the singular number is used, the same shall include the plural,
and the neuter gender shall include the masculine and feminine genders.
Section 10.5 Transfer of Tenants. Landlord hereby reserves the right,
-------------------
at its sole option and upon giving at least sixty (60) calendar days advance
written notice to Tenant, to transfer and remove Tenant from the Premises (and
from any other space to which Tenant was relocated pursuant to this Section
10.5) at any time prior or after occupancy of the Premises to any other
available space in the Building of substantially equal area. Landlord hereby
agrees to bear the expense of such transfer and removal, as well as the expense
of any renovations or alteration which are necessary to make the new space
conform substantially in layout and appointment with the Premises. If Landlord
moves Tenant to such new space, every term and condition of this Lease shall
remain in full force and effect, except that the Fixed Rent and Tenant's Pro
Rata Share shall be adjusted to reflect any change in the rentable floor area of
the new space, and such new space shall thereafter be deemed to be the Premises
as though Tenant had entered into an express written amendment of this Lease
with respect thereto. Failure of Tenant to cooperate with Landlord pursuant to
this provision and to remove itself from the Premises shall permit Landlord (i)
to enter the Premises and to remove Tenant and its property therefrom, by force
if necessary, and to relocate Tenant and its property in the new space provided
by Landlord pursuant to this provision, all without being liable to Tenant in
any manner whatsoever for such acts except for the expenses which are provided
in this Section 10.5 to be paid by Landlord or (ii) to cancel and terminate this
Lease effective ninety (90) days from the date of original notification by
Landlord.
Section 10.6 Construction on Adjacent Premises or Buildings. Tenant
----------------------------------------------
understands that while the Building is under construction and until it is fully
occupied, both Landlord and other occupants of the Building will be performing
work, aspects of which may involve areas in close proximity to the Premises. If
any excavation or other building operation shall be about to be made or shall be
made on any premises adjoining or above or below the Premises or on any other
portion of the Building, Tenant shall permit Landlord or the adjoining owner,
and their respective agents, employees, licensees and contractors, to enter the
Premises and to shore the foundations and/or walls thereof, and to erect
scaffolding and/or protective barricades around and about the Premises (but not
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so as to preclude entry thereto) and to do any act or thing necessary for the
safety or preservation of the Premises. Tenant's obligations under this Lease
shall not be affected by any such construction or excavation work, shoring-up,
scaffolding or barricading. Landlord shall not be liable in any such case for
any inconvenience, disturbance, loss of business or any other annoyance arising
from any such construction, excavation, shoring-up, scaffolding or barricades,
but Landlord shall use its best efforts so that such work will cause as little
inconvenience, annoyance and disturbance to Tenant as possible, consistent with
accepted construction practices in the vicinity, and so that such work shall be
expeditiously completed.
Section 10.7 Mortgagee Protection. Tenant agrees to give any mortgagee
--------------------
and/or trust deed holder, by registered mail, a copy of any notice served upon
Landlord with respect to Landlord's default hereunder, provided that prior to
such notice Tenant has been notified, in writing, of the address of such
mortgagees and/or trust deed holders. If Landlord shall have failed to cure
such default within the time provided for in this Lease, then the mortgagees
and/or trust deed holders shall have an additional thirty (30) days within which
to cure such default or if such default cannot be cured within such period, then
such additional time as may be necessary if within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated by Tenant while remedies are
being so diligently pursued.
Section 10.8 Financing. If any lending institution with which Landlord
---------
has negotiated interim or long-term financing for the Building shall require
changes in this Lease as a condition of its approval of this Lease for such
financing, and if within thirty (30) days after notice from Landlord Tenant
fails or refuses to execute the amendment to this Lease accomplishing the
changes which are needed in connection with approval of this Lease for purposes
of such financing, then provided such amendment does not alter the business
terms herein set forth, detract from Tenant's rights hereunder, or impose
additional obligations upon Tenant, Landlord shall have the right to cancel this
Lease at any time prior to the commencement of Landlord's Additional Work. In
the event of cancellation by Landlord hereunder, this Lease shall be null and
void with no further liability on the part of either party hereto.
Section 10.9 Recording. Tenant agrees not to record this Lease.
---------
Section 10.10 Binding Effect of Lease. The covenants, agreements and
-----------------------
obligations herein contained shall extend to, bind and inure to the benefit of
the parties hereto and their respective personal representatives, heirs,
successors and permitted assigns. Each covenant, agreement, obligation or other
provision herein contained shall be deemed and construed as a separate and
independent covenant, not dependent on any other provision of this Lease unless
otherwise expressly provided.
Section 10.11 Effect of Unavoidable Delays. The provisions of this
----------------------------
Section shall be applicable if there shall occur, during the Term or prior to
the commencement thereof, any (i) strikes(s), lockout(s) or labor dispute(s);
(ii) inability to obtain labor, materials, or reasonable substitutes therefor;
or (iii) acts of God, governmental restrictions, regulations or controls, enemy
or hostile governmental action, civil commotion, fire or other casualty, or
other conditions similar or dissimilar to those enumerated in this item (iii)
beyond the reasonable control of the party obligated to perform. If Landlord or
Tenant shall, as the result of any of the above-described events, fail
punctually to perform any obligation on its part to be performed under this
Lease, then such failure shall be excused and not be a breach of this Lease by
the party in question, but only to the extent occasioned by such event.
Notwithstanding anything herein contained, however, the provisions of this
Section shall not be applicable to Tenant's obligations to pay Rent or its
obligations to pay any
36
<PAGE> 37
other sums, moneys, costs, charges or expenses required to be paid by Tenant
hereunder.
Section 10.12 No Oral Changes. Neither this Lease nor any provision
---------------
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
Section 10.13 Landlord's Consent. Whenever in this Lease express
------------------
provision is made that Landlord shall not unreasonably withhold or delay its
consent, Tenant's sole and only remedy for Landlord's breach of such agreement
shall be limited to an action for injunction or declaratory judgment and in no
event shall Landlord be liable for any damages to Tenant.
Section 10.14 Invalid Provisions. If any provision of this Lease is
------------------
held unlawful or invalid, then this Lease shall continue in full force and
effect but such unlawful or invalid provision shall be deemed omitted. If any
portion of Fixed or Additional Rent shall at any time be held to be higher than
the amount which Landlord may lawfully reserve, then the amount thereof shall be
reduced to the highest lawful amount.
Section 10.15 Usufruct Only. This Lease shall create the relationship
--------------
of landlord and tenant between Landlord and Tenant; no estate shall pass out of
Landlord, and Tenant has a usufruct which is not subject to levy and sale.
IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this Lease
as of the day and year first above written.
CORPORATE PROPERTY INVESTORS
By:/s/ J. Michael Maloney
----------------------------
Senior Vice President
ATTEST: PREMIERE COMMUNICATIONS, INC.
/s/ Patrick G. Jones By: /s/ Julianne F. Vaio
- - - - - ----------------------------- ---------------------------
By:
--------------------------
Secretary
(Seal)
37
<PAGE> 38
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this day of , 19 , before me personally came J.
MICHAEL MALONEY, to me known, who being by me duly sworn, did depose and say
that he resides at 48 Remsen Street, Brooklyn, New York 11201 that he is the
Senior Vice President of CORPORATE PROPERTY INVESTORS, one of the Parties
described in and which executed the foregoing instrument; that he knows the seal
of the said Corporate Property Investors; that the seal affixed to the said
instrument in such seal; that it was so affixed by order of the Board of
Trustees of the said Corporate Property Investors and that he signed his name
thereto by like order.
--------------------------------------
Notary Public
STATE OF GEORGIA )
) ss.:
COUNTY OF FULTON )
On this 3rd day of March, 1997, before me personally came Julianne F.
Vaio, , to me known, who being by me duly sworn, did depose and say that
she resides at 3399 Peachtree Rd. NE, Suite 400, Atlanta, Georgia 30326 that she
is the Treasurer of Premiere Communications, Inc. the corporation described in
and which executed the foregoing instrument; that he knows the seal of the said
corporation; that the seal affixed to the said instrument in such corporate
seal; that it was so affixed by order of the Board of Directors of the said
corporation; and that she signed her name thereto by like order.
/s/
--------------------------------------
Notary Public
Notary Public, Fulton County, Georgia
My Commission Expires May 18, 1998
38
<PAGE> 39
RIDERS TO LEASE between CORPORATE PROPERTY INVESTORS, as Landlord, and PREMIERE
COMMUNICATION as Tenant for Suite No. 300 and 400 at The Lenox Building,
Atlanta, Georgia.
- - - - - --------------------------------------------------------------------------------
Notwithstanding the foregoing, anything to the contrary contained in the
printed form of the lease to which these Riders are attached, the following
terms are hereby added and incorporated. In the event of a conflict or
inconsistences between these Riders and the printed form of this Lease, the
Riders shall be deemed to control.
Rider #1 - amending Article I, Definitions
- - - - - --------
(A) The Premises Section is hereby amended by inserting the following
language at the end of the section:
In addition to the Leased Premises, the Tenant shall also have the
following non-exclusive rights as appurtenances to the Leased Premises:
(a) The right of reasonable access to and from the Building and
Premises, and to and from any parking facilities located on the Property,
twenty-four (24) hours per day, seven (7) days per week, and parking
privileges as may be agreed from time to time;
(b) The right of reasonable access to and from, and the right to use,
designated common areas in the Building and the Property as is reasonably
afforded to all tenants of the Building;
(c) The right to riser space for HVAC and other equipment which
service the Premises; and
(d) The right to do, possess, exercise and enjoy, as to the Premises,
any and all rights and privileges appertaining to a leasehold tenancy under
existing and future laws applicable thereto, to the extent not inconsistent
with any reserved rights and privileges of Landlord pursuant to this Lease;
and
(e) The right to control access and use of the halls and restrooms on
all floors in which Tenant is the only tenant served on that elevator bank
on that floor;
(f) Tenant may use the existing stairway between Tenant's floors for
travel between floors. Tenant's use of the stairway shall be conditioned
upon the following:
(1) Tenant's use shall not interfere with the emergency
operations of the door locking, unlocking, or monitoring
system; and
(2) No smoking will be allowed in the stairway.
