<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
REGISTRATION NO. 333-71359
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
WEBMD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7375 58-2277528
(PRIMARY STANDARD INDUSTRIALCLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NUMBER)
JURISDICTION
OFINCORPORATION OR -------------------
ORGANIZATION)
400 THE LENOX BUILDING
3399 PEACHTREE ROAD NE
ATLANTA, GEORGIA 30326
(404) 479-7600
(404) 479-7651 (FACSIMILE)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------
JEFFREY T. ARNOLD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
WEBMD, INC.
400 THE LENOX BUILDING
3399 PEACHTREE ROAD NE
ATLANTA, GEORGIA 30326
(404) 479-7600
(404) 479-7651 (FACSIMILE)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------
COPIES TO:
GLENN W. STURM, ESQ. NORA L. GIBSON, ESQ.
JAMES WALKER IV, ESQ. MICHAEL A. ZUERCHER, ESQ.
TERRESA R. TARPLEY, ESQ. PETER S. BUCKLAND, ESQ.
NELSON MULLINS RILEY & SCARBOROUGH, BROBECK, PHLEGER & HARRISON LLP
L.L.P. SPEAR STREET TOWER
FIRST UNION PLAZA, SUITE 1400 ONE MARKET
999 PEACHTREE STREET, N.E. SAN FRANCISCO, CALIFORNIA 94105
ATLANTA, GEORGIA 30309 (415) 442-0900
(404) 817-6000 (415) 442-1010 (FACSIMILE)
(404) 817-6050 (FACSIMILE)
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
-------------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED (1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, no par value..................... $55,000,000 $15,290(/2/)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2)Previously paid.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1999
[LOGO OF WEBMD, INC. APPEARS HERE}
SHARES
COMMON STOCK
WebMD, Inc. is offering shares of its Common Stock. This is our initial
public offering, and no public market currently exists for our shares. We have
applied for approval for quotation on the Nasdaq National Market under the
symbol "WBMD" for the shares we are offering. We anticipate that the initial
public offering price will be between $ and $ .
--------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to WebMD............................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Certain Selling Shareholders have granted the underwriters a 30-day option to
purchase up to an additional shares of Common Stock to cover any over-
allotments. If the Underwriters exercise this right in full, the Public
Offering Price will total $ , the Underwriting Discounts and Commissions will
total $ , the Proceeds to WebMD will total $ and the Proceeds to the
Selling Shareholders will total $ . BancBoston Robertson Stephens Inc.
expects to deliver the shares of Common Stock to purchasers on , 1999.
--------------
BANCBOSTON ROBERTSON STEPHENS
HAMBRECHT & QUIST
E*TRADE SECURITIES
The date of this Prospectus is , 1999.
<PAGE>
[ARTWORK TO BE INCLUDED WILL INCLUDE THE
COMPANY'S LOGO, SCREEN SHOTS OF THE
COMPANY'S WEB SITE, A DESCRIPTION OF
CERTAIN OF THE COMPANY'S SERVICE OFFERINGS
AND LOGOS OF CERTAIN OF THE COMPANY'S
STRATEGIC PARTNERS.]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY
AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, THE
"COMPANY," "WEBMD," "WE," "US" AND "OUR" REFER TO WEBMD, INC. AND ITS
SUBSIDIARIES (UNLESS THE CONTEXT OTHERWISE REQUIRES).
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 27
Dividend Policy.......................................................... 27
Capitalization........................................................... 28
Dilution................................................................. 29
Selected Consolidated Financial Data..................................... 31
Unaudited Pro Forma Financial Information................................ 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 37
Business................................................................. 46
Management............................................................... 60
Certain Transactions..................................................... 67
Principal and Selling Shareholders....................................... 69
Description of Capital Stock............................................. 70
Shares Eligible for Future Sale.......................................... 75
Underwriting............................................................. 77
Legal Matters............................................................ 78
Experts.................................................................. 78
Additional Information................................................... 79
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------------
Unless otherwise indicated, all information in this prospectus assumes:
(a) the conversion of each outstanding share of WebMD's Series B, C, D and
E Common Stock and Series A, B and C Preferred Stock into one share of
Common Stock upon the completion of this offering;
(b) a -for-1 stock dividend which we will declare prior to the
effectiveness of this offering; and
(c) that the underwriters do not exercise their over-allotment option and
that no other person exercises any other outstanding option or warrant.
WebMD SM, Web-MD SM and WebMD OnCall SM are service marks of the Company. We
have applied for federal registration of "WebMD," "Web-MD" and "WebMD OnCall."
This prospectus also refers to other trademarks and trade names of WebMD and
other companies.
2
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus carefully, and
you should consider the information set forth under "Risk Factors" and in the
Consolidated Financial Statements and Notes, before deciding to invest in
shares of our Common Stock. This prospectus contains forward-looking statements
that involve risks and uncertainties. The words expects, intends, believes,
anticipates, estimates, may, could, should, would, will, plans, hopes and
similar expressions identify forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this prospectus.
THE COMPANY
We provide a branded, integrated, Web-based solution for the administrative,
communications and information needs of healthcare professionals and for the
healthcare information needs of consumers. Our Web destination consists of two
distinct, linked Web sites -- a subscription-based site for healthcare
professionals and our free Health and Wellness Center site for consumers. WebMD
is a single point of access to electronic data interchange services, enhanced
communications services, branded healthcare content and other Web-based
offerings. For healthcare professionals, we designed WebMD to simplify
healthcare practices by integrating multiple administrative, communications and
research functions into a single, easy to use Web-based solution. For
consumers, WebMD provides premium, branded content to assist consumers in
making informed healthcare decisions, personalized information about specific
health conditions targeted according to the medical profiles of individual
consumers, and content-specific online communities that allow consumers to
participate in real-time discussions and support networks via the Web. We
commercially launched WebMD in October 1998, and as of September 30, 1998 we
had not generated any revenues from our Internet operations.
Increasing concern over the rising cost of healthcare in the United States
has caused a shift from fee-for-service reimbursement to managed care forms of
reimbursement such as capitation and fixed fees. These changes have led many of
the approximately 730,000 physicians in the United States to seek ways to
improve practice efficiency. Many healthcare professionals are intensive users
of administrative, communications and information services, such as electronic
data interchange services, transcription services, after-hours answering
services, paging, voice mail and medical references. However, these services
often are provided by multiple vendors, are not integrated, require users to
become familiar with multiple devices and are invoiced separately. We believe
that a significant opportunity exists for healthcare professionals to use the
Internet to increase practice efficiency, achieve measurable cost savings and
improve the quality of patient care.
Health and medical information is one of the fastest growing areas of
interest on the Internet. According to Media Metrix, an independent Web
research company, healthcare-related content was the second most popular
subject of Web-based information retrieval searches in 1997. According to Cyber
Dialogue, an independent research company, approximately 70% of the persons
searching for health and medical information on the Internet believe the
Internet empowers them by providing them with information before and after they
go to a doctor's office. Cyber Dialogue also indicates that during the 12-month
period ended July 1998, approximately 17 million adults in the United States
searched online for health and medical information, and approximately 50% of
these individuals made offline purchases after seeking information online.
Furthermore, Cyber Dialogue estimates that the number of adults in the United
States searching for online health and medical information will grow to
approximately 30 million in the year 2000, and they will spend approximately
$150 billion for all types of health-related products and services offline.
Accordingly, we believe that healthcare and pharmaceutical companies will
increasingly attempt to influence the spending decisions of consumers through
online advertising. An independent research company, Jupiter Communications,
estimates that expenditures for online health and medical advertising will grow
to approximately $265 million by 2002. We believe that the first company to
establish clear brand leadership will have a significant opportunity to
capitalize on multiple revenue opportunities, including recurring subscription,
advertising and sponsorship revenue.
3
<PAGE>
The WebMD Web site is designed for both healthcare professionals and
consumers. Healthcare professionals who subscribe to WebMD have access to
multiple areas of the WebMD Web site, including the Office, Library, Supplies
area, Classroom and Lounge. The Office provides access to insurance coverage
verification and patient referrals via electronic data interchange, the Virtual
Receptionist that integrates Web-based communication functions, including voice
mail, e-mail, fax messaging and paging, a physician-only answering service and
customized physician Web sites. The Library contains topical medical news,
comprehensive physician reference databases, medical encyclopedias and journals
and access to interactive dissectible anatomy software. The Supplies area
provides access to online ordering of medical supplies and equipment from
McKessonHBOC, the leading healthcare supply management company in North
America. The Classroom offers online continuing medical education courses,
which allow healthcare professionals to obtain required educational credits
easily and conveniently. The Lounge provides access to online brokerage and
banking services and to news, stocks, sports, travel and weather information.
In addition, consumers have free access to WebMD's Health and Wellness Center,
which includes premium and proprietary healthcare content, chat rooms, message
boards, personalized healthcare information and e-mail updates.
Our objective is to become the Web's premium brand for healthcare-related
administrative, communications and information services. Key elements of our
strategy include being first to market with an integrated solution for the
administrative, communications and information needs of the healthcare
industry, building recognition of our brand, leveraging our strategic
relationships and the sales forces of our strategic distribution partners,
enhancing the WebMD offerings, engaging in complementary acquisitions of
technologies, products and services and capitalizing on multiple revenue
opportunities. We believe that we have competitive advantages due to our
strategic relationships and integrated, easy-to-use, Web-based solution. We are
currently engaged in a marketing and advertising campaign to increase awareness
of the WebMD brand among healthcare professionals and consumers, and we have
entered into strategic relationships with healthcare and online market leaders
to assist us in rapidly distributing WebMD and building brand awareness.
OUR DISTRIBUTION PARTNERS
We have established strategic distribution relationships with healthcare and
online industry leaders and intend to enter into additional strategic
relationships in the future. Our current relationships include the following:
MCKESSONHBOC McKesson HBOC, Inc. is the leading healthcare supply
management company in North America and is also the leading
provider of integrated patient care, clinical, financial,
managed care and strategic management software solutions to
the healthcare industry. McKessonHBOC has installed
healthcare information systems in approximately 52% of the
U.S. community hospitals with over 100 beds. McKessonHBOC
has agreed to place or pay for a certain number of WebMD
subscriptions, subject to certain conditions, to integrated
delivery networks, acute care hospitals, long-term and
alternate site care facilities, physician offices,
pharmacies, pharmaceutical and biotechnology companies and
medical and surgical supply manufacturers.
ENVOY ENVOY Corporation is a leading provider of electronic data
interchange and transaction processing services. ENVOY's
transaction network, which processed approximately 984
million transactions in the 12 months ended March 31, 1998,
includes approximately 200,000 physicians, 4,500 hospitals
and 811 payors. ENVOY has agreed to use its direct and
indirect sales force to market WebMD.
MEDQUIST MedQuist, Inc. is a leading national provider of electronic
transcription and document management services to the
healthcare industry. MedQuist operates more than 50 client
centers in 24 states and employs over 2,400 trained
4
<PAGE>
transcriptionists to serve 500 clients. MedQuist's clients
consist primarily of hospitals and medical centers, and
also include other non-hospital healthcare providers, such
as managed care providers, surgical centers, outpatient
clinics and physician groups. Through Transcriptions, Ltd.,
a wholly owned subsidiary of MedQuist, MedQuist and we have
agreed to jointly promote our respective services,
including Transcriptions' agreement to place or pay for a
certain number of WebMD subscriptions, subject to certain
conditions.
DUPONT DuPont's Life Sciences division consists of agricultural
products and pharmaceuticals, which includes DuPont's 50%
interest in The DuPont Merck Pharmaceutical Co. DuPont has
agreed to place or pay for a certain number of WebMD
subscriptions, subject to certain limitations.
DEPUY ORTHOPAEDICS
DePuy Orthopaedics, Inc., a Johnson & Johnson company, is a
leading manufacturer and distributor of orthopaedic devices
and supplies. DePuy has agreed to market WebMD to its
existing customer base of orthopaedic specialists.
E*TRADE E*TRADE Group, Inc. is a leading provider of branded online
investing services. E*TRADE was recently named the best
overall online investing service by Gomez Advisors, a
leading independent advisory firm devoted to the online
consumer services market. As part of a limited promotional
offer, E*TRADE has agreed to purchase WebMD subscriptions
for physicians who open E*TRADE accounts.
COMPUSERVE CompuServe Interactive Services, Inc., a subsidiary of
America Online, Inc. and a leading provider of Internet
access to consumers, had approximately two million users as
of August 1998. CompuServe has agreed to feature WebMD as
the anchor tenant on its Web site's Health Channel.
CNN CNN Interactive, a division of Cable News Network, Inc.,
has agreed to position and promote WebMD as its premier
provider of content for CNN's Health Section on CNN's
flagship Web site, "cnn.com."
OUR SERVICE AND CONTENT PROVIDERS
We have entered into strategic relationships to obtain premium services and
content to be offered through WebMD. We provide most of our services through
these relationships, including electronic data interchange services from ENVOY
Corporation, enhanced communications from Premiere Technologies, Inc. and Web
site development from iXL Holdings, Inc. We also provide access to personalized
proprietary healthcare content through our recent acquisitions and premium
healthcare content under our agreements with various content providers. We
intend to introduce additional content and enhanced services, including Web-
enabled medical transcription services through our strategic relationship with
MedQuist, Inc.