(B) The Size of the Premises Section is hereby amended by inserting the
following language at the end of the section:
The Parties agree that the Leased Premises are measured in accordance
with the standards of the Building Owners and Managers Association
International ("BOMA") as follows:
For the purposes of this Lease, the Leased Premises shall be deemed to
comprise 35,553 square feet of usable area and 40,886 square feet of
rentable area, and the Building shall be deemed to comprise 348,152 square
feet of rentable area, subject to adjustment as provided herein. Whenever
39
<PAGE> 40
any space is added to or deleted from the Leased Premises pursuant to any
provision of this Lease, the usable and rentable areas of such space shall
be agreed upon by Landlord and Tenant, or failing such agreement, shall be
determined in accordance with the American National Standard Method of
Measuring Floor Area in Office Buildings of BOMA.
(C) The Tenant's Pro Rata Share Section is hereby amended by inserting the
following language at the beginning of the section in front of the phrase "11.74
percent":
Tenant's Pro Rata Share is a percentage which is calculated by dividing a
numerator, consisting of the total rentable area of the Premises by a
denominator consisting of the total rentable area contained in the
Building, which percentage, subject to adjustment as provided herein, is
estimated to be
(D) The "Additional Rent" provision is hereby amended by deleting the
phrase "7 and 9" and by inserting the word "and" between the numbers "3" and
"5".
(E) The "Exhibit C" provision is hereby amended by deleting the word
"None" and by inserting the phrase "Lenox Building Rules and Regulations" in its
place.
(F) Following Exhibit G - Building Rules and Regulations, the following
reference to Exhibits H and I is hereby inserted:
Exhibit H - Subordination, Non-disturbance and Attornment
Agreement
Exhibit I - Certified Floor Plan Verifying Premises
Rentable and Useable Space
Rider #2 - amending Recital
- - - - - --------
Tenant is currently in possession of the Premises under a sublease with
Sales Technologies, which expires on August 31, 1997 (the "Sublease").
Rider #3 - amending Article 2
- - - - - --------
(A) Section 2.1 and 2.2 are hereby deleted in their entirety.
(B) Tenant is currently in possession of the Premises pursuant to the
Sublease. Tenant is familiar with the Premises and accepts same "as is" and
"where is" condition, and Landlord shall not be obligated to do any further
construction or make any additional improvements in the Premises, except as may
otherwise be expressly provided herein.
(C) So long as Tenant leases the entire floor of the Building, it may,
subject to Landlord approval of plans, incorporate the Common Area corridors
located on such floor into its Premises.
(D) Landlord has budgeted to refurbish the elevator lobbies and restrooms
in the Building during the 1997-1998 Calendar Years. Landlord agrees to
refurbish the restrooms and elevator lobbies of the third (3rd) and fourth (4th)
floors between September 1, 1997 and March 31, 1998, which work shall be
consistent with the materials and design of the elevator lobbies and restrooms
located on the other floors in the Building.
Rider #4 Signage and Exterior Signage
- - - - - --------
(A) Tenant shall have the right to erect signage in the elevator lobbies
located on the third (3rd) and (4th) floor, provided, however, Tenant obtains
40
<PAGE> 41
Landlord's prior written approval for the signs, which approval shall not be
unreasonably withheld or delayed.
(B) Landlord has erected a monument in the Entry Plaza adjacent to the
Building, which monument bears the logos or other identification signs of
tenants of the Building which, from time to time occupy rentable floor space in
the Building. Landlord hereby grants Tenant the right, at its sole cost and
expense, to have its name on said monument, so long as the Tenant named on the
recital page personally occupies not less than two (2) full floors in the
Building. In the event Tenant subleases or assigns any portion of the Premises,
such that it occupies less than two (2) full floors of the Building, Landlord
may remove Tenant's name from the monument.
Rider #5 - Adding - Furniture
- - - - - --------
(A) Landlord purchased certain trade fixtures including, but not limited
to, moveable work stations, furniture and the like which were designed for use
by Sales Technologies, Inc. in the Sublease space and which are currently being
utilized by Tenant under the Sublease. At the expiration of such Sublease,
Landlord agrees that Tenant, subject to Sales Technologies right to purchase
same if said right is not exercised, Tenant may utilize such trade fixtures
throughout the Term of this Lease. Tenant is familiar with the aforedescribed
trade fixtures, and accepts same in "as is" condition.
(B) The aforedescribed trade fixtures shall be the property of Landlord;
however, Tenant shall have the right, at Tenant's option, at the expiration or
sooner termination of the Term, to purchase the trade fixtures from Landlord for
an amount equal to the then existing fair market value, as mutually agreed upon
by Landlord and Tenant; failing which, fair market value shall be determined by
an appraiser designated by Tenant and reasonably acceptable to Landlord, the
cost of such appraiser to be borne by Tenant. During the term, the ongoing
maintenance and repair of the trade fixtures shall be Tenant's responsibility.
Rider #6 - amending Section 2.3
- - - - - --------
(A) Section 2.3, Line 1, after "additions" add "and" delete the words
"and fixtures".
(B) Section 2.3, Line 2, delete "or located upon".
(C) Section 2.3, Line 7, after "furniture" add "trade fixtures" and
"floor mounted, free standing (Liebert type units) supplemental air units".
(D) Section 2.3, Line 8, add a period after "property" and delete the
remainder of the sentence and substitute the following in lieu thereof. "Tenant
shall repair any and all damage to the Premises, caused by Tenant in removing
the aforementioned property, which may include sheet rocking, holes and walls
which were damaged as a result of removal of the supplemental air units and the
like. However, Tenant shall not remove the HVAC air handlers or supplemental
air units located above the ceiling.
Rider #7 - amending Section 3.1
- - - - - --------
Section 3.1, Line 8, delete "on demand" and substitute "from and after five
(5) days of demand".
Rider #8 - amending Section 3.2(A)
- - - - - --------
(A) Notwithstanding anything to the contrary contained in this Section
3.2 A, Tenant's Pro Rata Share of Taxes shall not include an increase in Taxes
which is as a result of improvements made to the Building by any other tenant
therein.
41
<PAGE> 42
(B) In the event of an expansion of the Building, Tenant's Pro Rata share
shall be ratable adjusted by any increase in the rentable square feet of the
Building as a result of said expansion.
Rider #9 - amending section 3.2(B), (C), (E)
- - - - - --------
(A) Section 3.2(B) Line 9, delete "five (5)" and substitute "thirty
(30)".
(B) Section 3.2(C), Line 4, insert the following language in front of the
word "Tenant": "Upon receipt of notice that Taxes will change,"
(C) Section 3.2(E), Line 16, delete the remainder of the section
following the word "Taxes" and insert a period.
Rider #10 - amending Section 3.2 H
- - - - - ---------
(A) Notwithstanding anything to the contrary set forth in Section 3.2
(H), Operating Costs shall not include any of the following:
(1) Ground rents payable by Landlord;
(2) Payments of principal, amortization payments and interest
charges in connection with Landlord's mortgage financing or
any other borrowings;
(3) Brokerage commissions and leasing fees;
(4) The costs of decorations installed in the public areas of the
Building, but only to the extent such costs materially exceed
the sums expended for decorating the public areas of other
class "A" Office Buildings in the Buckhead Area of Atlanta,
Georgia.
(5) The cost of correcting defects in the construction of the
Building, Parking Garage and Auxiliary Area;
(6) To the extent that Landlord receives insurance proceeds or
condemnation awards with respect thereto (or would have
received same but for Landlord's default under an insurance
policy or failure to diligently prosecute a condemnation
claim), the cost of repairs made by Landlord as a result of
damage, destruction or condemnation; reimbursed or
compensated;
(7) The cost of any items for which Landlord is reimbursed by
insurance or otherwise reimbursed or compensated (or would
have been reimbursed or compensated but for Landlord's default
under its insurance policy or failure to take reasonable
action);
(8) Except for capital expenditures expressly set forth in the
printed portion of Section 3.2 (H), the cost of any
alteration, addition, replacement or other item which, under
generally accepted accounting principles, is properly
classified as a capital expenditure;
(9) Advertising and promotion expenditures in connection with the
Building;
(10) To the extent that any employee of the Building performs
services for any other building owned by Landlord or an
Affiliate of Landlord, the portion of such employee's
42
<PAGE> 43
compensation which is reasonably allocable to services with
respect to such other building;
(11) The cost of preparing space in the Building for occupancy by
tenants;
(12) Professional fees incurred by Landlord in the preparation of
leases;
(13) The cost of statements and reports rendered to other tenants
of the Building or shareholders of Landlord;
(14) Depreciation: Depreciation of the Building;
(15) The cost of Landlord's litigation with other tenants of the
Building, including damages payable by Landlord in connection
therewith;
(16) Any cost representing an amount paid to an entity related to
Landlord which is in excess of the amount which would have
been paid in the absence of such relationship;
(17) Expenses incurred in connection with the initial construction
of the Building, Parking Garage and Auxiliary Areas;
(18) To the extent such Article 5 services exceed those provided to
Tenant under this Lease, the cost of Article 5 services
provided by Landlord to any other tenant in the Building;
(19) Charitable or Political Contributions: costs resulting from
charitable or political contributions;
(20) Environmental and Other Compliance, Any costs or expenses
relating to asbestos removal or encapsulation or any fines,
costs, expenses or damages relating to any violation of any
environmental law in effect as of the date of installation of
the substance violating such law (as the same distinguished
from expenses incurred in complying with any environmental
laws), unless the condition giving rise to such violation or
fines arose out of, or is caused by, acts or omissions of
Tenant, its employees, contractors or agent;
(21) Art Objects. Costs and expenses relating to the acquisition,
repair, replacement and insurance of sculptures, paintings,
tapestries or other objects of art (normal cleaning,
maintenance and replacement of light fixtures excepted);
(22) Salaries, wages, or fringe benefits payable to the executives
or principals of Landlord or of any general partner or other
component entity of Landlord;
(23) Costs related to the operations of Corporate Property
Investors (or any successor thereto as Landlord), as the same
are distinguished from the costs of operation and maintenance
of the Building and its supporting facilities, including,
without limitation, Landlord's accounting and legal fees,
costs of defending any lawsuits with any mortgage (except as
the actions of Tenant may be at issue), direct costs of
selling, syndicating, financing, mortgaging or hypothecating
any of Landlord's interest in
43
<PAGE> 44
the Building, costs of any disputes between Landlord and its
employees (if any) not engaged in the management, operation or
maintenance of the Building, or disputes of Landlord with the
Building management (unless such disputes arise out of or in
relation to this Lease);
(24) Costs of any repair or replacement made in accordance with
Article Eight of this Lease entitled "Destruction;
Condemnation";
(25) Any bad debt loss, rent loss, or reserves for bad debts or
rent loss;
(26) Costs of services performed by Landlord specifically for other
tenants in the Building to the extent such work or services
are in excess of Building standard services, and the costs of
alterations or improvements to other space in the Building
which are not available for all tenants of the Building
(27) Any compensation paid to clerks, attendants, or other persons
in commercial concessions (i.e., concession in which the
customer directly pays for the provision of goods or services)
operated by Landlord, and other expenses related the cost of
any work performed or service provided (such as electricity)
for any facility other than the Building (such as a garage
facility) or shuttle service for which fees are charged or
other compensation received;
(28) Costs of any new items not included as Operating Expenses for
the 1997 calendar year or material changes or additions to the
Operating Expenses generated by such changes or additions made
after the date of this Lease
(29) Costs of overtime or other costs incurred by Landlord to cure
its default hereunder or the default of a tenant, or incurred
by reason of the misconduct or negligence of Landlord or a
tenant or their respective agents, invitees, employees or
contractors including costs associated with death or injury to
persons, damage to or loss of property, or use of deficient
building materials;
(30) Damages or costs or expenses paid or payable by Landlord in
connection with claims, actions or counterclaims as a result
of Landlord's gross negligence or willful malfeasance or
willful misfeasance;
(31) Fines or penalties resulting from violation of laws, rules or
regulations and any interest costs associated therewith,
unless such fines, penalties or late charges are due to an act
of Tenant or Tenant's failure to timely pay any amounts due
under this Lease;
(32) Costs of constructing, installing, operating and maintaining
any specialty service or facility, such as an observatory,
broadcasting facility, restaurant, luncheon club, retain
space, sundry shop, newsstand, concession or athletic or
recreational club or the costs associated with services or
benefits (such as beautifying or maintaining a plaza,
cafeteria or dining facility, parking area, terrace or
balcony) not offered or available to Tenant;
44
<PAGE> 45
(B) It is understood that no individual above the level of Building
manager shall be included in (xi) of the main body of Section 3.2 (H).
(C) It is understood that Operating Costs shall be net of all rebates,
reimbursements, credits and similar items received by Landlord.
(D) Section 3.2(H) is amended as follows:
(1) Line 1, insert the following after the word "mean": reasonable
expenses, costs and disbursements computed on the accrual basis
in accordance with generally accepted accounting principles,
relating to or incurred or paid in connection with:
(2) Line 8, add "on-site" before "equipment".
(3) Line 9, delete "and depreciation thereof".
(4) Line 18, after "improvements" add "to the extent the cost of
same exceeds $200,000.00, they shall be amortized or depreciated
over a period of not less than three (3) or more than ten (10)
years as reasonably determined by Landlord in accordance with
generally accepted accounting practices for office buildings.
(5) Line 24, insert after the word "Areas" the phrase "not to exceed
three percent (3%), so long as building is managed by Landlord
affiliate".
(6) Line 28, in phrase (xiii) after "comparable properties", insert
a comma and add "Class A Office Buildings in the area of
Atlanta, Georgia".
Rider #11 - amending Section 3.2 I
- - - - - ---------
Section 3.2(I) is hereby amended by inserting the following at the end of
the section:
(A) Provided Tenant is not then in default, Tenant shall have the right,
to be exercised not more than once during any calendar or fiscal year adopted by
Landlord, to audit Common Area Operating Costs, subject to the following
conditions:
(i) Any such audit shall be conducted during the normal business
hours of Landlord's office and only upon a minimum of thirty (30) days prior
written notice; and
(ii) Tenant, its employees and auditors shall at all times keep the
results of any such audit in complete confidence and in connection therewith,
Tenant, its employees and auditors agree not to disclose the results of such
audit to any person whatsoever except in the event of litigation or arbitration;
and
(iii) Tenant agrees to pay Landlord all Fixed Rent and Additional
Rent theretofore and thereafter coming due, including the Additional Rent which
is the subject of the audit, in the amount billed by Landlord and when due and
payable as provided under this Lease, subject, however, to the right of
reimbursement in the event Tenant's position in the audit is upheld.
(B) The cost of such audit shall be borne by Tenant unless such audit
discloses an error of more than ten (10%) percent of the total audited amount
for the year in dispute which favors Landlord, in which event Landlord shall
bear the cost of such audit. If such audit reveals that the amount previously
determined
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<PAGE> 46
by Landlord was incorrect, a correction shall be made and either Landlord shall
promptly (not to exceed 45 days) return to Tenant (or Credit Tenant's account)
or Tenant shall promptly (not to exceed 45 days) pay any underpayment to
Landlord. Notwithstanding the pendency of any dispute hereunder, Tenant shall
make payments based upon Landlord's determination or calculation until such
determination or calculation has been established hereunder to be incorrect. In
the event that Landlord is in error, then the amount overpaid by Tenant shall be
returned to Tenant.
(C) In the event the total monthly charges paid by Tenant on account of
excess Operating Costs during such Calendar Year shall be greater than Tenant's
Pro Rata share of the actual excess Operating Costs for such Calendar Year, as
shown by such statement, then Landlord shall credit the difference to Tenant's
account, or pay Tenant the difference within thirty (30) days after it sends
Tenant such statement.
Rider #12 - amending Section 3.3
- - - - - ---------
Section 3.3, Line 1, delete "the due date of any payment of Rent" and
substitute "from and after five (5) days notice from Landlord that any
installment of Rent is past due".
Rider #13 - amending Section 4.1
- - - - - ---------
(A) Section 4.1(A), Line 7, delete the remainder of the Section following
the word "areas".
(B) Notwithstanding the rights reserved by Landlord pursuant to Section
4.1 (A), Landlord shall not exercise said rights in such a manner as to:
(i) Change the size or configuration of the rentable floor space of
the Premises or of any common facilities located on a floor of
the Building which is wholly leased to Tenant;
(ii) Materially interfere with the rights granted to Tenant pursuant
to this Lease; or
(iii) Materially interfere with Tenant's use of the Premises for the
conduct of its business.
Rider #14 - amending Section 5.1
- - - - - ---------
(A) Landlord agrees to comply with Governmental Requirements insofar as
they apply to Landlord's maintenance and repair obligations hereunder.
(B) Line 1, insert the word "and HVAC" after the word "electricity".
Rider #15 - amending Section 5.3
- - - - - ---------
(A) Section 5.3(A), lines 1 and 2, delete the phrase "Standard Building
Hours and Days" and substitute "twenty-four (24) hours a day, seven (7) days a
week".
(B) Section 5.3(B), lines 2 and 3, delete the phrase "only during Standard
Building Hours and Days".
(C) Section 5.3(B), Line 4, insert the phrase "of measured actual
electrical usage" after the word "watts".
(D) Section 5.3(C), Line 1, insert the following language at the beginning
of the paragraph:
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<PAGE> 47
Tenant shall have a base amount for electrical charge expense of $1.60 per
rentable square foot per year which is included as Fixed Rent. Landlord
shall endeavor to install new electric meters for the Premises before the
1997 year end. In the event that Tenant shall use more electricity than
$1.60 per rentable square foot of office space per year, Tenant shall be
charged for the cost of such electricity as Additional Rent.
(E) Section 5.3(C), Lines 6 and 7, delete the phrase "Tenant shall
reimburse Landlord for the cost of such inspection and".
(F) Section 5.3(C), Line 11, delete the word "Tenant" and insert the word
"Landlord" in its place.
(G) Section 5.3(C), Line 15, delete the number "ten (10)" and insert the
word "thirty (30)" in its place.
Rider #16 - amending Section 5.4
- - - - - ---------
Section 5.4, Line 2, delete the phrase "Standard Building Hours and Days
and at other times" and substitute "one elevator to provide service twenty-four
(24) hours per day, seven (7) days per week access to the Premises".
Rider #17 - amending Section 5.5
- - - - - ---------
Landlord hereby represents to Tenant that as of the date of execution and
delivery of this lease the temperature specifications for the HVAC system
serving the Building are as follows:
Winter - at least 68 degrees
Summer - the higher of 78 degrees or 20 degrees less than the outside
temperature.
Rider #18 - amending Section 5.6 and 5.7
- - - - - ---------
(A) Section 5.6, Paragraph 1, Line 4, delete the phrase "when considered
necessary by the Landlord for the comfortable occupancy" and insert the phrase
"as needed for the comfortable use and occupancy" in its place.
(B) Section 5.6, Paragraph 1, Line 6, insert the following language at the
end of the section:
Landlord shall provide additional or after-hours HVAC service at Tenant's
reasonable request and at Buckhead office building market costs to Tenant.
(D) Section 5.6, Paragraph 3, Line 3, delete the phrase "Premises shall
contain" and insert the phrase "Tenant shall install".
(E) Section 5.7, Line 3, after the word "cleaned", add "(according to the
cleaning schedule set forth as Exhibit F, which may change from time to time in
Landlord's sole, but commercially reasonable judgment in keeping with comparable
Class A Office Buildings in the Buckhead Area of Atlanta, Georgia)".
(F) With regard to Section 5.7, the cleaning of any portions of the
Premises which are used for the storage, preparation, service or consumption of
food or beverages shall be limited to the cleaning of external surfaces.
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Rider #19 - amending Section 5.10
- - - - - ---------
(A) Section 5.10, Lines 5 and 6, insert the phrase "which rates shall not
exceed the actual cost of such service, plus Landlord's reasonable overhead"
after the word "rates".
(B) Section 5.10, Lines 2 and 3, delete "heat, and mechanical
ventilation".