RECENT DEVELOPMENTS
Recent Sales of Securities. We recently sold an aggregate of 860,000 shares
of our Series B Preferred Stock to five investors, including 650,000 shares to
HBO & Company of Georgia, a wholly owned subsidiary of McKesson HBOC, Inc., and
100,000 shares to an affiliate of Kelso & Company, for an aggregate purchase
price of $17.2 million. We also recently sold an aggregate of 828,750 shares of
our Series C Preferred Stock to 15 investors, including Trigon Healthcare,
Inc., an affiliate of Premier, Inc., Tenet Healthcare Corporation and
principals of Gleacher NatWest, Inc., for an aggregate purchase price of $16.6
million. Pursuant to our advisory services agreement with Gleacher NatWest, we
granted Gleacher NatWest warrants to purchase 750,000 shares of our Series D
Common Stock at an exercise price of $20.00 per share in lieu of a cash payment
for such services. We also recently issued 180,000 shares of our Series C
Preferred Stock to E.I. du Pont de NeMours and Company in exchange for content
provided by DuPont in lieu of a cash payment for such content. Furthermore, we
recently made a strategic investment in Nationwide Medical Services, Inc. a/k/a
J&C Nationwide through the issuance of 100,000 shares of our Series D Common
Stock, and we have agreed to Web-enable J&C Nationwide's services and to create
a physicians' career and placement center within WebMD.
5
<PAGE>
Sapient Acquisition. On January 25, 1999, we acquired all of the outstanding
capital stock and converted certain debt of Sapient Health Network, Inc.
("SHN") in exchange for approximately 1,619,000 shares of our Series B
Preferred Stock. In addition, we converted existing SHN options and warrants
into options and warrants to acquire approximately 131,000 shares of our Series
B Preferred Stock. At closing, we also paid certain liabilities of SHN. SHN
builds and manages Web-based communities targeted at healthcare consumers and
sells market research and data products, advertising sponsorships and other
online services. SHN currently manages 10 online health communities with
members holding over 130,000 distinct e-mail addresses. These communities
encompass a variety of chronic health conditions including hepatitis C, breast
cancer, diabetes and cardiovascular disease. SHN's Web site also includes the
Women's Health Place, which covers eight distinct women's health topics. SHN's
Web site is driven by proprietary, patent-pending personalization technology
which allows registered members free access to premium health content, chat
rooms, message boards and e-mail updates, each tailored to their unique medical
profiles. Business Week recently named SHN's Web site one of the best Web sites
of 1998. In addition, SHN has participated in a number of marketing and
sponsorship programs with leading companies in the pharmaceutical and
healthcare industries, including Amgen, Johnson & Johnson, SmithKline Beecham
and Eli Lilly.
Direct Medical Knowledge Acquisition. On January 22, 1999, we acquired all of
the outstanding capital stock and converted certain debt of Direct Medical
Knowledge, Inc. ("DMK") in exchange for approximately 494,000 shares of our
Series B Preferred Stock. In addition, we converted existing DMK options and
warrants into options and warrants to acquire approximately 131,000 shares of
our Series B Preferred Stock. At closing, we also paid certain liabilities of
DMK. DMK is a publisher of healthcare information that provides in-depth,
personalized health and medical information to consumers via the Internet. DMK
has an electronic library of healthcare information which is customized for its
individual consumers through its proprietary personalization software. DMK's
main customers are Blue Cross Blue Shield of Minnesota and Blue Shield of
California, other large managed care organizational and hospital systems.
certifiedemail.com Acquisition. On December 31, 1998, we acquired
substantially all of the assets and assumed certain liabilities of
certifiedemail.com, Inc. in exchange for 50,000 shares of our Series D Common
Stock. certifiedemail.com provides secure delivery and confirmation of receipt
of electronic mail. We plan to use the certifiedemail.com system to allow
healthcare professionals to confidentially communicate with each other and with
patients.
--------------------
WebMD was incorporated in Georgia on October 17, 1996 under the name Endeavor
Technologies, Inc., and we changed our name to WebMD, Inc. in August 1998. Our
principal executive offices are located at 400 The Lenox Building, 3399
Peachtree Road NE, Atlanta, Georgia 30326, and our telephone number is
(404) 479-7600.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by WebMD.............. shares
Common Stock to be outstanding after this
offering................................. shares (1)
Use of proceeds............................ Developing and deploying WebMD, funding
operating losses and for working capital and
general corporate purposes.
Proposed Nasdaq National Market symbol..... WBMD
</TABLE>
- --------
(1) The number of shares of Common Stock to be outstanding after this offering
is based on the number of shares outstanding as of January 27, 1999 and
does not include the following:
. 5,396,211 shares subject to options outstanding as of January 27, 1999,
at a weighted average exercise price of $9.79 per share;
. 1,031,868 shares that could be issued under WebMD's Amended and Restated
1997 Stock Incentive Plan;
. 775,000 shares that could be issued under WebMD's Director Option Plan;
. 1,886,148 shares subject to warrants outstanding as of January 27, 1999,
at a weighted average exercise price of $13.15 per share; and
. 150,000 shares and 30,000 shares that are issuable to HBO & Company of
Georgia, a wholly owned subsidiary of McKesson HBOC, Inc., and Matria
Healthcare, Inc., respectively, if this offering is not completed at a
price of at least $18.00 per share on or before May 22, 1999 or March 1,
1999, as the case may be.
--------------------
This prospectus includes statistical data regarding the Internet industry.
Such data are taken or derived from information published by sources including
Media Metrix, Inc., Cyber Dialogue Inc. and Jupiter Communications, LLC, media
research firms specializing in market and technology measurement on the
Internet, and International Data Corporation, a provider of market and
strategic information for the technology industry. Although we believe that
such data are generally indicative of the matters reflected therein, such data
are inherently imprecise, and we caution you not to place undue reliance on
such data.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------------
PRO PRO
FORMA FORMA
1995 1996 1997 1997 (1) 1997 1998 1998 (1)
------ ------- ------- ----------- ------- ----------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ -- $ -- $ 678 $ -- $ 75 $ 616
Operating loss.......... -- -- (2,594) (23,835) (1,370) (14,441) (31,260)
Net loss................ (39) (1,682) (4,349) (24,551) (2,401) (7,829) (31,739)
Net loss per share (ba-
sic and diluted):
Continuing operations.. $ -- $ -- $ (0.40) $ (2.96) $ (0.23) $ (1.25) $ (2.70)
Discontinued operations
(2)................... (0.04) (0.64) (0.12) -- (0.07) 0.66 --
Extraordinary loss on
early extinguishment
of notes payable...... -- -- -- -- -- (0.08) --
------ ------- ------- -------- ------- -------- --------
Net loss per share (3).. $(0.04) $ (0.64) $ (0.52) $ (2.96) $ (0.30) $ (0.67) $ (2.70)
====== ======= ======= ======== ======= ======== ========
Weighted average shares
outstanding (3)........ 1,000 2,612 8,300 8,300 7,918 11,750 11,750
====== ======= ======= ======== ======= ======== ========
Pro forma net loss per
share (4).............. $ (2.36) $ (2.27)
======== ========
Pro forma weighted
average shares
outstanding (4)........ 10,417 13,972
======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED (5)
------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $11,737 $ 44,829 $
Working capital........................... 13,346 45,929
Total assets.............................. 17,222 102,046
Total shareholders' equity................ 15,555 97,830
</TABLE>
- --------
(1) The pro forma statement of operations data reflect the acquisition of SHN
and DMK as if each had occurred on January 1, 1997, and the pro forma
balance sheet data give effect to these acquisitions and the sale of
860,000 shares of Series B Preferred Stock and 828,750 shares of Series C
Preferred Stock as if each had occurred on September 30, 1998. The pro
forma revenues include shareholder revenues of $424 and $104 for the year
ended December 31, 1997 and the nine months ended September 30, 1998,
respectively. For further information, see "Unaudited Pro Forma Financial
Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) WebMD was incorporated in October 1996. In March 1997, our subsidiary
merged with Endeavor Technologies, Inc., a provider of cardiac monitoring
services. We have included Endeavor's statement of operations data for all
periods presented. Effective as of July 1, 1998, we sold substantially all
of our cardiac monitoring assets to Matria Healthcare, Inc. Our financial
statements reflect the cardiac monitoring operations as discontinued
operations for all periods and dates prior to such sale of assets. In
addition, on July 1, 1997, we sold our subsidiary, UltraScan, Inc.
(3) Basic and diluted net loss per share was determined using all classes of
our common stock outstanding during each period. It does not include the
conversion of preferred stock. Options or warrants to purchase common stock
were also not included as they are anti-dilutive.
(4) Weighted average shares used in calculating pro forma information include
those described in footnote 3 above, and assumes the weighted average
conversion of preferred stock of 2,117,103 for the year ended December 31,
1997 and 2,918,103 for the nine months ended September 30, 1998.
(5) Gives effect to the sale by us of shares of Common Stock offered hereby
at an assumed initial offering price of $ , after deducting estimated
underwriting discounts and commissions and estimated offering expenses. For
further information, see "Use of Proceeds."
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RISK FACTORS
You should carefully consider the risks and uncertainties described below
before making an investment decision. Our business, financial condition and
operating results could be adversely affected by any of the following factors,
in which event the trading price of our Common Stock could decline, and you
could lose part or all of your investment. The risks and uncertainties
described below are not the only ones that we face. Additional risks and
uncertainties not presently known to us, or that we currently think are
immaterial, may also impair our business operations.
This prospectus also contains forward-looking statements which involve risks
and uncertainties. These forward-looking statements are identified by words
such as expects, intends, believes, anticipates, estimates, may, could,
should, would, will, plans, hopes and similar expressions. Our actual results
may differ materially from the results anticipated by these forward-looking
statements due to certain factors, including the risks described below and
elsewhere in this prospectus.
WE HAVE A LIMITED OPERATING HISTORY AND ARE TRANSITIONING TO A NEW BUSINESS
MODEL
We were incorporated in October 1996. Until July 1998, we generated revenues
exclusively from our cardiac monitoring operations, which we sold in July
1998. We are now in the process of transitioning from our former cardiac
monitoring business to our new business which is focused on providing Web-
based administrative, communications and information services to healthcare
professionals and healthcare information to consumers. We commercially
launched WebMD in October 1998. As of September 30, 1998, we had not generated
any revenues from our Internet operations. Therefore, we do not have an
operating history upon which you can evaluate us and our prospects, and you
should not rely upon our past performance to predict our future performance.
In transitioning to our new business model, we are substantially changing our
business operations, sales and implementation practices, customer service and
support operations and management focus. We are also facing new risks and
challenges, including a lack of meaningful historical financial data upon
which to plan future budgets, competition from a wider range of sources, the
need to develop strategic relationships and other risks described below. We
cannot guarantee that we will be able to successfully transition to our new
business model.
OUR SERVICES ARE NEW AND OUR INDUSTRY IS EVOLVING
You should consider our prospects in light of the risks, uncertainties and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in the new and rapidly evolving Internet
market. To be successful in this market, we must, among other things:
. develop and introduce functional and attractive service offerings;
. attract and maintain a large base of subscribers and consumers;
. increase awareness of our brand and develop subscriber and consumer
loyalty;
. provide desirable services and compelling and original content to
subscribers at attractive prices;
. establish and maintain strategic relationships with distribution
partners and service and content providers;
. establish and maintain relationships with sponsors and with
advertisers and their advertising agencies;
. respond to competitive and technological developments;
. build an operations structure to support our business; and
. attract, retain and motivate qualified personnel.
We cannot guarantee that we will succeed in achieving these goals, and our
failure to do so would have a material adverse effect on our business,
prospects, financial condition and operating results.
Our WebMD services are new and were only commercially launched in October
1998, and most of our consumer services were only recently acquired. We are
not certain that these services will function as anticipated or be desirable
to our intended market. We have changed our service offerings frequently in
the past, and we expect to
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continue to change them in the future. Also, some of our services have limited
functionalities which may limit their appeal to subscribers and consumers and
put us at a competitive disadvantage. For example, we do not currently provide
a site-wide search capability on our Web site, and our electronic data
interchange ("EDI") services do not include claims processing. If our current
or future services fail to function properly or if WebMD does not achieve or
sustain market acceptance, we could lose subscribers or could be subject to
claims which could have a material adverse effect on our business, financial
condition and operating results.
The Internet market is at an early stage of development, rapidly evolving
and characterized by an increasing number of market entrants who have
introduced or developed competing products and services. As is typical in a
new and rapidly evolving industry, demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty
and risk. Because the market for WebMD is new and evolving, it is difficult to
predict with any certainty the size of this market and its growth rate, if
any. We cannot guarantee that a market for WebMD will develop or that demand
for our services will emerge or be sustainable. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, our business, financial condition and operating results would be
materially adversely affected.
WE ANTICIPATE SIGNIFICANT FUTURE LOSSES AND ARE UNABLE TO ACCURATELY FORECAST
OUR REVENUES
We have incurred net operating losses and negative cash flows from operating
activities from our inception. As of September 30, 1998, we had an accumulated
deficit of $13.9 million. We have not achieved profitability, and we expect to
incur increasing net operating losses and negative cash flows for the
foreseeable future. We will incur direct expenses associated with the
development and deployment of WebMD and our branding campaign and indirect
expenses from promotional arrangements with certain of our distribution
partners. Our agreements and promotional arrangements with distribution
partners and service and content providers require us to pay consideration in
various forms, including the payment of royalties, license fees and certain
other significant guaranteed amounts on a per subscriber and/or a minimum
dollar amount basis over terms ranging from one to three years, whether or not
services are used under these agreements. As of January 27, 1999, under our
current promotional arrangements, we estimate that these aggregate guaranteed
payments will exceed $13.9 million for the year ending December 31, 1999. In
addition, certain promotional arrangements and content agreements require us
to make payments that vary based on usage by subscribers. We intend to enter
into additional arrangements with current and future strategic partners that
will require us to pay consideration in various forms in amounts that may
significantly exceed the amounts we are required to pay under our current
arrangements. We may also offer promotional packages of hardware and software
to subscribers at subsidized prices. These guaranteed payments, promotions and
other arrangements may require us to incur significant expenses, and we cannot
guarantee that we will generate sufficient revenues to offset these expenses.
We intend to use a significant portion of the proceeds from this offering to
fund our branding campaign and these promotional arrangements and subsidies.