Rider #20 - amending Section 5.11
- - - - - ---------
If, as a result of the exercise by Landlord of its rights under Section
5.11, services are interrupted to the extent that Tenant is unable to conduct
its business in any portion of the Premises for more than five (5) consecutive
Standard Building Days, then Tenant shall be entitled to a proportionate (based
on the ratio that the affected portions of the premises bear to the entire
Premises) abatement of Rent for each day after the fifth (5th) such day during
which the condition continues.
Rider #21 - amending Section 5.12
- - - - - ---------
Tenant shall have the access to the Premises twenty-four (24) hours a day,
seven (7) days a week, subject to Landlord's reasonable rules and regulations.
Rider #22 - amending Section 6.1
- - - - - ---------
(A) Section 6.1, Line 3, add "sprinkler" after "elevator".
(B) Landlord shall operate the Building in a manner substantially similar
to other class "A" office buildings located in the Buckhead area of Atlanta,
Georgia.
(C) Landlord shall, in exercising its rights and in performing its
obligations under this Section, perform its work with continuity, diligence and
dispatch and in such a manner (consistent with prudent practice) as will cause
the least possible interference with Tenant's business.
(D) If, as a result of the exercise by Landlord of its rights under
Section 6.1, there is created a substantial and material interference with
Tenant's ability to conduct its business in any portion of the Premises and
Tenant closes for business in such portion for more than five (5) consecutive
Standard Building Days, Tenant shall be entitled to a proportionate (based on
the ratio that the affected portions of the Premises bear to the entire
Premises) abatement of Rent for each day after the fifth (5th) business day
during which the condition continues.
Rider #23 - amending Section 6.1 - Tenant's Right of Self-Help
- - - - - ---------
(A) If Landlord fails to make or commence to make any required repair or
replacement in or at or exclusively affecting the Premises (however, if
Landlord shall attempt to make a repair and Tenant is not satisfied, or it
is ineffectual, Tenant shall be required to give notice (i.e. notice again)
pursuant to this paragraph before it exercises self help), then, after ten
(10) business days' written notice (in emergency, reasonable notice shall
suffice), Tenant shall have the right (but no obligation) to make the
repair or replacement for Landlord, and Landlord shall promptly pay Tenant
for the cost incurred.
However, in the event Landlord disputes the necessity of the
repair, its obligations to make same, or the cost thereof, Tenant's remedy
shall be an action at law to recover all costs and attorneys' fees, and
Tenant shall not be entitled to any offsets or deductions from Rent.
(B) Section 6.1, Line 12, delete the word "not".
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(C) Section 6.1, Line 13, delete the word "until".
(D) Section 6.1, Line 15 delete the phrase "a reasonable time" and insert
the phrase "ten (10) business days".
(E) Section 6.1, Line 15, insert at the end of the section:
Landlord shall, if required to do so as provided under Section 7.1(C),
and Rider 25, shall bring Premises into compliance with Government
Requirements.
(F) Section 6.2(A), Line 7, delete the word "provided" after the word
"leased" and by insert in its place the phrase "on the condition".
(G) Section 6.2(A), Line 12, delete the words "shall be" and insert the
words "has been" in their place.
(H) Section 6.2(A), Line 16, insert the phrase "and (iv) the transferee
Landlord has expressly agreed to assume all of the duties and obligations of
Landlord under the Lease" after the word "Tenant".
Rider #24 - amending Article 6
- - - - - ---------
(A) Add the following as Section 6.3 - Quiet Enjoyment
Section 6.3 Quiet Enjoyment
---------------
Landlord warrants that it has full right to execute and to perform
this Lease and that Tenant, upon payment in full of the required monthly
Rent and performance of the terms, conditions, covenants and agreements
contained in this Lease on behalf of Tenant to be performed, shall
peaceably and quietly have, hold and enjoy the Premises and the
appurtenances thereto set forth in this Lease during the Term.
(B) Add the following as Section 6.4 - Landlord's Insurance
Section 6.4 Landlord's Insurance
--------------------
Landlord shall carry comprehensive general liability insurance against
claims arising in connection with Landlord's operation of the public
areas of the Building and Auxiliary Areas and fire insurance with
extended coverage covering, to the extent of at least eighty (80%)
percent of replacement value, the Building and all improvements
therein which are or upon installation become part of the realty
(except for tenants' or other occupants' improvements which are
required to be insured or self-insured by such tenants or occupants);
provided, however, that so long as Landlord has a net worth of at
least $500,000,000.00, Landlord shall have the right to self-insure
for any loss or damage which could be covered by such insurance.
Rider #25 - amending Section 7.1
- - - - - ---------
(A) Section 7.1(C), Line 5, insert the following after the word
"Authority":
; provided however, that in the event a condition exists as of the
Commencement Date which is not in compliance with Government Regulations in
existence on the Commencement Date and any Governmental Authority requires
repairs, alterations, additions, replacements or improvements to be
performed in the Premises to bring such condition into compliance, then the
same shall be Landlord's responsibility under Section 6.1 herein.
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(B) Section 7.1(E), Line 9, delete the word "visitors".
(C) Section 7.1(F), Line 2, delete the phrase "with contractual liability
endorsement".
Rider #26 - amending Section 7.1 G
- - - - - ---------
(A) Section 7.1(G), Line 1, insert the phrase "Except as provided herein"
in front of the word "Landlord."
(B) Section 7.1(G), Line 3, add "or willful misconduct" after
"negligence".
(C) Section 7.1(G), Lines 4 and 5, delete the phrase "(other than
accidents or occurrences against which Tenant is insured)".
Rider #27 - amending Section 7.1 H
- - - - - ---------
(A) In exercising its rights under Section 7.1 (H), Landlord shall not
materially change the size or configuration of the Premises.
(B) In performing work pursuant to this Section 7.1 (H), Landlord shall
take or cause to be taken all reasonable steps to minimize inconvenience to
Tenant and interference with Tenant's business operations. If Landlord shall
cause any damage to the Premises while performing work hereunder, Landlord shall
promptly repair all such damage.
(C) If, as a result of the exercise by Landlord of its rights under
Section 7.1 (H), Tenant is unable to conduct its business in any portion of the
Premises for more than five (5) consecutive Standard Building Days, then Tenant
shall be entitled to a proportionate (based on the ratio that the affected
portions of the Premises bear to the entire Premises) abatement of Rent for each
day after the fifth (5th) such day that Tenant continues to be unable to operate
in such portions.
Except in the case of an emergency, Landlord shall not enter the Premises
except on reasonable prior notice to Tenant (which may be oral).
(D) Section 7.1(H), Line 6, after "others" add "such as prospective
lenders, purchasers, investors and the like, however, with respect to
prospective lessees of the Premises, such entry shall be limited to the last
year of the Term".
Rider #28 - amending Section 7.1 I and J
- - - - - ---------
Delete Section 7.1 (I) in its entirety and substitute the following in lieu
thereof:
(A) In the event of any action or proceeding arising out of or pursuant to
the Lease, the successful party shall be entitled to recover its reasonable
attorneys' fees and all other costs and expenses incurred in connection with the
action or proceeding
(B) Section 7.1(J), Line 4, delete the remainder of the first sentence
after the word "Tenant", and insert the following phrase in lieu thereof:
; provided, however, that Tenant shall not be required to discharge such
lien so long as Tenant is defending against such lien and such lien is not
capable of levy.
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Rider #29 - amending Section 7.1 K
- - - - - ---------
(A) Section 7.1(K), Line 4, after "Tenant" add "and including all trade
fixtures, supplemental air units, and or equipment specific to Tenant's
business."
(B) Section 7.1(K), delete the second sentence of the section.
(C) Section 7.1(K), Lines 8 and 9, delete the phrase "improvements or".
(D) Section 7.1(K), Line 12, delete the phrase "restoration of" and insert
the phrase "damages caused by removal in" in its place.
Rider #30 - amending Section 7.1 L
- - - - - ---------
(A) Section 7.1(L), Line 9, delete the period after the word "Lease" and
insert the following language in its place:
; provided, however, that Tenant shall not be obligated to attorn to any
mortgagee, holder of security deeds or deeds of trust, or lessee of the
Building, the Building Parcel, or any part thereof unless such mortgagee or
lessee has delivered to Tenant a nondisturbance agreement, substantially
similar to and imposing no additional burdens than the form attached hereto
as Exhibit H. Following the delivery of such nondisturbance agreement,
(B) Section 7.1(L), Line 15, delete the period after the word "Lease" and
insert the following language:
; provided, however, that Tenant shall not be obligated to attorn to any
lessee of any ground or underlying lease or any part thereof unless such
lessee has delivered to Tenant a nondisturbance agreement substantially
similar to and imposing no additional burdens than the form attached hereto
as Exhibit H.
(C) At present there are no mortgages on the Office Building. The
subordination of this Lease to mortgages hereafter placed on the Office Building
shall be effective only to mortgages made to a "Lending Institution" (as defined
below). As to any mortgage hereafter placed not made to a Lending Institution,
such subordination shall be conditioned on the receipt by Tenant from the
mortgagee of a non-disturbance agreement, in recordable form, providing in
substance that in the event of a foreclosure of such mortgage and provided
Tenant is not in default, this Lease and Tenant's possession shall not be
disturbed and Tenant shall attorn to such mortgagee. As used in this Rider, the
term "Lending Institution" shall mean a savings bank, a savings and loan
association, a commercial bank or trust company (whether acting individually, or
in any fiduciary capacity), an insurance company, a real estate investment
trust, an educational institution, or a state, municipal or similar public
employees' welfare or other pension or retirement fund or system or a private
pension, retirement or profit sharing trust or fund, or a corporate, private or
union pension trust or fund, or any other corporation or entity entitled to
exemption from income tax under the Internal Revenue Code of the United States,
as amended from time to time.
Rider #31 - amending Section 7.1 M
- - - - - ---------
(A) Section 7.1(M), Line 3, after the word "areas" insert "attach hereto
as Exhibit G".
(B) Section 71.(M), Line 3, , delete the word "uniform" and substitute
"uniformly applied to all tenants".