We cannot be certain that we can achieve sufficient revenues in relation to
our expenses to ever become profitable. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future.
Our promotional arrangements and subsidies currently require, and future
arrangements may require, us to pay amounts in lump sums upon the acquisition
of a subscriber that we will only recoup if the subscriber maintains a
subscription and pays all required subscription fees for an extended period of
time. For example, under our current promotional arrangement with McKesson
HBOC, Inc. ("McKessonHBOC"), we have agreed to reimburse McKessonHBOC for
license fees otherwise payable by users of one of its products if McKessonHBOC
successfully markets WebMD to these users or, in the alternative, we have
agreed to fund a rebate toward the purchase of medical supplies that are
purchased through WebMD by subscribers obtained by McKessonHBOC. These
subscribers may cancel their subscriptions after 12 months, in which case we
would not recover the cost of the promotion. In addition, we cannot guarantee
that these subscribers will honor their contracts or pay any early termination
fee, if required. Accordingly, we cannot guarantee that we will generate
sufficient revenue from subscribers we obtain through current or future
promotional arrangements to recoup the cost of the promotion. We also cannot
guarantee that subscribers we obtain through promotional arrangements will
actually use WebMD. Therefore, our number of paying subscribers may not be
indicative of the level of usage of WebMD, and we expect the level of usage of
WebMD to be a primary factor in determining the amount of advertising revenue
that we can derive from WebMD.
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We have accounted for the recent acquisitions of certifiedemail.com Inc.
("certifiedemail.com"), SHN and DMK (collectively, the "Acquisitions") using
the purchase method of accounting. As a result of the SHN and DMK
acquisitions, we intend to record an aggregate of $45.9 million in goodwill
beginning in the first quarter of 1999, which will be amortized on a straight-
line basis over a three-year period, and the Company is evaluating any
additional charges that may be required with regard to valuation and other
procedures to be performed with respect to the SHN and DMK acquisitions. Most
acquisitions of software and professional services companies involve the
purchase of significant amounts of intangible assets. Therefore, acquisitions
of such businesses often result in significant goodwill being recorded and
significant amortization charges and may also result in charges for research
and development projects. If we were to incur additional charges for acquired
in-process research and development or amortization of goodwill with respect
to current or future acquisitions, our business, financial condition and
operating results could be materially and adversely affected.
As a result of the limited operating history of our Internet operations, the
recent disposition of our cardiac monitoring operations, the recent
Acquisitions and the emerging nature of the markets in which we intend to
compete, we are unable to forecast our revenues with any degree of certainty.
Our current and projected expense levels are based largely on our estimates of
future revenues and are mostly fixed. We expect our expenses to increase
significantly in the future as we continue to incur significant sales and
marketing, product development and administrative expenses. The success of our
business depends on our ability to increase our revenues to offset our
expenses. We cannot guarantee that we will be able to generate sufficient
revenues to offset our operating expenses or the costs of our promotional
packages or subsidies or that we will be able to achieve or maintain
profitability. If our revenues fall short of our projections, our business,
financial condition and operating results would be materially adversely
affected. We may also need to raise additional capital through public or
private debt or equity financings to fund the deployment of WebMD. However, we
cannot guarantee that we will be able to raise additional capital on terms
favorable to us or at all.
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY
We expect our quarterly revenues, expenses and operating results to
fluctuate significantly in the future as a result of a variety of factors,
some of which are outside of our control. These factors include:
. the number of WebMD subscribers and consumers;
. the level of traffic on our Web site and the level of usage of the
Internet generally;
. our ability to establish and strengthen brand awareness;
. our success, and the success of our strategic partners, in
distributing WebMD;
. the addition or loss of service or content providers, advertisers or
sponsors on our Web site;
. our ability to upgrade our Web site;
. the amount and timing of the costs relating to our marketing efforts
or other initiatives;
. the timing of contracts with strategic partners and other parties;
. fees we may pay for distribution, service or content agreements and
promotional arrangements or other costs we incur as we expand our
operations;
. our ability to integrate the Acquisitions successfully and to
identify, acquire and integrate other suitable acquisition candidates;
. the timing of charges related to acquisitions;
. the level of acceptance of the Internet by the healthcare industry;
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. our ability to compete in a highly competitive market, and the
introduction of new sites and services by us or our competitors;
. technical difficulties, system downtime, undetected software errors
and other problems affecting the Internet generally or the operation
of our Web site; and
. economic conditions specific to the Internet and online media and
general economic conditions.
We base our expenses to a significant extent on our expectations of future
revenues. Most of our expenses are fixed in the short term, and we may not be
able to quickly reduce spending if our revenues are lower than we expect.
Moreover, in an attempt to enhance our long-term competitive position, we may
from time to time make decisions regarding pricing, marketing, services and
technology that could have a near-term material adverse effect on our
business, financial condition and operating results. Due to the foregoing
factors, we believe that quarter to quarter comparisons of our operating
results are not a good indication of our future performance. It is likely that
our operating results will fall below the expectations of securities analysts
or investors in some future quarter. In such event, the trading price of our
Common Stock would likely decline, perhaps significantly. For more
information, see "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MARKET ACCEPTANCE OF WEBMD IS UNCERTAIN
WebMD integrates administrative, communications and information services for
the healthcare industry. We cannot guarantee that participants in the
healthcare industry will accept WebMD, or even the Internet, as a replacement
for traditional sources of these services. Market acceptance of WebMD will
depend upon continued growth in the use of the Internet generally and, in
particular, as a source of administrative, communications and information
services for the healthcare industry. The Internet may not prove to be a
viable channel for these services due to inadequate development of the
necessary infrastructure, such as reliable network backbones, or complementary
services, such as high speed modems and security procedures for the
transmission of confidential healthcare information, implementation of
competing technologies, delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet activity,
governmental regulation or other reasons. The acceptance of WebMD for
administrative, communications and information services by healthcare
professionals will require a broad acceptance of new methods of conducting
business and exchanging information. Our future financial success will depend
upon our ability to attract and retain subscribers and consumers and sell
communications services, advertising and sponsorships on our Web site. The
failure of WebMD to achieve market acceptance would have a material adverse
effect on our business, financial condition and operating results.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN THE WEBMD BRAND
In order to increase our subscriber and consumer bases and expand our online
traffic, we must establish, maintain and strengthen the WebMD brand. For us to
be successful in establishing our brand, (a) healthcare professionals must,
among other things, perceive us as offering quality, cost-effective
administrative, communications and information services, (b) healthcare
consumers must, among other things, perceive us as offering relevant, reliable
healthcare information from trustworthy sources and (c) medical suppliers,
pharmaceutical companies and other vendors to the healthcare community must,
among other things, perceive our Web site as an effective marketing and sales
channel for their products and services. We may need to substantially increase
our marketing budget in our efforts to generate brand recognition and brand
loyalty. Our business could be materially adversely affected if our marketing
efforts are not productive or if we cannot increase our brand awareness.
Further, our Web site will be more attractive to healthcare advertisers if we
have a large audience of subscribers and consumers with demographic
characteristics that advertisers perceive as favorable. Therefore, we intend
to introduce additional or enhanced services in the future in an effort to
retain our current subscribers and attract new subscribers. Our reputation and
brand name could be adversely affected if we experience difficulties in
introducing new services, if these services are not accepted by subscribers or
consumers, if we are required to discontinue existing services or if our
services do not function properly.
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We have applied for federal registration of the service marks "WebMD," "Web-
MD" and "WebMD OnCall." By letter dated July 6, 1998, the United States Patent
and Trademark Office (the "PTO") declined registration of "Web-MD" when used
in connection with our services. Although we responded to the PTO's denial of
registration and we believe it is likely that the "WebMD," "Web-MD" and "WebMD
OnCall" marks will be accepted for registration by the PTO, we cannot
guarantee that we will be able to secure registration of our "WebMD," "Web-MD"
and "WebMD OnCall" marks. If we are required to change our corporate name and
stop using the "WebMD" mark to identify our brand, such a name change could
result in confusion to current and potential customers, or disrupt our
business. Any of these potential effects could seriously harm our business,
prospects, financial condition and operating results. In addition, we must
successfully integrate the SHN and DMK marks into our WebMD service offerings.
If we fail to successfully integrate the SHN and DMK marks, we may lose users
of the SHN and DMK services. See "--We Must Protect Our Intellectual Property"
for more information on issues associated with the registration of our
trademarks.
WE MAY EXPERIENCE DIFFICULTY INTEGRATING RECENT ACQUISITIONS
On January 25, 1999, we acquired SHN through a merger of SHN with one of our
wholly owned subsidiaries. We also acquired DMK on January 22, 1999 through a
merger with the same wholly owned subsidiary. On December 31, 1998, we
acquired substantially all of the assets and assumed certain liabilities of
certifiedemail.com. We must now integrate the technologies, service offerings,
operations and systems of these companies with our own and attempt to grow the
acquired businesses. As we have just begun this assimilation, our integration
plans may materially change in the future. Potential challenges to the
successful integration of the Acquisitions include, but are not limited to,
(a) our ability to migrate their members to our network, (b) our ability to
market and sell these companies' services to users, (c) centralization and
consolidation of financial, operational and administrative functions,
(d) elimination of unnecessary costs, (e) realization of economies of scale,
(f) the technological integration of these companies' services with ours and
(g) the integration of these companies' personnel with ours. We believe that
the process of integrating the Acquisitions will be complex and will place
significant demands on our management, technical, financial and other
resources. We cannot guarantee that any of SHN, DMK or certifiedemail.com will
be successfully integrated with our operations on schedule or at all. We also
cannot guarantee that the Acquisitions will result in sufficient sales or
earnings to justify our investment in, or our expenses related to, the
Acquisitions or that any synergies will develop. The successful integration of
the Acquisitions is critical to our future success.
WE MAY NOT BE ABLE TO MANAGE GROWTH
Our growth has placed significant demands on all aspects of our business,
including our administrative, technical and financial personnel and systems.
Additional expansion may further strain our management, financial and other
resources. We cannot guarantee that our systems, procedures, controls and
existing space will be adequate to support expansion of our operations. 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. If we are unable to respond to and manage changing business
conditions, then the quality of our services, our ability to retain key
personnel and our results of operations could be materially adversely
affected. Difficulties in managing continued growth could have a material
adverse effect on our business, financial condition and operating results.
WE DEPEND ON OUR DISTRIBUTION PARTNERS
A principal element of our strategy is the establishment and maintenance of
strategic distribution relationships with other companies. We have entered
into distribution relationships with several companies, and we intend to enter
into additional relationships in the future. We have granted exclusive rights
to market WebMD in certain markets, including the infertility, obstetrics,
gynecology, cardiology, orthopaedics, cardiothoracic and medical supply
markets. We have also agreed not to market WebMD through certain competitors
of our strategic partners. We formed our existing relationships recently, and
they have not yet produced significant revenues.
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Although we view our distribution relationships as a key factor in our overall
business strategy, our distribution partners may not view their relationships
with us as significant to their own business, and they may reassess their
commitment to us or decide to compete directly with us in the future. We
generally do not have agreements that prohibit our distribution partners from
competing against us directly or from contracting with our competitors. We
cannot guarantee that any distribution partner will perform its obligations as
agreed or contemplated or that we would be able to specifically enforce any
distribution agreement. Our arrangements with our distribution partners
generally do not establish minimum performance requirements, but instead rely
on the voluntary efforts of our distribution partners. Therefore, we cannot
guarantee that these relationships will be successful.
WE DEPEND ON OUR SERVICE PROVIDERS
We rely on third party suppliers for almost all of the services provided
through WebMD. The following are some of the risks we face through our service
providers:
EDI Services ENVOY Corporation ("ENVOY") has the exclusive right,
subject to certain conditions and limitations, to
provide EDI services through WebMD. ENVOY currently
provides only eligibility verification, referral
submission and referral inquiry services. Due to our
agreement to use ENVOY exclusively for EDI services,
we are limited to providing only those EDI services
that ENVOY offers via the Internet and to providing
EDI connectivity only to the payors with which ENVOY
has agreements. In addition, ENVOY's realtime
electronic transaction services may be disrupted due
to malfunctions in computer software or hardware or
telecommunications services. ENVOY's services rely on
a host computer system and a batch claims processing
center, each of which is contained in a single data
center facility without remote backup capabilities.
These centers are subject to power outages, natural
disasters or similar events that could disable
ENVOY's systems.
Communications Services Orchestrate.com, Inc. ("Orchestrate.com"), a
subsidiary of Premiere Technologies, Inc.
("Premiere"), has the exclusive right, subject to
certain conditions and limitations, to provide
enhanced Web-based communications services through
WebMD. The Orchestrate.com service, which we rely
upon to provide our integrated suite of Web-based
communications services, was commercially introduced
in July 1998. We cannot guarantee that
Orchestrate.com's services, particularly in light of
their recent introduction and lack of testing in the
marketplace, will function as anticipated.
Orchestrate.com's services may also be subject to
disruption due to software or hardware malfunctions,
natural disasters, disruptions affecting
interexchange and local exchange carriers or similar
events.
Internet Services We have agreed to market CompuServe Interactive
Services, Inc. ("CompuServe") as our exclusive
Internet service provider ("ISP") for our subscribers
who are in need of Internet software, Internet access
and customer support. UUNET Technologies, Inc.
("UNNET") provides dial up Internet access to our
subscribers who are Internet ready but do not have an
Internet account. Other ISPs and online service
providers ("OSPs") also provide subscribers and
Internet users access to our Web site. Subscribers
and consumers may experience difficulties in
accessing or using our Web site due to failures or
delays related to ISPs or OSPs. iXL, Inc. ("iXL")
provides Web site development and management
services, including the hosting and development of
customized physician Web sites.
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Other Services E*TRADE Group, Inc. ("E*TRADE") has the exclusive
right to provide brokerage services and investment
related products, excluding banking and insurance
products, through WebMD. Transcriptions Ltd., a
wholly owned subsidiary of MedQuist, Inc.