Rider #32 - amending Section 7.2 B
- - - - - ---------
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Section 7.2(B), Line 24, delete the last sentence of the section in its
entirety.
Rider #33 - amending Section 7.2 (C)
- - - - - ---------
(A) Section 7.2(C), Paragraph 1, Line 3, after "concession" add "without
obtaining Landlord's prior consent".
(B) Section 7.2(C), Paragraph 2, line 2, delete "(but not less than all)"
and substitute "[no more than four (4) partial subleases, per floor and provided
there are no more than four (4) occupants of a floor at any given time (i.e. (i)
four subtenants or (ii) Tenant and three subtenants]".
(C) Section 7.2(C), Paragraph 2, line 3, delete the remainder of the
sentence after the word "however," and insert the following in lieu thereof:
that the proposed assignee or subtenant is not then an existing tenant
with whom Landlord is then negotiating.
(D)
(E) Section 7.2(C), Paragraph 2, line 17, insert the following language
after the word "Lease":
with regard to such proposed space to be subleased or assigned
(F) Delete Section 7.2 (C) (i), (Paragraph 3), in its entirety.
(G) Section 7.2 (C) (ii), (Paragraph 4), Lines 1 and 2, delete "In the
event that Landlord shall not exercise its right to cancel this lease as above
provided,".
(H) Section 7.2(C)(iii), (Paragraph 5), Line 4, delete the phrase "Tenant
or, at Landlord's option."
Rider #34 - amending Section 8.1 B
- - - - - ---------
(A) In the event the Premises shall be damaged to the extent of more than
fifty (50%) percent of the costs of replacement thereof during the last year of
the Term or the last year of any renewal period, Tenant shall have the right to
terminate this Lease by written notice to the Landlord served within sixty (60)
days after the fire or casualty, such termination to be effective on the
thirtieth (30th) day following the date of said notice.
(B) In the event this Lease has not been terminated pursuant to Section
8.1 (B) and Landlord has failed to (i) commence restoration or rebuilding within
three (3) months from the date of the casualty or (ii) substantially complete
such restoration within nine (9) months after the date of the casualty, Tenant
may give Landlord notice of Tenant's intention to terminate this Lease. If
Landlord fails within thirty (30) days thereafter to commence or substantially
complete such restoration, as the case may be, this Lease shall terminate
without the necessity for any further notice from Tenant; provided, however,
that the aforesaid time limits shall be tolled for a period not to exceed four
(4) months in the event Landlord fails to commence or complete restoration by
reason of Unavoidable Delay, as set forth in Section 10.11. Tenant's sole remedy
in the event Landlord shall fail to timely commence or substantially complete
such restoration shall be to terminate this Lease.
(C) Notwithstanding anything above, Tenant shall have a reasonable time to
quit the premises in the event of a termination under the provisions of this
Section 8.1 and this Rider #34, not to exceed forty five (45) days.
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Rider #35 - amending 8.1 B and C
- - - - - ---------
(A) Section 8.1(B), Lines 7, Line 10, and Line 14, delete the word
"Fixed".
(B) Section 8.1(B), Line 7, delete the word "only".
(C) Section 8.1(C), Lines 6 through 10, delete the last sentence of the
section.
Rider #36 - amending Section 8.2 B
- - - - - ---------
(A) In the event that more than thirty (30%) percent of the rentable floor
space of the Premises shall be acquired or condemned by eminent domain or shall
be rendered inaccessible or untenantable as the result of such a taking, Tenant
shall have the right to terminate this Lease as of the date of title vesting in
the Governmental Authority.
(B) In the event this Lease has not been terminated pursuant to Section
8.2 (B) and Landlord has failed to (i) commence repairs or alterations
("restoration") within three (3) months from the date of the taking or (ii)
substantially complete such restoration within nine (9) months after the date of
the taking, Tenant may give Landlord notice of Tenant's intention to terminate
this Lease. If Landlord fails within thirty (30) days thereafter to commence or
substantially complete such restoration, as the case may be, this Lease shall
terminate without the necessity for any further notice from Tenant; provided,
however, that the aforesaid time limits shall be tolled for a period not to
exceed four (4) months in the event Landlord fails to commence or complete
restoration by reason of Unavoidable Delay, as set forth in Section 10.11.
Tenant's sole remedy in the event Landlord shall fail to timely commence or
substantially complete such restoration shall be to terminate this Lease.
(C) Notwithstanding anything above, Tenant shall have a reasonable time to
quit the premises in the event of a termination under the provisions of this
Section 8.2 and this Rider #37, not to exceed 45 days.
Rider #37 - amending Section 9.1
- - - - - ---------
(A) Section 9.1(A), Line 3, insert the words "Tenant's receipt or refusal
of" after the word "after."
(B) Section 9.1(B), Line 4, insert the words "Tenant's receipt or refusal
of" after the word "after."
(C) Section 9.1(B), Line 7 and 8, delete "or if the Premises shall become
vacant, deserted or abandoned".
(D) Section 9.1(B), Paragraph 2, Line 1, insert the phrase "and failure to
cure or commence cure" after the word "occurrence".
Rider #38 - amending Section 9.2
- - - - - ---------
(A) Section 9.2(A), Line 4, after "notice" add "(except as otherwise set
forth in the Lease)".
(B) Section 9.2(B), Line 7, insert a period after the word "Term" and
delete the remainder of the sentence.
(C) Section 9.2(B), Lines 15 through 17, delete the phrase "The reasonable
refusal or failure of Landlord to relet the Premises or any part thereof shall
not release or affect Tenant's liability for damages" and insert the following
language in lieu thereof: "Landlord shall have an affirmative obligation to
attempt to relet the Premises, and"
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Rider #39 - amending Section 9.5
- - - - - ---------
Section 9.5, Line 2, delete the remainder of the section after the word
"as" and insert the phrase "the first month's rent" in its place.
Rider #40 - amending Section 10.1
- - - - - ---------
(A) Last sentence of the paragraph, delete "mailed" and substitute
"received or refused".
(B) Notwithstanding anything contained herein to the contrary any notice
or demand to Tenant from Landlord, or Landlord to Tenant shall be duly served by
"receipted" hand delivery or sent by "receipted" overnight courier to the
address at which notices are to be mailed.
Rider #41 - amending Section 10.5
- - - - - ---------
Delete Section 10.5 in its entirety.
Rider #42 - amending Section 10.6
- - - - - ---------
Delete Section 10.6 in its entirety.
Rider #43 - amending Section 10.13
- - - - - ---------
Delete Section 10.13 in its entirety.
Rider #44 - amending Article 10 - add the following as Section 10.16 - Parking
- - - - - ---------
Section 10.16 Parking
-------------
(A) Landlord has constructed a parking garage adjacent to the building
(the "Parking Garage"). Tenant and its employees shall be permitted to use said
facility in common with the general public. Tenant shall be entitled to purchase
the equivalent of 2.2 parking cards per 1,000 square feet of rentable floor
space demised under this Lease. It is understood that the Parking Garage shall
operate under a shared parking methodology with other property.
(B) Tenant understands the Landlord may designate an independent
contractor to operate the Parking Garage pursuant to a lease operating agreement
or the like, which instrument shall be subject to all of the terms and
provisions of this Rider. Tenant's arrangements for monthly parking permits
shall be made with Landlord. or if Landlord has designated such an operator,
directly with the operator of the Parking Garage. Parking permit fees shall be
payable to Landlord or the operator, as Landlord shall direct. Subsequent to the
execution and delivery of this Lease, Tenant shall be provided with and shall
promptly execute and deliver a parking agreement, which agreement shall
incorporate the term set forth in this Rider. Tenant's use of the Parking Garage
shall be at Tenant's own risk, it being specifically understood that Landlord
shall not be liable in any way for any injury to Person or property or loss by
theft or damage or otherwise resulting from the use of the Parking Garage by any
Person.
(C) Landlord shall designate (or cause to be so designated) five (5)
parking spaces, of Tenant's aforementioned allocation of parking permits, for
use by officers of Tenant on Mondays through Fridays, from 7:00 a.m. to 6:00
p.m. The location of said parking spaces is set forth on Exhibit D, however the
location of said parking spaces is subject to change for reasons of safety and
governmental compliance on three (3) days' prior written notice to Tenant.
Tenant shall provide Landlord with a list of names, car models, and license
plates of those officers which Tenant has designated to use said spaces. In the
event the parking spaces are not utilized as intended, Landlord shall have the
right to revoke the designated parking spaces on ten (10) days notice to Tenant.
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(D) Tenant shall have reasonable access to and from the Parking Garage
twenty-four (24) hours a day, seven (7) days a week, subject to the reasonable
rules and regulations of the operator of the Parking Garage.
Rider #45 - amending Telephone - adding Section 10.17
- - - - - ---------
Tenant shall have the right to utilize the telecommunications service
provider of its choice. Such telecommunications provider shall only be
permitted to run wire through Building risers to Tenant's space, and is not
permitted to run wires from the Premises to other tenant space (other than
Tenant's) in the Building; provided, however, that Tenant shall have no
affirmative obligation to monitor such telecommunications provider and assumes
no responsibility or liability for its actions.
Rider #46 - Tenant's Rights with Respect to 9th and 10th Floors
- - - - - ---------
(A) So long as this Lease is in full force and effect and there has not
occurred any Event of Default hereunder, Tenant shall have a one time right of
first refusal with respect to the ninth (9th) and tenth (10th) floors of the
Building, said right of first refusal to be exercisable as hereinafter set
forth.
(B) If Landlord or its agent shall deliver a proposal regarding space on
the ninth (9th) and tenth (10th) floors of the Building (the Proposal) to a
Person interested in leasing such space, Landlord shall deliver (or shall cause
to be delivered) to Tenant a true and exact copy of the Proposal, and Tenant
shall have the right to be exercised not later than ten (10) business days
following receipt by Tenant of the Proposal to hire the space which is the
subject of the Proposal on the same terms and conditions as are therein set
forth, including, without limitation, the same Fixed Rent, Commencement Date,
Additional Rent and construction terms and provisions, provided, however, that
notwithstanding the length of the term which is set forth in the Proposal (the
Proposed Term), Tenant shall hire the space which is the subject of the Proposal
for a term which expires simultaneously with the initial Term of this Lease, as
extended as provided for in this Lease. If the Proposed Term would expire prior
to the expiration date of the initial Term of this Lease, then Fixed Rent for
the period from the expiration of the Proposed Term through the expiration date
of the initial Term of this Lease (the tack-on period) shall be determined in
accordance with paragraph C of this Rider #46.