("MedQuist"), has the exclusive right to provide
transcription services through WebMD. Physicians Data
Network ("PDN") has the exclusive right to provide
EDI-based insurance claim fraud and abuse audit
services through WebMD. We also have granted
exclusive rights to providers of other services.
Any problems with these or other services that result in interruptions of
our services or a failure of our services to function as desired could cause
subscriber and consumer complaints and attrition and could have a material
adverse effect on our business, financial condition and operating results. We
may have no means of replacing these services or, in the case of services
which we are obligated to use exclusively, we may be prohibited from replacing
these services, on a timely basis or at all, if such services are inadequate
or in the event of a service interruption or failure.
WE DEPEND ON OUR CONTENT PROVIDERS
We rely on independent content providers for the majority of the clinical,
educational and other general healthcare information that is provided through
WebMD. We have entered into strategic relationships with several companies to
obtain content for WebMD, and we intend to enter into additional relationships
in the future. Our success depends significantly on our ability to maintain
our existing relationships with these content providers and to build new
relationships with other content providers. Our agreements with content
providers are short-term and non-exclusive. Termination of one or more
significant content provider agreements would decrease the availability of
healthcare-related news and information which we can offer our subscribers and
consumers and could have a material adverse effect on our business, financial
condition and operating results. Due to the non-exclusivity of our agreements
with content providers, competitors offer, or could offer, content that is
similar or the same as ours. To the extent that content providers, including
but not limited to our current providers, offer information to users or our
competitors at a lower cost, our business, financial condition and operating
results could be materially adversely affected. In addition, we depend on the
abilities of our content providers to deliver high quality content from
reliable sources and to continually upgrade their content in response to
subscriber and consumer demand and evolving healthcare industry trends. Any
failure by these parties to develop and maintain high quality, attractive
content could result in subscriber and consumer dissatisfaction, could inhibit
our ability to add subscribers and consumers and could dilute the WebMD brand
name, each of which could have a material adverse effect on our business,
financial condition and operating results.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS
We regularly evaluate acquisition opportunities and, as a result, regularly
engage in acquisition discussions, conduct due diligence activities in
connection with possible acquisitions, and, where appropriate, engage in
acquisition negotiations. Engaging in acquisitions, including the
Acquisitions, involves numerous risks, including difficulties in the
assimilation of the operations, services, products and personnel of the
acquired company, the diversion of management's attention from other business
concerns, entry into markets in which we have little or no direct prior
experience, the potential loss of key employees of the acquired company and
our inability to maintain subscribers or goodwill of the acquired businesses.
Subscriber and consumer satisfaction or performance problems with an acquired
business could also have a material adverse effect on our reputation as a
whole which could result in a material adverse effect on our business,
financial condition and operating results. In order to grow our business, we
may continue to acquire businesses that we believe are complementary. The
successful implementation of this strategy depends on our ability to identify
suitable acquisition candidates, acquire companies on acceptable terms,
integrate their operations and technology successfully with our own, retain
existing subscribers and customers and maintain the goodwill of the acquired
business. We are unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that any acquisition will be
completed. Moreover, in pursuing acquisition opportunities, we may compete for
acquisition
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targets with other companies with similar growth strategies. Some of these
competitors may be larger and have greater financial and other resources than
we have. Competition for these acquisition targets likely could also result in
increased prices of acquisition targets and a diminished pool of companies
available for acquisition.
Future acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, the write-off of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition and operating results. We have taken, and in the future may take,
charges in connection with acquisitions. We cannot guarantee that the costs
and expenses incurred will not exceed the estimates upon which such charges
are based.
WE FACE INTENSE COMPETITION AND RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in
the early 1990's, the number of Web sites on the Internet competing for users'
attention has proliferated with no substantial barriers to entry, and we
expect that competition will continue to intensify. We compete, directly and
indirectly, for subscribers, consumers, content and service providers,
advertisers, sponsors and acquisition candidates with the following categories
of companies:
. online services or Web sites targeted to the healthcare industry
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 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;
and
. Web search and retrieval services and other high-traffic Web sites.
In addition, with regard to our EDI service offering, we also compete with
providers of single function EDI terminals, such as those provided by VeriFone
Incorporated. We do not have the contractual right to prevent our subscribers
from terminating their service or changing to a competing network.
We also compete in the communications services markets through the Web-based
enhanced services offered by Orchestrate.com. These markets are also intensely
competitive, rapidly evolving and subject to rapid technological change. Other
providers currently offer each of the individual services and certain
combinations of the services that we offer. For example, the voice mail
services that we offer compete with voice mail services provided by certain
regional Bell operating companies ("RBOCs") as well as by independent voice
mail vendors. Our communications services and features, such as conference
calling, compete with services provided by companies with significantly
greater resources than ours, as well as smaller interexchange long distance
providers.
We expect competition in our markets to increase significantly as new
companies enter the market and current competitors expand their product lines
and services. Many of these potential competitors are likely to enjoy
substantial competitive advantages, including:
. greater resources that can be devoted to the development, promotion
and sale of their services;
. longer operating histories;
. greater financial, technical and marketing resources;
. greater name recognition; and
. larger subscriber bases.
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To be competitive, we must license leading technologies, enhance our
existing services and content, develop new technologies that address the
increasingly sophisticated and varied needs of healthcare professionals and
consumers and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. We cannot
guarantee that we will be successful in using new technologies effectively or
adapting our Web site and proprietary technology to user requirements or
emerging industry standards. Any pricing pressures, reduced margins or loss of
market share resulting from our failure to compete effectively would
materially adversely affect our business, financial condition and operating
results. For more information, see "Business--Competition."
RECENT AND CONTINUING PUBLICITY
We have received, and may continue to receive, a high degree of media
coverage, including coverage that includes inaccurate or incomplete
information and forward-looking statements that involve numerous risks and
uncertainties. Accordingly, we disclaim all statements of our officers and
other information appearing in the media for purposes of this offering.
Prospective investors should not rely on any information other than the
information set forth in this prospectus in making a decision to purchase the
Common Stock offered hereby. All statements regarding future events,
including, but not limited to, future revenues, profits, subscriber growth,
amounts to be paid by subscribers and amounts to be paid by sponsors, are
forward-looking statements that involve numerous risks and uncertainties.
Actual results could differ materially from those stated in such forward-
looking statements as a result of numerous factors, including those set forth
in these "Risk Factors" and elsewhere in this prospectus.
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN
We expect to derive a portion of our revenues from advertising on our Web
site. However, we have not earned any advertising revenue to date, and we
cannot guarantee that we will be able to generate significant advertising
revenues in the future. No standards have been widely accepted to measure the
effectiveness of Web
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advertising. If such standards do not develop, existing advertisers may not
continue their current level of Web advertising, and advertisers that have
traditionally relied upon 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 our future advertising rates and revenues. Our
advertising revenues could be adversely affected if we are unable to adapt to
new forms of Web advertising. 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.
Advertisers will want accurate measures of the demographics of our
subscriber and consumer bases and the delivery of advertisements on our Web
site. We will have to perform these measured services ourselves or obtain them
from providers. If we do not develop these systems successfully, we may not be
able to accurately evaluate the demographic characteristics of our subscribers
and consumers. Companies may not advertise on our Web site or may pay less for
advertising if they do not perceive our measurements or measurements made by
third parties to be reliable.
WE MAY HAVE SUBSTANTIAL SALES OF OUR COMMON STOCK AFTER THE OFFERING
Sales of substantial amounts of Common Stock in the public market following
this offering, or the perception that such sales will occur, could have a
material adverse effect on the market price of the Common Stock. After the
completion of this offering, shares of Common Stock will be outstanding.
Of such shares, only the shares sold pursuant to this offering will be
tradable in the public market without restriction. The remaining shares of
Common Stock to be outstanding after the offering are "restricted securities"
within the meaning of Rule 144 ("Rule 144") under the Securities Act of 1933,
as amended (the "Securities Act"), and may not be publicly resold, except in
compliance with the registration requirements of the Securities Act or
pursuant to an exemption from registration, including that provided by Rule
144.
Beginning 90 days after the date of this Prospectus, shares and
shares issuable upon exercise of options will be eligible for resale in the
public market, subject to compliance with certain volume, timing and other
requirements of Rule 144 and Rule 701 ("Rule 701") under the Securities Act
and to the lock-up agreements described below. The remaining shares of
currently outstanding Common Stock and shares issuable upon exercise of
options which will vest after such 90-day period will become eligible for
resale pursuant to Rule 144 and Rule 701 at various times within the next
year, and some of such shares could be sold earlier if the holders exercise
their registration rights described below.
We and certain of our existing shareholders (holding an aggregate of
shares of Common Stock), have agreed not to offer, sell or contract to sell or
otherwise dispose of any Common Stock for a period of 180 days after the date
of this prospectus without the prior written consent of BancBoston Robertson
Stephens, subject to certain exceptions. In its sole discretion, and at any
time without notice, BancBoston Robertson Stephens may release all or any
portion of the shares subject to such lock-ups.
The holders of 8,312,240 shares of Common Stock have the right in certain
circumstances to require us to register their shares under the Securities Act,
for resale to the public. We may also be required to issue an aggregate of
240,000 additional shares upon certain events specified under the terms of the
Series A Preferred Stock, and such shares would also be subject to
registration rights. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have a material adverse effect on the market price
for the Common Stock. Specifically, the holders of approximately 5,000,000
shares of Common Stock or Common Stock equivalents have the right to demand
registration of their shares beginning on the date 180 days after the
effective date of the registration statement
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relating to an initial public offering. The simultaneous effectiveness of such
rights may also result in conflicts among such holders, and the resolution of
such claims could have a material adverse effect on our business, financial
condition and operating results. In addition, if we were required to include
shares held by such holders pursuant to the exercise of their piggyback
registration rights in a registration statement filed by us, such sales could
have an adverse effect on our ability to raise needed capital. In addition,
within approximately 180 days after the date of this Prospectus, we expect to
register under the Securities Act a total of 7,191,226 shares of Common Stock
subject to outstanding stock options or reserved for issuance under our stock
option plans. For more information, see "Description of Capital Stock--
Registration Rights."
In connection with entering into acquisitions and strategic relationships,
we have issued and may continue to issue options and warrants to purchase
significant amounts of Common Stock. The issuance of significant amounts of
options and warrants in the future, particularly options and warrants with
exercise prices below the fair market value of the Common Stock at the time of
issuance, could have a material adverse effect on our business, financial
condition or operating results or on the market price for the Common Stock.
For more information, see "Shares Eligible for Future Sale."
WE MUST PROTECT OUR INTELLECTUAL PROPERTY
We rely on a combination of copyright, trademark and trade secret laws and
contractual provisions to establish and protect our proprietary rights. We
have applied for the federal registration of service marks "WebMD," "Web-MD"
and "WebMD OnCall." By letter dated July 6, 1998, the PTO declined
registration of the mark "Web-MD" when used on or in connection with our
services. Although we responded to the PTO's denial of registration and we
believe that it is likely that the "WebMD," "Web-MD" and "WebMD OnCall" marks
will be accepted for registration by the PTO, we cannot guarantee that we will
be able to secure registration of our "WebMD," "Web-MD" or "WebMD OnCall"
marks. If we are required to change our corporate name and stop using the
"WebMD" mark, current and potential customers could be confused and our
business could be disrupted. Any of these potential effects could seriously
harm our business, prospects, financial condition and operating results. In
addition, any name change effected after this offering could result in
confusion to investors which could seriously harm the market price of our
common stock. We have also registered the domain name "webmd.com." In
connection with the acquisition of SHN, we acquired the registered trademark
"Sapient Health Network," two patent applications pending in the PTO and 19
domain name registrations. In connection with the acquisition of DMK, we
acquired the registered trademarks "Direct Medical Knowledge" and "DMK
Electronic Library," two trademark applications pending in the PTO and three
domain names.
There can be no assurance that the steps we have taken to protect our
proprietary rights will be adequate, that we will be able to secure trademark
or service mark registrations for our marks in the United States or in foreign
countries or that third parties will not infringe upon or misappropriate our
copyrights, trademarks, service marks, domain name and similar proprietary
rights. In addition, effective copyright and trademark protection may be
unenforceable or limited in certain foreign countries, and the global nature
of the Internet makes it impossible to control the ultimate destination of our
services. It is possible that our competitors or others will adopt product or
service names similar to ours, thereby impeding our ability to build brand
identity and possibly leading to customer confusion. Moreover, because domain
names derive value from the individual's ability to remember such names, we
cannot guarantee that our domain name will not 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 adequately could have a material
adverse effect on the acceptance of the WebMD brand and on our business,
financial condition and operating results. 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.
We may be subject to litigation for claims of infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. If other parties file applications for marks used or
registered by us, we may have to oppose those applications and participate in
administrative proceedings to determine priority of rights to the mark, which
could result in substantial costs to us due to the diversion of management's
attention and the expense of such litigation, even if the eventual outcome is
favorable to us.
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Adverse determinations in such litigation could result in the loss of certain
of our proprietary rights, subject us to significant liabilities, require us
to seek licenses from third parties or prevent us from selling our services.
Any of these results could have a material adverse effect on the acceptance of
the WebMD brand and on our business, financial condition and operating
results. In addition, because we license a substantial portion of our content
from third parties, our exposure to copyright infringement actions may
increase because we must rely upon such third parties for information as to
the origin and ownership of this licensed content. For more information, see
"Business--Intellectual Property."