(C) From the first (1st) day of the tack-on period through the December 31
next ensuing, Fixed Rent shall be at the same annual rate as was payable during
the last year of the Proposed Term. Thereafter, on each subsequent January 1
during the tack-on period, Fixed Rent shall be increased by the percentage
increase, if any, between the Consumer Price Index (as hereinafter defined) in
effect (as hereinafter defined) on the immediately preceding January 1 and the
Consumer Price Index in effect on the January 1 of the year for which the Fixed
Rent determination is being made. All references herein to the Consumer Price
Index shall be deemed to mean the Consumer Price Index for Urban Wage Earners
and Clerical Workers, all Items, Series A, 1967 equal 100, as published by the
United States Department of Labor (or, if not published, the most closely
comparable index then published). The Consumer Price Index in effect on a
particular date shall be deemed to mean the Index published for the month in
which such date occurs) or, if not published for such month, the Index published
for the month next succeeding.
(D) All leases executed by Landlord and Tenant with respect to space on
the ninth (9th) and tenth (10th) floors which is hired by Tenant pursuant to its
right of first refusal shall contain one (1) renewal option, each for a five (5)
year period. All such leases shall provide that each renewal option may be
exercised by Tenant only if exercised contemporaneously with Tenant's exercise
of the corresponding option set forth in Rider 48 hereto, paragraphs (ii)
through (vi) of which shall be incorporated, in substance, into each such lease;
it being understood that during each renewal period, (i) the Fixed Rent payable
under each such lease shall be the same, on a per square foot basis, as the
Fixed Rent
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payable under this Lease and (ii) the sums deemed substituted in paragraphs 3.2
(A) and 3.2 (G) of this Lease.
(E) In the event Tenant shall fail to timely exercise its right of first
refusal, Tenant shall be deemed to have waived such right with respect to the
space which is the subject of the Proposal, and Landlord shall have the
unencumbered right to let such space to the Person to whom the Proposal was made
(or to any other Person).
(F) The aforementioned Right of First Refusal shall be personal to
Premiere Communications, Inc. and shall not be assignable or exercisable by any
other Person.
Rider #47 - Tenant's Right of First Offer with Respect to Space in Excess of
- - - - - ---------
10,000 Rentable Square Feet on a Floor
(A) During the initial Term of this Lease, Tenant shall have a one (1)
time right of first offer with respect to any leasing of an excess of 10,000
square feet of rentable floor space contained on one (1) floor in the Building,
said right of first offer is subject to and subordinate to any rights of
renewal, expansion or First Refusal of existing tenants in the Building or any
offer by Landlord to extend or renew the then existing tenant(s) of such space
in the Building.
(B) If Landlord or its agent shall have identified space on a floor in the
Building in excess of 10,000 rentable square feet, that it intends to offer for
lease, then Landlord shall advise Tenant of the terms it proposes to offer to
lease the space including Fixed Rent, Commencement Date, Additional Rent and
construction terms and provisions (the "Offer"), and Tenant shall have the right
to be exercised not later than ten (10) business days following receipt by
Tenant of the Offer, to hire the space which is the subject of the Offer, on the
same terms and conditions as are therein set forth, including, without
limitation, the same Fixed Rent, Commencement Date, Additional Rent and
construction terms and provisions, except the Term which shall expire
simultaneously with the initial Term of this Lease.
(C) In the event Tenant shall fail to timely exercise its right of First
Offer, Tenant shall be deemed to have waived such right with respect to the
space which is the subject of the Offer, and Landlord shall have the
unencumbered right to let such space to any Person.
(D) The rights granted pursuant to this Rider shall be personal to
Premiere Communications, Inc., and shall not be assignable to or exercisable by
any other Persons.
(E) It is understood that time is of essence with respect to Tenant's
exercise of its rights hereunder.
Rider #48 - amending Term - Renewal Rights
- - - - - ---------
Landlord hereby grants Tenant the right to extend the Term of this Lease
for a period of five (5) years (the "Extension Term") subject to the following
terms and conditions:
(i) Tenant shall not be in default under the Lease beyond any
applicable notice or cure period at the time of exercise of
such right or at the commencement of the Extension Term, and
the Lease shall, at each such time, be in full force and
effect.
(ii) Tenant shall give Landlord three hundred sixty (360) days
prior written notice of its desire to extend the Lease.
Within forty-five (45) days following receipt of Tenant's
notice, Landlord shall advise Tenant of Landlord's
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Estimate of the Fair Market Value Rent (the "Landlord's
Estimate") for the Premises for the Extension Term.
(iii) The Fair Market Value Rent ("FMVR") shall be based upon the
rental rates for which comparable space in the Building is
then being leased; however, such rates shall be adjusted for
comparability with respect to the following factors: (a)
location (i.e., floor, view, access); (b) improvements (i.e.
quantity and quality of buildouts and customization for a
particular tenant); (c) renewals or relocations of existing
tenants; (d) size and configuration; and (e) any discounts,
allowances and any periods of free rent. In the event that
Tenant does not agree with Landlord's Estimate as to the FMVR,
the parties may each choose a real estate broker with at least
ten years' experience and a familiarity with the Buckhead
submarket who will determine the FMVR. In the event the two
brokers cannot come to an agreement as to the FMVR, the
brokers will choose a third broker with at least ten years'
experience and a familiarity with the Buckhead submarket,
whose decision will be final and binding upon the parties.
(iv) Tenant shall notify Landlord within fifteen (15) days after
receipt of Landlord's determination of FMVR of whether Tenant
elects to extend the Term of this Lease, it being understood
that failure of Tenant to so notify Landlord within said
fifteen (15) day period shall be deemed a waiver of Tenant's
right to extend the Lease. If Tenant exercises its right to
extend, as aforesaid, then Landlord shall so notify Tenant and
the Extension Term shall commence as of the expiration of the
original Term, and shall be on the same terms and conditions
of the Lease except:
(a) Fixed Rent shall be the FMVR as determined according to
Section (iii) of this Rider 48, above.
(b) The base calendar year set forth in Section 3.2 (A) and
(G) shall be the calendar year preceding the calendar
year in which the Extension Term commences;
(c) There shall be no obligation on the part of Landlord or
Tenant to perform any work in or at the Premises to
prepare the Premises for Tenant's occupancy during the
Extension Term.
(v) The aforesaid right to extend the Term of this Lease shall be
personal to Premiere Communications, Inc. and shall not be
assignable to, or exercisable by any other Person.
(vi) It is understood that time is of the essence with respect to
Tenant's exercise of its rights hereunder.
-57-
<PAGE> 58
EXHIBIT A
Site Plan
58
<PAGE> 59
EXHIBIT B
Floor Plan
59
<PAGE> 60
EXHIBIT C & G
THE LENOX BUILDING
RULES AND REGULATIONS
The sidewalks and public portions of The Lenox Building, such as entrances,
passages, courts, elevators, vestibules, stairways, corridors halls, shall not
be obstructed or encumbered by Tenant or used for any purpose other than egress
and egress to and from the Premises.
Except where installed by Landlord, no awning or other projection shall be
attached to the outside walls of The Lenox Building and no curtain, blind,
shade, louvered openings or screen shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without prior written
consent of Landlord.
Except as otherwise specifically permitted under Tenant's lease from the
Premises, no sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or The Lenox Building or on corridor walls. Signs at entrance doors
shall conform to building standard signs, samples of which are on display in
Landlord's rental office. Signs at entrance doors shall, at Tenant's expense,
be inscribed, painted or affixed for Tenant by sign makers approved by Landlord.
In the event of the violation of the foregoing by Tenant, Landlord may remove
same without any liability, and may charge the expense incurred by such removal
to Tenant.
Skylights, windows, heating, ventilating and air conditioning vents and doors
that reflect or admit light and air into the halls, passageways or other public
places in The Lenox Building shall not be covered or obstructed by Tenant, nor
shall any bottles, parcels, or other articles be placed on the window sills.
Mini-blinds are required to be in the down position at all times.
No show case or other article shall be put in front of or affixed to any part of
the exterior of The Lenox Building, nor placed in public halls, corridors or
vestibules without the prior written consent of Landlord.
Water and wash closets and other plumbing fixtures shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by Tenant.
Tenant shall not deface any part of the Premises or The Lenox Building.
Tenant shall not engage or pay employees on the Premises, except those actually
working for Tenant on said Premises, nor advertise for laborers giving an
address at The Lenox Building.
Tenant shall not employ any cleaning and maintenance contractor, nor any
individual, firm or organization for such purpose, without Landlord's prior
written consent. Tenants shall not employ any mechanical (HVAC), electrical or
plumbing contractor other than those approved by the Landlord.
Landlord shall have the right to prohibit any advertising by Tenant which, in
Landlord's reasonable opinion, impairs the reputation of The Lenox Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
Landlord reserves the right to exclude from The Lenox Building at all times
other than standard building days and hours all persons not presenting a pass
signed by Tenant. Tenant shall be responsible for all persons to whom it issues
a pass
60
<PAGE> 61
and shall be liable to Landlord for all acts of such persons. Landlord may deny
anyone requesting access to Tenant premises, after hours, who does not have a
key or acceptable identification.
The Premises shall not be used for lodging or sleeping or for any immoral or
illegal purpose.
The requirements of Tenant will be attended to only upon application at the
Management Office of The Lenox Building. Building employees shall not perform
any work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
Canvassing, soliciting and peddling in The Lenox Building are prohibited, and
Tenant shall cooperate to prevent the same. Shoe shine, auto glass, auto repair
and car wash services may not perform work on the property without the prior
approval of the Landlord.
All hand trucks used to transport property within The Lenox Building shall be
equipped with rubber tires and side guards. No hand truck shall be used in
passenger elevators.