WE MAY NOT BE ABLE TO PREVENT INTERNET SECURITY BREACHES
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting electronic commerce and
engaging in sensitive communications over the Internet. We rely on browser-
level encryption, authentication and certificate technologies, all of which
are licensed from third parties, to provide the security and authentication
necessary to effect secure transmission of e-mail. However, we cannot
guarantee that advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments will not result in a
compromise or breach of our security measures. A party who is able to
circumvent our security measures could misappropriate proprietary information
or confidential communications or cause interruptions in our operations. We
may be required to spend significant capital and other resources to protect
against the threat of such security breaches or to alleviate problems caused
by such 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. To the extent that our activities or the activities of
third party contractors involve the storage and transmission of confidential
information, such as patient records or credit information, security breaches
could expose us to claims, litigation or other possible liabilities. Our
inability to prevent security breaches would have a material adverse effect on
our business, financial condition and operating results.
WE MAY EXPERIENCE SYSTEM FAILURES
To succeed, we must be able to operate our Web site 24 hours a day, seven
days a week, without interruption. Almost all of our communications and
information services are provided through our service and content providers.
We do not maintain redundant systems or facilities for our services. To
operate without interruption, our service and content providers must guard
against:
. damage from fire, power loss and other natural disasters;
. communications failures;
. software and hardware errors, failures or crashes;
. security breaches, computer viruses and similar disruptive problems; and
. other potential interruptions.
We have experienced periodic system interruptions in the past, and we cannot
guarantee that they will not occur again. Any significant interruptions in our
services or an increase in response time could result in a loss of potential
or existing subscribers and consumers, strategic partners or advertisers and
sponsors and, if sustained or repeated, could reduce the attractiveness of our
Web site to such parties. Although we maintain insurance for our business, we
cannot guarantee that our insurance will be adequate to compensate us for all
losses that may occur or to provide for costs associated with business
interruptions.
Our Web site may be required to accommodate a high volume of traffic and
deliver frequently updated information. Our Web site may experience slower
response times or system failures due to increased traffic on our site or for
a variety of other reasons. We also depend on content providers to provide
information and data feeds on a timely basis. Our Web site could experience
disruptions or interruptions in service due to the failure or delay in the
transmission or receipt of this information. In addition, our subscribers and
consumers depend on ISPs, OSPs and other Web site operators for access to our
Web site. Each of them has experienced significant
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outages in the past and could experience outages, delays and other
difficulties in the future due to system failures unrelated to our systems.
Moreover, the Internet infrastructure may not be able to support continued
growth in its use. Any significant interruption in our operations could have a
material adverse effect on our business, financial condition and operating
results.
STORAGE OF PERSONAL INFORMATION ABOUT OUR USERS
We have a privacy policy displayed on our WebMD site. Our policy is not to
willfully disclose any individually identifiable information about any of our
users to a third party without consent. This policy is accessible to users of
WebMD. Despite this policy, if third persons were able to penetrate our
network security or otherwise misappropriate our users' personal information
or credit card information, we could be subject to liability. Such liability
could include claims for unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Liability could also include
claims for other misuses of personal information, such as for unauthorized
marketing purposes. These claims could result in litigation. In addition, the
Federal Trade Commission and state governmental bodies have been investigating
certain Internet companies regarding their use of personal information. We
could incur additional expenses if new regulations regarding the use of
personal information are introduced or if they chose to investigate our
privacy practices.
WE COULD BE LIABLE FOR INFORMATION RETRIEVED FROM OUR WEB SITE
We may be subject to third party claims for defamation, negligence,
copyright or trademark infringement or other theories based on the nature and
content of information supplied on our Web site by us or third parties,
including our content providers, medical advisors or users. These types of
claims have been brought, sometimes successfully, against online services in
the past. We could be subject to liability with respect to content that may be
accessible through our Web site or third party Web sites linked from our Web
site. For example, claims could be made against us if material deemed
inappropriate for viewing by children could be accessed through our Web site
or if a subscriber or consumer relies on healthcare information accessed
through our Web site to their detriment. Even if such claims do not result in
liability to us, we could incur significant costs in investigating and
defending against such claims and in implementing measures to reduce our
exposure to such liability. Our insurance may not cover potential claims of
this type or may not be adequate to cover all costs incurred in defense of
potential claims or to indemnify us for all liability that may be imposed.
WE MAY FACE YEAR 2000 PROBLEMS
Some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as
the year 2000 approaches and are commonly referred to as the "Year 2000
Problem."
Assessment. The Year 2000 Problem could affect computers, software and other
equipment that we use. Accordingly, we are reviewing our internal computer
programs and systems to determine if they will be Year 2000 compliant. We
presently believe that our computer systems will be Year 2000 compliant in a
timely manner. However, while we do not expect the cost of these efforts to be
material to our financial position or any year's operating results, there can
be no assurance to this effect.
Services Sold to Consumers. We depend on third party suppliers for most of
the services provided through WebMD. If these parties are affected by the Year
2000 Problem, our ability to provide services to our subscribers may be
materially adversely affected.
Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used
in connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We have commenced the process of modifying, upgrading and replacing systems
that have been identified as potentially being adversely affected and expect
to complete this process before the end of the third quarter of 1999. We do
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not expect the cost related to these efforts to be material to our business,
financial condition or operating results.
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of our office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems,
elevators and other common devices may be affected by the Year 2000 Problem.
We are currently assessing the potential effect of, and costs of remediating,
the Year 2000 Problem on this equipment. We estimate that our total cost of
completing any required modifications, upgrades or replacements of these
internal systems will not have a material effect on our business, financial
condition or operating results.
Suppliers. We have been gathering information from and have initiated
communications with our service and content providers to identify and, to the
extent possible, resolve issues involving the Year 2000 Problem. However, we
have limited or no control over the actions of our service and content
providers. Thus, while we expect that we will be able to resolve any
significant Year 2000 Problems with our systems, we cannot guarantee that our
service and content providers will resolve any or all Year 2000 Problems with
their systems before the occurrence of a material disruption to our business.
Any failure of these third-parties to resolve Year 2000 problems with their
systems in a timely manner could have a material adverse effect on our
business, financial condition or operating results.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or operating results. However, we believe that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related
to the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:
. a significant number of operational inconveniences and inefficiencies for
us, our service and content providers and our subscribers and consumers
that may divert our time and attention and financial and human
resources from our ordinary business activities; and
. a lesser number of serious system failures that may require significant
efforts by us, our service and content providers or our subscribers and
consumers to prevent or alleviate material business disruptions.
Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the third quarter of 1999. Depending on the systems affected, these
plans could include (a) accelerated replacement of affected equipment or
software; (b) short to medium-term use of backup equipment and software; (c)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems; and (d) other similar approaches.
If we are required to implement any of these contingency plans, such plans
could have a material adverse effect on our business, financial condition or
operating results. For more information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Issues."
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may
be adopted in the future that address issues such as online content, user
privacy, pricing and characteristics and quality of products and services. For
example, although it was held unconstitutional, the Communications Decency Act
of 1996 prohibited the transmission over the Internet of certain types of
information and content. In addition, several telecommunications carriers are
seeking to have telecommunications over the Internet regulated by the Federal
Communications Commission (the "FCC") in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet
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has burdened the existing telecommunications infrastructure in many areas,
local exchange carriers have petitioned the FCC to regulate ISPs and OSPs in a
manner similar to long distance telephone carriers and to impose access fees
on the ISPs and OSPs.
Internet user privacy has become an issue both in the United States and
abroad. Current United States privacy law consists of a few disparate statutes
directed at specific industries that collect personal data, none of which
specifically covers the collection of personal information online. We cannot
guarantee that the United States or foreign nations will not adopt legislation
purporting to protect such privacy. Any such legislation could affect the way
in which we are allowed to conduct our business, especially those aspects that
involve the collection or use of personal information, and could have a
material adverse effect on our business, financial condition and operating
results. Moreover, it may take years to determine the extent to which existing
laws governing issues such as property ownership, libel, negligence and
personal privacy are applicable to the Internet.
Currently, our operations are not regulated by any healthcare agency.
However, with regard to healthcare issues on the Internet, the recently
enacted Health Insurance Portability and Accountability Act of 1996, mandates
the use of standard transactions, standard identifiers, security and other
provisions by the year 2000. It will be necessary for our platform and for the
applications that we provide to be in compliance with the proposed
regulations. Congress is also likely to consider legislation that would
establish uniform, comprehensive federal rules about an individual's right to
access his own or someone else's medical information. This legislation would
likely define what is to be considered "protected health information" and
outline steps to ensure the confidentiality of this information. The proposed
Health Information Modernization and Security Act would provide for
establishing standards and requirements for the electronic transmission of
health information.
Issuances of our securities are regulated by the Securities and Exchange
Commission (the "Commission") and the securities commissions of states where
we offer or sell our securities. We issued options to acquire an aggregate of
7,280 shares of stock at an exercise price of $2.00 per share to five
independent sales representatives in the State of Texas for which we may not
have had an exemption available under the securities laws of the State of
Texas. Similarly, we issued options to acquire 111 shares of stock at an
exercise price of $2.00 per share to an independent sales representative in
the State of Oklahoma for which we may not have had an exemption under the
securities laws of the State of Oklahoma. In addition, we may have offered to
issue securities to an independent sales representative in the State of New
Hampshire for which we may not have had an exemption available under the
securities laws of the State of New Hampshire. All of these securities are
potentially subject to recission. While management is not aware of any claims
relating to these options as of the date hereof, we may be subject to claims,
penalties, fines or private or governmental actions relating to these
issuances of securities. For more information, see "Business--Government
Regulation and Legal Uncertainties."
WE COULD BE SUBJECT TO SALES OR OTHER TAXES
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and
by certain foreign governments that could impose taxes on the sale of goods
and services and certain other Internet activities. A recently enacted law
places a temporary moratorium on certain types of taxation on Internet
commerce. We cannot predict the effect of current attempts at taxing or
regulating commerce over the Internet. Any legislation that substantially
impairs the growth of e-commerce could have a material adverse effect on our
business, financial condition and operating results.
WE NEED TO ATTRACT KEY PERSONNEL
Our future success depends, in significant part, upon the continued service
of our senior management and other key personnel. The loss of the services of
Jeffrey T. Arnold, our Chief Executive Officer, Jay P. Gilbertson, our
President and Chief Operating Officer, or one or more of our other executive
officers or key employees could have a material adverse effect on our
business. Our President and Chief Operating Officer joined us in December
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1998. He has not previously worked with other members of our management team.
For us to be successful, he must work effectively with other members of
management. For more information, see "Management--Executive Officers and
Directors." Our future success also depends on our ability to attract and
retain highly qualified technical, sales, customer service and managerial
personnel. Competition for such personnel is intense, and we cannot guarantee
that we will be able to attract or retain a sufficient number of highly
qualified employees in the future. If we are unable to hire and retain
personnel in key positions, our business, financial condition and operating
results could be materially adversely affected.
OUR EXISTING SHAREHOLDERS WILL MAINTAIN CONTROL
Upon completion of this offering, our present directors and executive
officers, holders of more than 5% of the Common Stock and their respective
affiliates will beneficially own approximately % of the outstanding Common
Stock (approximately % of the outstanding Common Stock assuming full
exercise of the Underwriters' over-allotment option). As a result, these
shareholders, if they act as a group, will be able to control all matters
requiring shareholder approval, including the election of directors and
approval of significant corporate transactions. Such control may have the
effect of delaying or preventing a change in control. For more information,
see "Management," "Principal and Selling Shareholders" and "Description of
Capital Stock."
WE MAY BE SUBJECT TO RISKS FROM THE SALE OF OUR CARDIAC MONITORING ASSETS
In connection with the sale of our cardiac monitoring assets to Matria
Healthcare, Inc. ("Matria"), we, one of our subsidiaries, Endeavor
Technologies, Inc. ("Endeavor"), and Jeffrey T. Arnold agreed not to compete
for five years in the cardiac event monitoring or cardiac disease management
services or home maternity monitoring or management services markets
(excluding patient education or patient requests for medical information via
the Internet). We and Endeavor agreed to indemnify Matria for up to $1.5
million plus the first $1.5 million of any additional contingent consideration
for inaccuracies in representations and warranties and for an unlimited amount
for certain representations and warranties relating to cash contributed to
Matria and the Hart-Scott-Rodino Act (the "HSR Act"), representations and
warranties made by Jeffrey T. Arnold regarding the HSR Act, certain post-
execution date adjustments, and claims relating to certain litigation of our
subsidiary. Although we currently do not believe that such indemnification
provisions will be invoked, there can be no assurance that we or Endeavor will
not be required to indemnify Matria in the future.
In addition, Endeavor retained certain liabilities, including liabilities
relating to actual and potential litigation in connection with the sale of our
cardiac monitoring assets to Matria. These liabilities include potential
sanctions associated with Endeavor's receipt of service of a civil subpoena
from the Department of Health and Human Services, Office of the Inspector
General ("OIG") on July 28, 1998. In a letter from the OIG dated November 25,
1998, Endeavor was advised that, to provide assurances to the OIG that
facsimile machines and telephone lines used in the offices of referral sources
are dedicated to cardiac monitoring, Matria will need to audit use of
facsimile machines and telephone lines and periodically report the results of
the audit to the OIG. After reaching agreement with Matria regarding precise
auditing procedures, the OIG has orally stated that it intends to enter into a
settlement agreement related to the subpoena. In addition, the retained
liabilities include a potential claim by Life Watch ("Life Watch"), an
Illinois corporation and subsidiary of Ralin Medical, Inc., which in February
1998 asserted orally that our use of certain cardiac monitoring devices
constituted an infringement of a patent held by Life Watch. Life Watch then
offered to grant license rights to us under such patent. We have responded by
informing Life Watch that Card Guard Scientific Survival, Ltd. owns all rights
with regard to such devices and that our subsidiary was merely a distributor
of such devices. There has been no further action in this regard. In the event
that this matter results in litigation, an adverse decision could result in
substantial damages and attorneys' fees, either of which could have a material
adverse effect on our business, financial condition or operating results.
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THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND OUR STOCK PRICE MAY
BE VOLATILE
Prior to this offering, there has been no public market for our Common
Stock. We cannot predict the extent to which investor interest in WebMD will
lead to the development of a trading market or how liquid that trading market
might become. The initial public offering price for the shares will be
determined by negotiation between us and the representatives of the
underwriters based upon several factors and may not be indicative of future
market prices. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The trading price
of our Common Stock could be subject to fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new services or products by us or our competitors, changes in financial
estimates by securities analysts, the operating and stock price performance of
other companies, general economic conditions and other events or factors. In
addition, the stock market has experienced volatility that has particularly
affected the market prices of equity securities of companies within certain
industry groups, such as technology companies generally and Internet-related
companies in particular. This volatility has included rapid and significant
increases in the trading prices of certain Internet companies following
initial public offerings to levels that do not bear any reasonable
relationship to the operating performance of such companies and large inter-
day swings in the trading prices of such securities. These fluctuations may
materially affect the trading price of our Common Stock. We cannot guarantee
that investors will be able to sell their shares at or above the initial
public offering price. In the past, following periods of volatility in the
market price for a company's securities, shareholders have often instituted
securities class action litigation. Such litigation could result in
substantial costs and the diversion of management's attention and resources,
which could have a material adverse effect on our business, financial
condition and operating results.
WE WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of Common
Stock offered by us will be approximately $ million, at an assumed initial
public offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses. We intend to use a
substantial portion of the net proceeds (a) to fund the development and
deployment of our WebMD services, including promotion of the WebMD brand,
funding of promotional arrangements, subsidization of costs to subscribers,
content development and licensing and expansion of our marketing and
advertising sales efforts, (b) to fund operating losses and (c) for working
capital and other general corporate purposes. We also intend to seek
acquisitions that could provide additional service or content offerings or
technologies. Consequently, our Board of Directors and management will have
significant flexibility in applying the net proceeds of this offering. The
failure of management to apply such funds effectively could have a material
adverse effect on our business, financial condition and operating results. For
more information, see "Use of Proceeds."
CERTAIN PROVISIONS MAY HAVE ANTI-TAKEOVER EFFECTS
Certain provisions of our Amended and Restated Articles of Incorporation, as
amended (the "Articles of Incorporation"), Amended and Restated Bylaws (the
"Bylaws"), other agreements and Georgia law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our shareholders. For more information, see "Description of Capital Stock--
Certain Provisions of the Articles, Bylaws and the Georgia Law."
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in the initial public offering will incur an
immediate, substantial dilution of $ in the net tangible book value per
share of the Common Stock from the assumed initial public offering price of
$ per share. On August 24, 1998, we sold 667,000 shares of Series A
Preferred Stock to a wholly owned subsidiary of McKessonHBOC, for an aggregate
purchase price of $10.0 million. On September 1, 1998, we sold 134,000 shares
of Series A Preferred Stock to Matria for an aggregate purchase price of $2.0
million. Subject to the investment agreements entered into between us and each
of such subsidiary of McKessonHBOC and Matria, in the event we offer our
Common Stock to the public in this offering at a price below $18.00 per share,
or in the event this offering is not consummated on or before May 22, 1999 or
March 1, 1999, as the case
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may be, we must issue to such subsidiary of McKessonHBOC or Matria as the case
may be, an additional 150,000 and 30,000 shares, respectively, of our Common
Stock (subject to adjustments for stock splits, stock dividends, combinations
or the like) for no additional consideration. In addition, if we fail to close
our initial public offering on or before November 22, 1999 or September 1,
1999, we must issue to such subsidiary of McKessonHBOC or Matria, as the case
may be, an additional 50,000 and 10,000 shares, respectively, of Series A
Preferred Stock for no additional consideration. Furthermore, to the extent
that we issue additional shares of Common Stock pursuant to acquisitions or
our strategic partner agreements, or other outstanding options or warrants to
purchase Common Stock are exercised, there will be further dilution. For more
information, see "Dilution."
26
<PAGE>
USE OF PROCEEDS
The net proceeds to WebMD from the sale of the shares of Common Stock
offered by WebMD are estimated to be $ , assuming an initial public offering
price of $ per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company. See "Principal and Selling Shareholders."
The principal purposes of this offering are:
. to continue the development and deployment of WebMD;
. to increase the Company's equity capital;
. to facilitate the Company's future access to public equity markets;
. to increase the Company's visibility in the marketplace; and
. to enhance the Company's ability to use its Common Stock as
consideration for acquisitions and as a means of attracting and
retaining key employees.
The Company will use the net proceeds from this offering (a) to fund the
development and deployment of its WebMD services, including promotion of the
WebMD brand, funding of promotional arrangements, subsidization of costs to
subscribers, content development and licensing, expansion of its marketing and
advertising sales efforts, (b) to fund operating losses and (c) for working
capital and other general corporate purposes. The Company has not identified
specific uses for such proceeds, and management will have significant
discretion over their use and investment. The Company intends to seek
acquisitions that could provide additional service and content offerings or
technologies, and a portion of the net proceeds may be used for such
acquisitions. While the Company discusses potential acquisitions from time to
time and has recently completed the Acquisitions, the Company currently has no
plans, commitments or agreements for any other acquisitions, and there can be
no assurance that any other acquisitions will be completed. Pending these
uses, the Company intends to invest the net proceeds from this offering in
investment-grade, interest-bearing instruments. See "Risk Factors--We Will
Have Substantial Discretion Over the Use of Proceeds."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain future earnings, if any, to fund the
development and growth of its business. Payment of future dividends, if any,
will be at the discretion of the Board of Directors after taking into account
various factors, including the Company's financial condition, operating
results, current and anticipated cash needs and plans for expansion.
27
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of September 30, 1998: (i) on an actual basis; (ii) on a pro forma basis to
reflect the issuance of 2,113,263 shares of Series B Preferred Stock in
connection with the acquisitions of SHN and DMK and 1,868,750 shares of
Series B Preferred Stock and Series C Preferred Stock which were recently
issued; and (iii) on a pro forma as adjusted basis to reflect the conversion
into Common Stock of all of the Company's outstanding Series B, C, D and E
Common Stock and Series A, B and C Preferred Stock upon the completion of the
offering and the receipt of the estimated net proceeds from the sale of the
shares of Common Stock offered by the Company at an assumed initial
public offering price of $ per share. See "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and the related Notes thereto and the other financial
information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Shareholders' equity:
Preferred Stock, no par value;
10,000,000 shares authorized:
Series A, non-voting; 1,600,000
shares authorized; 801,000 shares
issued and outstanding, actual and
pro forma; no shares authorized,
issued or outstanding, pro forma as
adjusted............................ $ 12,015 $ 12,015 $ --
Series B, non-voting; 3,400,000
shares authorized; no shares issued
and outstanding, actual; 2,973,263
shares issued and outstanding, pro
forma; no shares authorized, issued
or outstanding, pro forma as
adjusted............................ -- 62,100 --
Series C, non-voting; 2,000,000
shares authorized; no shares issued
and outstanding, actual; 1,008,750
shares issued and outstanding, pro
forma; no shares authorized, issued
or outstanding, pro forma as
adjusted............................ -- 20,175 --
Common Stock, no par value, 97,000,000
shares authorized:
Common Stock, voting; 3,000,000
shares issued and outstanding,
actual and pro forma; shares
issued and outstanding, pro forma as
adjusted (1)........................ 1,181 1,181
Series B, non-voting; 1,400,000
shares issued and outstanding,
actual and pro forma; no shares
authorized, issued or outstanding,
pro forma as adjusted............... 400 400 --
Series C, non-voting; 1,500,000
shares issued and outstanding,
actual and pro forma; no shares
authorized, issued or outstanding,
pro forma as adjusted............... 786 786 --
Series D, non-voting; 4,406,805
shares issued and outstanding,
actual and pro forma; no shares
authorized, issued or outstanding,
pro forma as adjusted (2)........... 10,854 10,854 --
Series E, non-voting; 2,100,000
shares issued and outstanding,
actual and pro forma; no shares
authorized, issued or outstanding,
pro forma as adjusted............... 4,155 4,155 --
Deferred compensation................. (1,007) (1,007) (1,007)
Redeemable warrant issued in connec-
tion with debt....................... 1,110 1,110 1,110
Accumulated deficit (3)............... (13,939) (13,939) (13,939)
----------- ----------- -----------
Total shareholders' equity........... 15,555 97,830
----------- ----------- -----------
Total capitalization................ $ 15,555 $ 97,830 $
=========== =========== ===========
</TABLE>
- --------
(1) Excludes 7,317,359 shares of Common Stock issuable upon the exercise of
outstanding options and warrants. See "Management--Option Plans," "Shares
Eligible for Future Sale" and Note 10 of Notes to Consolidated Financial
Statements. Also excludes 150,000 and 30,000 shares of Common Stock
issuable to McKessonHBOC and Matria, respectively, if this offering is not
consummated at a price of at least $18.00 per share on or before May 22,
1999 or March 1, 1999, respectively.
(2) Excludes an aggregate of 190,000 shares of Series D Common Stock issued
subsequent to September 30, 1998.
(3) In connection with its acquisitions of SHN and DMK, the Company may incur
write-offs relating to valuation and other procedures. No amounts are
reflected in this amount as of September 30, 1998.
28
<PAGE>
DILUTION
The pro forma net tangible book value of WebMD as of September 30, 1998 was
$ , or $ per share of Common Stock. Pro forma net tangible book value per
share is equal to total tangible assets less total liabilities, divided by the
total pro forma number of shares of Common Stock outstanding, after giving
effect to the issuance of Series B Preferred Stock in connection with the
acquisitions of SHN and DMK and the recent issuances of common and preferred
stock and the conversion of all outstanding shares of Series B, C, D and E
Common Stock and Series A, B and C Preferred Stock into Common Stock. After
giving effect to the sale of shares of Common Stock offered by WebMD (at
an assumed initial public offering price of $ per share less underwriting
discounts and commissions and estimated offering expenses), the adjusted pro
forma net tangible book value of WebMD as of September 30, 1998 would have
been $ , or $ per share. This amount represents an immediate increase in
pro forma net tangible book value of $ per share to existing shareholders
and an immediate dilution of $ per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share as of September 30,
1998............................................................. $
Increase in net tangible book value per share attributable to new
investors........................................................
---
Adjusted pro forma net tangible book value after the offering......
---
Dilution per share to new investors................................
===
</TABLE>
The following table summarizes, on an as adjusted basis as of September 30,
1998, the number of shares of Common Stock purchased from WebMD, the total
consideration and the average price per share paid by existing shareholders
and by new investors, at an assumed initial public offering price of $ per
share and before deducting estimated underwriting discounts and commissions
and offering expenses:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------- -------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders(1)........ % $ % $
New investors(1)................
--- ----- ---- ------
Total......................... 100.0% $ 100.0 %
=== ===== ==== ======
</TABLE>
- --------
(1) Sales by the Selling Shareholders in this offering will reduce the number
of shares held by existing shareholders to , or % of the total number
of shares of Common Stock outstanding after the offering, and will
increase the number of shares held by new investors to , or % of the
total number of shares of Common Stock outstanding after the offering. See
"Principal and Selling Shareholders."
The above computations exclude shares of Common Stock issuable pursuant
to options or warrants outstanding as of September 30, 1998 at a weighted
average exercise price of $ per share. To the extent any of the foregoing
options and warrants are exercised, there will be further dilution to new
investors. In addition, an aggregate of shares of Common Stock are
reserved for issuance pursuant to the Company's Amended and Restated 1997
Stock Incentive Plan (the "Option Plan") and the Company's Director Option
Plan (the "Director Option Plan"). See "Management Option Plans."