All paneling or other wood products not constituting furniture shall be of fire
retardant materials. Before installation of such materials, certification of
the materials' fire retardant characteristics shall be submitted to Landlord or
its agents, in a manner satisfactory to Landlord. No live Christmas trees,
----
wreaths or garlands will be permitted unless certified as fire retardant.
Neither Tenant's employees nor Tenant's agents shall be permitted to remove
materials from The Lenox Building without a signed letter of authorization on
Tenants' letterhead, giving the individual permission to remove specific
material.
Tenants and their employees will park only in those areas designated by the
Landlord. No parking in the loading dock area, lobby entry plaza, fire lanes or
reserved (handicap, visitor, etc.) spaces will be permitted. No entry or egress
through the loading dock/service vestibule is allowed.
No access to the building roof, mechanical or control rooms by tenants,
employees or contractors is permitted without the prior approval of the
Landlord. Landlord reserves the right to control access to the building
balconies. No light weight furniture or material is to be allowed on the
building balconies.
Duplicate door keys, building pass cards and parking garage cards are available
only through the Landlord's management offices.
All adjustments to HVAC controls, thermostats, ducts, diffusers, etc. must be
made by Landlord's maintenance personnel.
Smoking or loitering in the restrooms or stairwells is not permitted.
Landlord reserves the right to promulgate additional rules and regulations,
which Landlord may make, for the management and use of the Building and
Auxiliary Areas.
61
<PAGE> 62
EXHIBIT D
Parking Space Exhibit
62
<PAGE> 63
EXHIBIT E
COMMENCEMENT DATE AND RATIFICATION
OF LEASE AGREEMENT
The undersigned, Corporate Property Investors, having its principal place
of business at 3 Dag Hammarskjold Plaza (305 East 47th Street) New York, NY
10017 (Landlord), and ________________ _______________________________ having
its principal place of business at ______________________________________
(Tenant), in consideration of TEN and no/100 ($10.00) DOLLARS and other good and
valuable consideration, the receipt whereof is hereby acknowledged, agree as
follows:
1. That certain lease (which lease, and the amendments hereinafter
listed, if any, as hereby modified, is hereinafter collectively referred to as
the "Lease") from Landlord to Tenant dated ______________________, as amended on
(no amendments), which Lease demises ________ square feet of rentable floor
space in the building known as The Lenox Building, located at 3399 Peachtree
Road, N.E., Atlanta, Georgia 30326 is in full force and effect. The
Commencement Date of the original Term is _________________, and the expiration
date is ________________.
2. The lease contains the following renewal terms:
3. Tenant has accepted possession of the Premises demised to it under the
Lease and is now in occupancy thereof.
4. No Rent under the Lease has been paid for more than thirty (30) days
in advance of its due date.
5. Tenant is paying the full Rent called for under the Lease on a current
basis without concession and without offset, claim or defense against Landlord
and/or against payment of the Rent.
6. All of Landlord's Work, as defined in the Lease, has been completed,
except for any latent defects.
7. $__________ has been deposited with Landlord as security for Tenant's
performance of its obligations under the Lease.
IN WITNESS WHEREOF, the parties have executed this agreement this ______
day of ____________________.
LANDLORD:
Corporate Property Investors
By:
-----------------------------------
TENANT:
By:
-----------------------------------
63
<PAGE> 64
EXHIBIT F
PERIMETER MAINTENANCE CORPORATION
CLEANING SCHEDULE
-----------------
THE LENOX BUILDING
I. LOBBY & COMMON AREA
-------------------
A. Daily
-----
1. Sweep and police entrance areas to curb.
2. Vacuum walk-off mats.
3. Empty all trash receptacles; damp clean, sanitize exterior,
and replace liners.
4. Empty and clean ashtrays and sand urns.
5. Spot clean to hand height (70") all windows, glass
partitions, and glass doors.
6. Spot clean all walls to hand height.
7. Damp clean all window ledges.
8. Dust and spot clean hand rails.
9. Dust mop composition floors.
10. Spot mop composition floors.
11. Vacuum carpet.
12. Spot Clean Carpet.
13. Buff traffic area's.
14. Police stairwells.
15. Spot mop stairwells.
B. Weekly
------
1. Sweep baseboards, corners, around and under desks.
2. Spray buff composition floors.
3. Sweep stairwells.
4. Damp mop stairwells.
5. High dust ledges in atrium.
C. Monthly
-------
1. High dust above hand height all horizontal surfaces including
any shelves, moldings, ledges, pipes, ducts, vents, and
heating outlets.
2. Clean exterior of urns and trash containers.
D. Annually
--------
1. Refinish composition floors.
II. Elevators
---------
A. Daily
-----
1. Vacuum and spot clean carpet or dust mop/wet mop composition
floor.
2. Door tracts vacuumed and wiped clean.
3. Wall panels, cab doors cleaned and polished.
III. ESCALATORS
----------
A. Daily
-----
1. Clean hand rails.
2. Clean interior side panels.
3. Mop entrance & exit plates.
B. Weekly
------
1. Polish all stainless steel.
64
<PAGE> 65
2. Polish entrance and exit plates.
C. Special Task
------------
1. Use crevice tool to vacuum around walls and in corners.
2. Employees will be instructed to be extremely careful not to
damage wood finishes when performing all cleaning tasks.
IV. OFFICES
-------
A. Daily
-----
1. Empty wastebaskets and replace liners as needed.
2. Empty and damp clean ashtrays.
3. Dust furniture, paying special attention to lacquered and
special finished furniture.
4. Dust all telephones.
5. Dust all exposed filing cabinets, bookcases and shelves.
6. Spot clean desk tops.
7. Clean counter tops.
8. Clean and sanitize water fountain(s).
9. Clean sand urns of debris.
10. Spot clean door glass, partition glass, lobby glass, and
metal partitions.
11. Spot clean entrance doors.
12. Dust mop composition floors.
13. Spot mop composition floors.
14. Vacuum carpet.
15. Spot clean carpet.
B. Weekly
------
1. Low dust all horizontal surfaces to hand height (70").
2. Clean entire desk tops (where possible).
3. Remove fingerprints from doors, frames, light switches, kick
and push plates, handles, and moldings around doorways.
C. Monthly
-------
1. High dust above hand height all horizontal surfaces,
including shelves, moldings, ledges, pipes, ducts, and
heating outlets.
2. Remove dust and cobwebs from ceiling areas.
3. Buff composition flooring.
D. Quarterly
---------
1. Dust venetian blinds.
E. Annually
--------
1. Refinish composition floors.
NOTE: All maid carts, trash carts and vacuum cleaners will have a protective
bumper to avoid damage to walls, doors and furniture.
V. RESTROOMS
---------
A. Daily
-----
1. Clean and sanitize all vitreous fixtures including toilet
bowls, urinals, and hand basins.
65
<PAGE> 66
2. Clean and sanitize all flush rings, drain and overflow
outlets.
3. Clean and polish all chrome fittings.
4. Clean and sanitize toilet seats.
5. Damp mop with disinfectant.
6. Clean and polish all glass and mirrors.
7. Empty all containers and disposals.
8. Spot clean and sanitize exterior of all containers.
9. Dust metal partitions and window sills.
10. Remove spots, stains, splashes from wall area adjacent to
hand basins.
11. Refill all dispensers to normal limits: Soap, tissue, and
towels.
12. Spot clean metal partitions.
13. Low dust all surfaces to hand height including sills,
moldings, ledges, shelves, frames, and ducts.
14. Remove spots, stains, and splashes from wall area adjacent to
hand basins.
B. Weekly
------
1. Wash and sanitize metal partitions.
2. Spot clean tile walls.
3. Polish stainless steel.
4. High dust above hand height including sills, moldings, ledges
shelves, frames, ducts, and heating outlets.
C. Quarterly
---------
1. Machine scrub floor.
VI. KITCHEN - VENDING AREAS
-----------------------
A. Daily
-----
1. Wash and sanitize table tops.
2. Damp clean seats and backs of chairs.
3. Empty and damp clean ashtrays.
4. Empty all containers and disposals.
5. Remove fingerprints from doors, frames, light switches, kick
and push plates and handles.
6. Vacuum carpet.
7. Spot clean carpet.
8. Dust mop composition floors.
9. Mop composition floors.
10. Wash and sanitize counter tops.
11. Empty wastebaskets and replace liners.
B. Weekly
------
1. Low dust all surfaces below hand height including sills,
mouldings, ledges, shelves, frames and vents.
2. Sanitize exterior of containers and disposals.
VII. LOADING DOCK
------------
A. Daily
-----
1. Sweep and police.
2. Maintain clean appearance.
B. Weekly (or as needed)
------
1. Pressure wash.
66
<PAGE> 67
EXHIBIT H
STANDARD FORM
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made as of this ____ day of _____________, 1997 by and
among _______________________, a corporation having an office and place of
business at ____________________ ("Lender"), _________________________, a
corporation, whose address is ___________________________ ("Landlord"), and
_______________________,having an office at ____________________ ("Tenant").
WITNESSETH
WHEREAS, Tenant has entered into a certain lease (the "Lease"), dated
___________________, with Landlord covering premises (the "Premises") within a
certain building known as ___________________, located in ______________ (a
conformed copy of said Lease has been delivered to Lender); and
WHEREAS, Lender has made a certain loan (the "Loan") to Landlord, which
Loan is secured by the mortgages (the "Mortgages") more particularly described
in Exhibit A annexed hereto and affecting the premises known as
__________________, in ___________________; and
WHEREAS, Lender has been requested by Tenant and by Landlord to enter into
a non-disturbance and attornment agreement with Tenant;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, the parties hereto mutually covenant and agree as
follows:
(1) The Lease and any extensions, renewals, replacements or modifications
thereof, and all of the right, title and interest of Tenant thereunder in and to
the Premises, are and shall be subject and subordinate to the Mortgages and to
all of the terms and conditions contained therein, and to any renewals,
modifications, replacements, consolidations and extensions thereof.