On August 24, 1998, the Company sold 667,000 shares of Series A Preferred
Stock to a wholly owned subsidiary of McKessonHBOC, for an aggregate purchase
price of $10.0 million. On September 1, 1998, the Company sold 134,000 shares
of Series A Preferred Stock to Matria for an aggregate purchase price of $2.0
million. Subject to the investment agreements entered into between the Company
and each of McKessonHBOC and Matria, in the event the initial public offering
price is below $18.00 per share, or in the event this offering is not
consummated on or before May 22, 1999 or March 1, 1999, as the case may be,
the Company must issue to McKessonHBOC or Matria, as the case may be, an
additional 150,000 and 30,000 shares, respectively, of
29
<PAGE>
Common Stock (subject to adjustments for stock splits, stock dividends,
combinations or the like) for no additional consideration. In addition, if the
Company fails to close this offering on or before November 22, 1999 or
September 1, 1999, the Company must issue to McKessonHBOC or Matria, as the
case may be, an additional 50,000 and 10,000 shares, respectively, of Series A
Preferred Stock for no additional consideration. Furthermore, to the extent
that the Company issues additional shares of Common Stock pursuant to its
acquisitions or strategic partner agreements, there will be further dilution.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for the years ended
December 31, 1995, 1996 and 1997 and as of December 31, 1996 and 1997 are
derived from the Company's consolidated financial statements, which have been
audited by Ernst & Young LLP, independent auditors. The selected statement of
operations data for the period from April 21, 1994 to December 31, 1994 and
the nine months ended September 30, 1997 and 1998 and the selected balance
sheet data as of December 31, 1994 and 1995 and September 30, 1998 were
derived from unaudited consolidated financial statements which, in the opinion
of management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the information set forth
therein. The results of operations for the nine months ended September 30,
1998 are not necessarily indicative of the results for a full year. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and related Notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE MONTHS
(APRIL 21, YEAR ENDED ENDED
1994) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------ -----------------
1994 1995 1996 1997 1997 1998
------------ ------ ------- ------- ------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ -- $ -- $ -- $ -- $ 75
Operating expenses:
Product development.... -- -- -- 566 -- 5,867
Sales and marketing.... -- -- -- 213 114 1,499
General and
administrative....... -- -- -- 1,806 1,255 7,039
Depreciation and
amortization......... -- -- -- 9 1 111
-------- ------ ------- ------- ------- --------
Total operating
expenses............ -- -- -- 2,594 1,370 14,516
-------- ------ ------- ------- ------- --------
Operating loss.......... -- -- -- (2,594) (1,370) (14,441)
Interest expense, net... -- -- -- (725) (478) (177)
-------- ------ ------- ------- ------- --------
Net loss from continuing
operations............ -- -- -- (3,319) (1,848) (14,618)
Discontinued operations
(1):
Loss from discontinued
operations........... (40) (39) (1,682) (1,195) (718) (383)
Gain on disposal of
discontinued
operations........... -- -- -- 165 165 8,102
-------- ------ ------- ------- ------- --------
Net loss before
extraordinary items... (40) (39) (1,682) (4,349) (2,401) (6,899)
Extraordinary loss on
early extinguishment
of notes payable..... -- -- -- -- -- (930)
-------- ------ ------- ------- ------- --------
Net loss................ $ (40) $ (39) $(1,682) $(4,349) $(2,401) $ (7,829)
======== ====== ======= ======= ======= ========
Net loss per share
(basic and diluted):
Continuing operations.. $ -- $ -- $ -- $ (0.40) $ (0.23) $ (1.25)
Discontinued
operations........... (0.04) (0.04) (0.64) (0.12) (0.07) 0.66
Extraordinary loss on
early extinguishment
of notes payable..... -- -- -- -- -- (0.08)
-------- ------ ------- ------- ------- --------
Net loss per share (2).. $ (0.04) $(0.04) $ (0.64) $ (0.52) $ (0.30) $ (0.67)
======== ====== ======= ======= ======= ========
Weighted average shares
outstanding (2)....... 1,000 1,000 2,612 8,300 7,918 11,750
======== ====== ======= ======= ======= ========
Pro forma net loss per
share (3)............. $ (0.52) $ (0.56)
======= ========
Pro forma weighted
average shares
outstanding (3)....... 8,300 13,972
======= ========
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998
----------- ----- ------ ------ -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ -- $ -- $ -- $2,696 $11,737
Working capital................ -- -- -- 2,532 13,346
Total assets from continuing
operations................... -- -- -- 3,146 17,222
Total assets from discontinued
operations................... 213 638 3,497 6,044 --
Long-term debt, net of discount
(4).......................... -- -- -- 2,965 --
Total liabilities from
continuing operations........ -- -- -- 3,282 1,667
Total liabilities from
discontinued operations...... 244 670 2,939 1,762 --
Total shareholders' (deficit)
equity....................... (31) (32) 558 4,146 15,555
</TABLE>
- --------
(1) The Company was incorporated in October 1996, and in March 1997, a
subsidiary of the Company merged with Endeavor, a provider of cardiac
monitoring services, and Endeavor was the surviving corporation. Endeavor
was incorporated in April 1994. Statement of operations data for all
periods presented include statement of operations data for Endeavor, as
the predecessor of the Company. Effective as of July 1, 1998, the Company
sold substantially all its cardiac monitoring assets to Matria. The
Company's financial statements reflect the cardiac monitoring operations
as discontinued operations for all periods and dates prior to such sale
of assets. In addition, on July 1, 1997, we sold our subsidiary, Ultra
Scan, Inc.
(2) Basic and diluted net loss per share was determined using all classes of
our common stock outstanding during each period. It does not include the
conversion of preferred stock. Options or warrants to purchase common
stock were also not included as they are anti-dilutive.
(3) Weighted average shares used in calculating pro forma information include
those described in footnote 2 above, and assumes the weighted average
conversion of preferred stock of 801,000 for the nine months ended
September 30, 1998.
(4) See Note 5 of the WebMD Notes to Consolidated Financial Statements.
32
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements have been prepared to give effect to the acquisitions of SHN and
DMK. The pro forma consolidated statements of operations of the Company for
the year ended December 31, 1997 and the nine months ended September 30, 1998
give effect to the acquisitions of SHN and DMK as if they occurred on January
1, 1997. The pro forma consolidated balance sheet as of September 30, 1998
gives effect to the acquisitions of SHN and DMK as if they had occurred on
September 30, 1998. The pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable
under the circumstances.
The pro forma consolidated financial statements and notes thereto should be
read in conjunction with "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto, the historical financial statements,
including notes thereto, of SHN and DMK and other financial and operating
information included elsewhere herein. This pro forma information and the
related notes are provided for illustrative purposes only and do not purport
to represent what the Company's results of operations would have been if the
acquisitions of SHN and DMK had in fact been completed on such dates, nor does
it purport to indicate the future financial position or results of future
operations of the Company.
33
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO
HISTORICAL DMK SHN ADJUSTMENTS FORMA
---------- ------- ------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues, including
shareholder revenues of
$424...................... $ -- $ 592 $ 86 $ -- $ 678
Operating expenses:
Product development ....... 566 810 2,512 -- 3,888
Sales and marketing........ 213 221 524 -- 958
General and
administrative........... 1,806 699 1,287 -- 3,792
Depreciation and
amortization............. 9 337 242 15,287 15,875
------- ------- ------- -------- --------
Total operating expenses... 2,594 2,067 4,565 15,287 24,513
------- ------- ------- -------- --------
Operating loss.............. (2,594) (1,475) (4,479) (15,287) (23,835)
Interest income (expense),
net....................... (725) 46 (37) -- (716)
------- ------- ------- -------- --------
Net loss from continuing
operations................ $(3,319) $(1,429) $(4,516) $(15,287) $(24,551)
======= ======= ======= ======== ========
Net loss per share.......... $ (2.96)
========
Weighted average shares
outstanding............... 8,300
========
Pro forma net loss per
share..................... $ (2.36)
========
Pro forma weighted average
shares outstanding........ 10,417
========
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO
HISTORICAL DMK SHN ADJUSTMENTS FORMA
---------- ------- ------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues, including
shareholder revenues of
$104...................... $ 75 $ 198 $ 343 $ -- $ 616
Operating expenses:
Product development ....... 5,867 827 1,703 -- 8,397
Sales and marketing........ 1,499 305 432 -- 2,236
General and
administrative........... 7,039 851 1,202 -- 9,092
Depreciation and
amortization............. 111 323 252 11,465 12,151
-------- ------- ------- -------- --------
Total operating expenses... 14,516 2,306 3,589 11,465 31,876
-------- ------- ------- -------- --------
Operating loss.............. (14,441) (2,108) (3,246) (11,465) (31,260)
Interest income (expense),
net....................... (177) 8 (310) -- (479)
-------- ------- ------- -------- --------
Net loss from continuing
operations................ $(14,618) $(2,100) $(3,556) $(11,465) $(31,739)
======== ======= ======= ======== ========
Net loss per share.......... $ (2.70)
========
Weighted average shares
outstanding............... 11,750
========
Pro forma net loss per
share..................... $ (2.27)
========
Pro forma weighted average
shares outstanding........ 13,972
========
</TABLE>
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR THE FOR THE
COMPANY DMK AND SHN DMK AND SHN
HISTORICAL DMK SHN ACQUISITIONS (1) ACQUISITIONS
---------- ------- -------- ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 11,737 $ 7 $ 1,160 $(1,850) $ 11,054
Accounts receivable.................... -- 25 35 -- 60
Current portion of note receivable..... 117 -- -- -- 117
Inventory.............................. 1,956 -- -- -- 1,956
Other current assets................... 1,203 42 567 -- 1,812
-------- ------- -------- ------- --------
Total current assets.................. 15,013 74 1,762 (1,850) 14,999
PROPERTY AND EQUIPMENT, NET............. 2,176 690 506 -- 3,372
OTHER ASSETS:
Intangibles, net....................... -- 58 -- 45,859 45,917
Note receivable, less current portion.. 33 -- -- -- 33
Other long-term assets................. -- 24 326 -- 350
-------- ------- -------- ------- --------
Total assets.......................... $ 17,222 $ 846 $ 2,594 $44,009 $ 64,671
======== ======= ======== ======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.. $ 1,667 $ 392 $ 773 $ -- $ 2,832
Deferred revenue....................... -- 38 506 -- 544
Notes payable and lines of credit...... -- 248 6,124 (5,703) 669
-------- ------- -------- ------- --------
Total current liabilities............. 1,667 678 7,403 (5,703) 4,045
LONG-TERM OBLIGATIONS:
Capital leases, net of current
portion............................... -- 321 171 (321) 171
-------- ------- -------- ------- --------
Total liabilities..................... 1,667 999 7,574 (6,024) 4,216
MANDATORILY REDEEMABLE PREFERRED STOCK.. -- -- 4,994 (4,994) --
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock........................ 12,015 4,098 1 40,801 56,915
Common stock........................... 17,376 4 2 (6) 17,376
Deferred compensation.................. (1,007) -- -- -- (1,007)
Warrants............................... 1,110 2 -- (2) 1,110
Additional paid-in capital............. -- -- 906 (906) --
Accumulated earnings (deficit)......... (13,939) (4,257) (10,883) 15,140 (13,939)
-------- ------- -------- ------- --------
Total shareholders' equity (deficit).. 15,555 (153) (9,974) 55,027 60,455
-------- ------- -------- ------- --------
Total liabilities, redeemable
preferred stock and shareholders'
equity.............................. $ 17,222 $ 846 $ 2,594 $44,009 $ 64,671
======== ======= ======== ======= ========
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE
PREFERRED
STOCK
SALES (2) PRO FORMA
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $33,775 $ 44,829
Accounts receivable.................... -- 60
Current portion of note receivable..... -- 117
Inventory.............................. -- 1,956
Other current assets................... 1,200 3,012
----------- ----------
Total current assets.................. 34,975 49,974
PROPERTY AND EQUIPMENT, NET............. -- 3,372
OTHER ASSETS:
Intangibles, net....................... -- 45,917
Note receivable, less current portion.. -- 33
Other long-term assets................. 2,400 2,750
----------- ----------
Total assets.......................... $37,375 $102,046
=========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.. $ -- $ 2,832
Deferred revenue....................... -- 544
Notes payable and lines of credit...... -- 669
----------- ----------
Total current liabilities............. -- 4,045
LONG-TERM OBLIGATIONS:
Capital leases, net of current
portion............................... -- 171
----------- ----------
Total liabilities..................... -- 4,216
MANDATORILY REDEEMABLE PREFERRED STOCK.. -- --
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock........................ 37,375 94,290
Common stock........................... -- 17,376
Deferred compensation.................. -- (1,007)
Warrants............................... -- 1,110
Additional paid-in capital............. -- --
Accumulated earnings (deficit)......... -- (13,939)
----------- ----------
Total shareholders' equity (deficit).. 37,375 97,830
----------- ----------
Total liabilities, redeemable
preferred stock and shareholders'
equity.............................. $37,375 $102,046
=========== ==========
</TABLE>
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
1. Pro Forma Adjustments for the SHN and DMK Acquisitions
A total of 1,750,000 shares of Series B Preferred Stock was issued in
connection with the acquisition of SHN in exchange for (i) the total
outstanding shares of SHN capital stock as of the effective time of
acquisition of SHN and (ii) a convertible promissory note and the assumption
by the Company of SHN's options and warrants outstanding at the effective time
of the acquisition of SHN.
A total of 625,000 shares of Series B Preferred Stock was issued in
connection with the acquisition of DMK in exchange for (i) the total
outstanding shares of DMK capital stock as of the effective time of the
acquisition of DMK and (ii) a convertible promissory note and the assumption
by the Company of DMK's options and warrants outstanding at the effective time
of the acquisition of DMK.
The SHN and DMK acquisitions will be accounted for using the purchase method
of accounting. The purchase price was based on a $20.00 per share valuation of
the Company's capital stock, which was established by the Company's Board of
Directors in the absence of a liquid market. The purchase price allocation
reflects a discount attributable to the restrictions on resale of the
Company's capital stock.
The unaudited pro forma financial statements have been prepared on the basis
of assumptions described in these notes, including assumptions relating to the
allocation of the consideration paid for the assets and liabilities of SHN and
DMK based on preliminary estimates of their fair value. The actual allocation
of such consideration may differ from that reflected in the unaudited pro
forma financial statements after valuations and other procedures to be
performed with respect to the SHN and DMK acquisitions are completed. The
following sets forth the estimated acquisition cost and purchase price
allocation with respect to the assets acquired:
<TABLE>
<CAPTION>
SHN DMK
------- -------
(IN THOUSANDS)
<S> <C> <C>
Estimated acquisition cost:
Estimated purchase price.................................. $33,300 $11,100
Acquisition expenses...................................... 1,500 350
------- -------
Total estimated acquisition cost........................ $34,800 $11,450
======= =======
Purchase price allocation:
Historical net book value at September 30, 1998........... $ 544 $ (153)
Goodwill.................................................. 34,256 11,603
------- -------
$34,800 $11,450
======= =======
</TABLE>
The preliminary goodwill allocation is $45.9 million and is being amortized on
a straight-line basis over 3 years.
The pro forma adjustments to "Common Stock," "Preferred Stock" and
"additional paid-in capital" reflect the elimination of these items and the
impact of the issuance of Series B Preferred Stock of the Company in
connection with the acquisitions of SHN and DMK.
2. Pro Forma Adjustments for the Preferred Stock Sales
Reflects the sale of 860,000 shares of the Company's Series B Preferred
Stock and 828,750 shares of the Company's Series C Preferred Stock subsequent
to September 30, 1998. Also reflects the issuance of 180,000 shares of the
Company's Series C Preferred Stock relating to the purchase (in lieu of cash)
of content services.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains "forward-looking statements" relating to, without
limitation, the Company's future economic performance, plans and objectives of
management for future operations, projections of revenue mix and other
financial items that are based on the beliefs of, as well as assumptions made
by and information currently known to, the Company's management. The words
"expects," "intends," "believes," "anticipates," "estimates," "may," "could,"
"should," "would," "will," "plans," "hopes" and similar expressions and
variations thereof are intended to identify forward-looking statements. The
cautionary statements set forth in this section, in "Risk Factors" and
elsewhere in this Prospectus identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties that
could cause actual results to differ materially from those anticipated in such
forward-looking statements. The following discussion should be read in
conjunction with the Company's Consolidated Financial Statements and the
related Notes thereto and other financial information appearing elsewhere in
this prospectus.