(2) Lender consents to the Lease and, in the event Lender comes into
possession of or acquires title to the Premises as a result of the foreclosure
or other enforcement of the Mortgages or the notes secured by the Mortgages, or
as a result of any other means, Lender agrees that, so long as Tenant is not
then in default hereunder beyond any applicable notice and grace periods and the
Lease is then in full force and effect, Lender will recognize Tenant and will
not terminate the Lease or disturb Tenant in its possession of the Premises or
evict Tenant from the Premises for any reason other than one which would entitle
Landlord to terminate the Lease under its terms or would cause, without any
further action by Landlord, the termination of the Lease or would entitle
Landlord under the terms of the Lease to dispossess Tenant from the Premises.
(3) Tenant agrees with Lender that if the interest of Landlord in the
Premises shall be transferred to and owned by Lender by reason of foreclosure or
other proceedings brought by it, or in any other manner, or shall be conveyed
thereafter by Lender or shall be conveyed pursuant to a foreclosure sale of the
Premises, Tenant shall, upon notice of receipt of such transfer of interest to
Lender, be bound to Lender under all of the terms, covenants and conditions of
the Lease for the balance of the term thereof remaining and any extensions or
renewals thereof which may be effected in accordance with any option therefor in
the Lease, with the same force and effect as if Lender were the landlord under
the Lease, and Tenant does hereby attorn to Lender as its landlord, said
attornment to be effective and self-operative without the execution of any
further instruments on the part of any of the parties hereto immediately upon
Lender succeeding to the interest of Landlord in the Premises. Tenant agrees,
however, upon the election of and written demand by Lender to promptly execute
an instrument in confirmation of the foregoing provisions, reasonably
satisfactory to Lender, in which Tenant shall acknowledge such attornment and
shall set forth the terms and conditions of its tenancy.
67
<PAGE> 68
(4) Tenant agrees with Lender that if Lender shall succeed to the interest
of Landlord under the Lease, Lender shall not be (a) liable for any action or
omission of any prior landlord under the Lease, except to the extent that such
action or omission continues after Lender succeeds to the interest of Landlord,
or (b) subject to any offsets or defenses which Tenant might have against any
prior landlord, or (c) bound by any security deposit which Tenant may have paid
to any prior landlord, unless such deposit is in an escrow fund available to
Lender, or (d) bound by an amendment or modification of the Lease not expressly
provided for in the Lease made without Lender's written consent, or (e) bound by
any notice of termination not provided for in the Lease given by Landlord to
Tenant without Lender's written consent thereto, or (f) personally liable under
the Lease, and Lender's liability under the Lease shall be limited to the
ownership interest of Lender in the Premises. Tenant further agrees with Lender
that Tenant will not voluntarily subordinate the Lease to any lien or
encumbrance without Lender's written consent.
(5) In the event that Landlord shall default in the performance or
observance of any of the terms, conditions or agreements in the Lease, Tenant
shall give written notice thereof to Lender, and Lender shall have the right
(but not the obligation) to cure such default. Tenant shall not take any action
with respect to such default under the Lease, including, without limitation, any
action in order to terminate, rescind or void the Lease or to withhold any
rental thereunder, for a period of 30 days after receipt of such written notice
by Lender with respect to any such default capable of being cured by the payment
of money and for a period of 45 days after receipt of such written notice by
Lender with respect to any other default (provided, that in the case of any
default which cannot be cured by the payment of money and cannot with diligence
be cured within such 45-day period because of the nature of such default or
because Lender requires time to obtain possession of the Premises in order to
cure the default, if Lender shall proceed promptly and proceed with reasonable
diligence to obtain possession of the Premises, where possession is required,
and to cure the same and thereafter shall prosecute the curing of such default
with diligence and continuity, then the time within which such default may be
cured shall be extended for such period as may be necessary to complete the
curing of the same with diligence and continuity).
(6) Landlord has agreed in the mortgages that the rentals payable under
the Lease shall be paid directly by Tenant to Lender upon the occurrence of a
default by landlord under the Mortgages. Accordingly, after notice is given by
Lender to Tenant that the rentals under the Lease should be paid to Lender,
Tenant shall pay to Lender, or in accordance with the directions of Lender, all
rentals and other moneys due and to become due to Landlord under the Lease.
Tenant shall have no responsibility to ascertain whether such demand by Lender
is permitted under the Mortgages. Landlord hereby waives any right, claim or
demand it may now or hereafter have against Tenant by reason of such payment to
Lender, and any such payment to Lender shall discharge the obligations of Tenant
to make such payment to Landlord.
(7) Tenant declares, agrees and acknowledges that:
(i) Lender, in making disbursements pursuant to any agreement
relating to the Loan, is under no obligation or duty to, nor has Lender
represented that it will, see to the application of such proceeds, and any
application or use of such proceeds for purposes other than those provided for
in such agreement shall not defeat at the subordination herein made in whole or
in part; and
(ii) It intentionally and unconditionally waives, relinquishes and
subordinates the Lease and its leasehold interest thereunder in favor of the
lien or charge of the Mortgages, and in consideration of this waiver,
relinquishment and subordination, specific loans and advances are being and will
be made by Lender to Landlord and, as part and parcel thereof, specific monetary
and other obligations are being and will be entered into by Landlord and Lender
which would not be made or entered into but for said reliance upon this waiver,
relinquishment and subordination.
68
<PAGE> 69
(8) This Agreement shall bind and inure to the benefit of the parties
hereto, their successors and assigns. As used herein the term "Tenant" shall
include Tenant, its successors and assigns; the words "foreclosure" and
"foreclosure sale" as used herein shall be deemed to include the acquisition of
Landlord's estate in the Premises by voluntary deed (or assignment) in lieu of
foreclosure; and the word "Lender" shall include the Lender herein specifically
named and any of its successors, participants and assigns, including anyone who
shall have succeeded to Landlord's interest in the Premises by, through or under
foreclosure of the Mortgages.
(9) All notices, consents and other communications pursuant to the
provisions of this Agreement shall be in writing and shall be sent by registered
or certified mail, return receipt requested, or by a reputable commercial
overnight carrier that provides a receipt, such as Federal Express or Airborne,
and shall be deemed given when postmarked and addressed as follows:
If to Lender:
with a copy to:
If to Tenant:
If to Landlord:
or to such other address as shall from time to time have been designated by
written notice by such party to the other parties as herein provided.
(10) This Agreement shall be the whole and only agreement between the
parties hereto with regard to the subordination of the Lease and the leasehold
interest of Tenant thereunder to the lien or charge of the Mortgages in favor of
Lender, and shall supersede and control any prior agreements as to such, or any
subordination, including, but not limited to, those provisions, if any,
contained in the Lease, which provide for the subordination of the Lease and the
leasehold interest of Tenant thereunder to a deed or deeds of trust or to a
mortgage or mortgages to be thereafter executed, and shall not be modified or
amended and no provision herein shall be waived except in writing by the party
against which enforcement of any such modification or amendment is sought.
The use of the neuter gender in this Agreement shall be deemed to include
any other gender, and words in the singular number shall be held to include the
plural, when the sense requires. In the event any one or more of the provisions
of this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein. This Agreement shall be governed by and construed in
accordance with the laws of the State of ____________.
69
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have placed their hands and seals
the day and year first above written.
Signed and acknowledged in TENANT:
the presence of us:
--------------------------------------
By:
- - - - - ------------------------------ -------------------------------------
Typed Name:
Title:
Attest:
- - - - - ------------------------------ -------------------------------------
LANDLORD:
- - - - - ----------------------------- ------------------------------------
BY:
Typed Name:
Title:
Attest:
- - - - - ------------------------------ -------------------------------------
LENDER
By:
- - - - - ------------------------------ -------------------------------------
Typed Name:
Title:
Attest:
- - - - - ------------------------------ -------------------------------------
70
<PAGE> 71
EXHIBIT I
FLOOR PLAN
71
<PAGE> 1
EXHIBIT 21
HEALTHEON/WEBMD CORPORATION
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY LEGAL NAME INCORPORATION PERCENTAGE OF OWNERSHIP
<S> <C> <C>
WebMD, Inc. Georgia 100%
WebMD Consumer, Inc. Georgia 100% by WebMD, Inc.
MedE America Corporation Delaware 100%
Healthcare Interchange, Inc. Missouri 100% by MedE America Corporation
MedE America Corporation of Ohio Ohio 100% by MedE America Corporation
Greenberg News Networks, Inc. Delaware 100%
ActaMed Corporation Georgia 100%
EDI Services, Inc. Nevada 100% by ActaMed Corporation
Metis Acquisition Corp. Delaware 100%
Kinetra LLC Delaware 100%
IMS-NET of Illinois, Inc. Illinois 100% by Kinetra LLC
Minnesota Medical Communication Network, LLC Colorado 90% by IMS-NET of Illinois, Inc.
Healtheon/WebMD Cable Corporation Delaware 100%
Healtheon/WebMD Internet Corporation Delaware 100%
HW International Holdings, Inc. Delaware 100%
WebMD International LLC Delaware 50% by HW International Holdings, Inc.
The Health Network LLC Delaware 50% by Healtheon/WebMD Cable Corporation
H/W Health & Fitness LLC Delaware 50% by Healtheon/WebMD Internet
Corporation
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-84825 and No. 333-90795) of Healtheon/WebMD Corporation of our
report dated February 29, 2000, with respect to the consolidated financial
statements of Healtheon/WebMD Corporation included in the Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
HEALTHEON/WEBMD CORPORATION'S CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 285,619
<SECURITIES> 5,667
<RECEIVABLES> 51,511
<ALLOWANCES> 2,681
<INVENTORY> 0
<CURRENT-ASSETS> 363,605
<PP&E> 67,835
<DEPRECIATION> 19,451
<TOTAL-ASSETS> 4,242,462
<CURRENT-LIABILITIES> 147,301
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 3,973,672
<TOTAL-LIABILITY-AND-EQUITY> 4,242,462
<SALES> 0
<TOTAL-REVENUES> 102,149
<CGS> 0
<TOTAL-COSTS> 88,576
<OTHER-EXPENSES> 304,065
<LOSS-PROVISION> 986
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> (287,992)
<INCOME-TAX> 0
<INCOME-CONTINUING> (287,992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287,992)
<EPS-BASIC> (3.58)
<EPS-DILUTED> (3.58)
</TABLE>