OVERVIEW
WebMD provides a branded, integrated Web-based solution for the
administrative, communications and information needs of healthcare
professionals and for the healthcare information needs of consumers. The
Company's Web destination consists of two distinct, linked Web sites--a
subscription-based site for healthcare professionals and a free Health and
Wellness Center site for consumers. WebMD is a single point of access to EDI
services, enhanced communications services, branded healthcare content and
other Web-based offerings. For healthcare professionals, WebMD is designed to
simplify healthcare practices by integrating multiple administrative,
communications and research functions into a single, easy to use Web-based
solution. For consumers, WebMD provides premium, branded content to assist
consumers in making informed healthcare decisions, personalized information
about specific health conditions targeted according to the medical profiles of
individual consumers and content-specific online communities that allow
consumers to participate in real-time discussions and support networks via the
Web. We commercially launched WebMD in October 1998, and as of September 30,
1998 we had not generated any revenues from our Internet operations.
On January 25, 1999, the Company acquired all of the outstanding capital
stock and convertible debt of SHN in exchange for approximately 1,619,000
shares of Series B Preferred Stock. In addition, the Company converted
existing SHN options and warrants into options and warrants to acquire
approximately 131,000 shares of Series B Preferred Stock. At closing, the
Company also paid certain liabilities of SHN. This acquisition was accounted
for using the purchase method of accounting. SHN builds and manages Web-based
communities targeted at healthcare consumers and sells market research and
data products, advertising sponsorships and other online services. SHN
currently manages 10 online communities with members holding over 130,000
distinct e-mail addresses. These communities encompass a variety of chronic
health conditions, including hepatitis C, breast cancer, diabetes and
cardiovascular disease. SHN's Web site also includes the Women's Health Place,
which covers eight distinct women's health topics. SHN's Web site is driven by
proprietary, patent-pending personalization technology which allows registered
members free access to premium health content, chat rooms, message boards and
e-mail updates, each tailored to their unique medical profiles. Business Week
recently named SHN's Web site one of the best Web sites of 1998. In addition,
SHN has participated in a number of marketing and sponsorship programs with
leading companies in the pharmaceutical and healthcare industries, including
Amgen, Johnson & Johnson, SmithKline Beecham and Eli Lilly.
On January 22, 1999, the Company also acquired all of the outstanding
capital stock and convertible debt of DMK in exchange for approximately
494,000 shares of Series B Preferred Stock. In addition, the Company converted
existing DMK options and warrants into options and warrants to acquire
approximately 131,000 shares of Series B Preferred Stock. At closing, the
Company also paid certain liabilities of DMK. This acquisition was accounted
for using the purchase method of accounting. DMK is a publisher of healthcare
information that provides in-depth, personalized health and medical
information to consumers via the Internet. DMK has an electronic library of
healthcare information which is customized for its individual consumers
through its proprietary personalization software. DMK's main customers are
Blue Cross Blue Shield of Minnesota and Blue Shield of California, other large
managed care organizations and hospital systems.
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In addition, on December 31, 1998, the Company acquired substantially all of
the assets and assumed certain liabilities of certifiedemail.com in exchange
for 50,000 shares of Series D Common Stock. This acquisition was accounted for
using the purchase method of accounting. certifiedemail.com provides secure
delivery and confirmation of receipt of electronic mail. The Company plans to
use the certifiedemail.com system to allow healthcare professionals to
confidentially communicate with each other and with patients.
As a result of the SHN and DMK acquisitions, the Company intends to record
an aggregate of $45.9 million in goodwill beginning in the first quarter of
1999, which will be amortized on a straight-line basis over a three-year
period. The Company is evaluating any additional charges that may be required
with regard to valuations and other procedures to be performed with respect to
the SHN and DMK acquisitions. Most acquisitions of software and professional
services companies involve the purchase of significant amounts of intangible
assets. Therefore, acquisitions of such businesses often result in significant
goodwill being recorded and significant amortization charges and may also
result in charges for research and development projects. If the Company were
to incur additional charges for acquired in-process research and development
or amortization of goodwill with respect to current or future acquisitions,
the Company's business, financial condition and operating results could be
materially and adversely affected.
For the past 12 months, the Company has been transitioning from its former
cardiac monitoring business to its new business, which is focused on providing
Web-based administrative, communications and information services to
healthcare professionals and health and wellness information to consumers. The
Company's activities with respect to its Internet operations have primarily
consisted of licensing and creating content, negotiating relationships with
strategic partners, marketing and branding promotions, recruiting personnel
and raising capital. The Company anticipates that the majority of its revenues
will initially consist of recurring revenues from subscriptions. The Company
will recognize revenue when services are provided. Advance billings and
collections relating to future access services will be recorded as deferred
revenue and recognized when revenue is earned. If the Company is successful in
building its subscriber base and brand recognition and increasing traffic on
its Web site, the Company expects advertising and sponsorship revenues to
increase as a percentage of its total revenues.
The Company currently offers its subscribers two monthly service packages:
WebMD and WebMD OnCall. Subscriptions to WebMD and WebMD OnCall include the
following service offerings, as well as other Web-based service offerings: (i)
EDI services for electronic insurance eligibility verifications and patient
referrals; (ii) the Virtual Receptionist integrated messaging platform, which
manages incoming calls, voice mails, e-mails, fax messages and pages; (iii) a
customized physician Web site; (iv) physician references; (v) continuing
medical education ("CME") courses; (vi) interactive dissectible anatomy
software; (vii) secure e-mail (with tracking and proof of delivery features);
and (viii) lounge content (with access to financial services and products, as
well as news, stock, sports and weather information). A subscription to WebMD
OnCall also includes a physician-only answering service. The Company currently
offers WebMD and WebMD OnCall for $29.95 and $99.95 per month, respectively.
The WebMD and WebMD OnCall basic packages require a 12-month service period
and are terminable upon 90 days prior written notice to the Company. The
Company also provides Internet access, personal computers, network computers,
patient test results and paging services for additional monthly fees. The
Company subsidizes limited promotional packages of its services through its
relationships with McKessonHBOC, E*TRADE and MedQuist. The Company also offers
a limited number of promotional packages through other strategic
relationships. These promotional packages generally require a 12-to-36 month
service period and all are terminable upon 90 days prior written notice to the
Company, and the majority require payment of an early termination fee. The
Company has entered into these promotional arrangements in order to establish
its subscriber base and build brand recognition.
The Company has incurred net operating losses and negative cash flows from
operating activities since its inception. As of September 30, 1998, the
Company had an accumulated deficit of $13.9 million. The Company has not
achieved profitability, and the Company expects to incur increasing net
operating losses and negative cash flows for the foreseeable future. The
Company will incur direct expenses associated with the development and
deployment of WebMD and its branding campaign and indirect expenses from
promotional arrangements with certain of its distribution partners. The
Company's agreements and promotional arrangements with its distribution
partners and service and content providers require it to pay consideration in
various forms, including
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the payment of royalties, license fees and certain other significant
guaranteed amounts on a per subscriber and/or a minimum dollar amount basis
over terms ranging from one to three years, whether or not services or content
are used in these agreements. As of January 27, 1999, under the Company's
current promotional arrangements, the Company estimates that these aggregate
guaranteed payments will exceed $13.9 million for the year ending December 31,
1999. In addition, certain promotional arrangements and content agreements
require the Company to make payments that vary based on usage by subscribers.
The Company intends to enter into additional arrangements with current and
future strategic partners that will require the Company to pay consideration
in various forms in amounts that may significantly exceed the amounts that the
Company expects to be obligated to pay under its current arrangements. The
Company may also offer promotional packages of hardware and software to
subscribers at subsidized prices. These guaranteed payments, promotions and
other arrangements may require the Company to incur significant expenses, and
the Company cannot guarantee that it will generate sufficient revenues to
offset these expenses. The Company intends to use a significant portion of the
proceeds from this offering to fund its branding campaign and these
promotional arrangements and subsidies. The Company cannot be certain that it
will achieve sufficient revenues in relation to its expenses to ever be
profitable. If the Company does achieve profitability, it cannot be certain
that it can sustain or increase profitability on a quarterly or annual basis
in the future.
The Company's promotional arrangements and subsidies currently require, and
future arrangements may require, payment of amounts in lump sums upon the
acquisition of a subscriber that the Company will only recoup if the
subscriber maintains a subscription and pays all required subscription fees
for an extended period of time. For example, under the current promotional
arrangement with McKessonHBOC, the Company has agreed to reimburse
McKessonHBOC for license fees otherwise payable by users of one of its
products if McKessonHBOC successfully markets WebMD to these users or, in the
alternative, the Company has agreed to fund a rebate toward the purchase of
medical supplies that are purchased through WebMD by subscribers obtained by
McKessonHBOC. These subscribers may cancel their subscriptions after 12
months, in which case the Company would not recover the cost of the promotion.
In addition, the Company cannot guarantee that these subscribers will honor
their contracts or pay any early termination fee, if required. Accordingly,
the Company cannot guarantee that it will generate sufficient revenue from
subscribers it obtains through current or future promotional arrangements to
recoup the cost of the promotion. The Company also cannot guarantee that
subscribers obtained through promotional arrangements will actually use WebMD.
Therefore, the number of paying subscribers may not be indicative of the level
of usage of WebMD, and the Company expects the level of usage of WebMD to be a
primary factor in determining the amount of advertising revenue that it can
derive from WebMD.
The Company expects its quarterly revenues, expenses and operating results
to fluctuate significantly in the future as a result of a variety of factors,
some of which are outside of the Company's control. These factors include: the
number of WebMD subscribers and consumers; the level of traffic on the
Company's Web site and the level of usage of the Internet generally; the
Company's ability to establish and strengthen brand awareness; the Company's
success, and the success of its strategic partners, in distributing WebMD; the
addition or loss of service or content providers, advertisers or sponsors on
the Company's Web site; the Company's ability to upgrade its Web site; the
amount and timing of costs relating to marketing efforts or other initiatives;
the timing of contracts with strategic partners and other parties; fees the
Company may pay for distribution, service or content agreements and
promotional arrangements or other costs the Company may incur as it expands
its operations; the Company's ability to integrate the Acquisitions
successfully and to identify, acquire and integrate other suitable acquisition
candidates; the timing of charges related to acquisitions; the level of
acceptance of the Internet by the healthcare industry; the Company's ability
to compete in a highly competitive market and the introduction of new sites
and services by it or its competitors; technical difficulties, system
downtime, undetected software errors and other problems affecting the Internet
generally or the operation of the Company's Web site; and economic conditions
specific to the Internet and online media and general economic conditions.
As a result of the limited operating history of its Internet operations, the
recent disposition of its cardiac monitoring operations, the recent
Acquisitions and the emerging nature of the markets in which it intends to
compete, the Company is unable to forecast its revenues with any degree of
certainty. The Company's current
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and projected expense levels are based largely on its estimates of future
revenues and are mostly fixed. The Company expects its expenses to increase
significantly in the future as it continues to incur significant sales and
marketing, product development and administrative expenses. The success of the
Company's business depends on its ability to increase its revenues to offset
its expenses. The Company cannot guarantee that it will be able to generate
sufficient revenues to offset its operating expenses or the costs of its
promotional packages or subsidies or that it will be able to achieve or
maintain profitability. If its revenues fall short of its projections, the
Company's business, financial condition and operating results could be
materially and adversely affected. See "Risk Factors We Have a Limited
Operating History and Are Transitioning to a New Business Model," "--We
Anticipate Significant Future Losses and Are Unable to Accurately Forecast Our
Revenues" and "--Our Quarterly Financial Results May Fluctuate Significantly."
In March 1997, a subsidiary of the Company merged with Endeavor, a provider
of diagnostic cardiac monitoring services which was founded in 1994 by Jeffrey
T. Arnold, the Company's Chairman and Chief Executive Officer. Effective as of
July 1, 1998, the Company sold substantially all of its cardiac monitoring
assets to Matria for an aggregate purchase price of $17.0 million in cash and
$6.0 million in additional contingent consideration payable subject to the
achievement during calendar year 1999 of certain revenue goals by Matria in
the operation of the purchased assets. Substantially all of the Company's
historical revenues were derived from its cardiac monitoring operations. The
Company does not consider the historical results of its cardiac monitoring
operations to be meaningful or indicative of the Company's future results of
operations. The Company's financial statements reflect the cardiac monitoring
operations as discontinued operations for all periods and dates prior to such
sale of assets.
RESULTS OF OPERATIONS
In June 1997, the Company began redirecting its focus to the development of
integrated Web-based administrative, communications and information services
to healthcare professionals and healthcare information to consumers. The
Company commercially launched WebMD in October 1998. As of September 30, 1998,
the Company had not generated any revenues from its Internet operations.
Accordingly, the Company believes that year-to-year comparisons of the results
of operations for the years ended December 31, 1996 and 1997 and period-to-
period comparisons of the results of operations for the nine months ended
September 30, 1998 and 1997 are not meaningful and should not be relied upon
as an indication of future performance.
Revenues
As of September 30, 1998, the Company had generated $75,000 in revenues from
its management services contract with Matria. In the future, the Company
anticipates that revenues from its Internet operations will consist primarily
of revenues from subscriber fees and, if the Company is successful in building
its subscriber base and brand recognition and increasing traffic on WebMD,
transaction, sponsorship and advertising fees.
Operating Expenses
Product Development. Product development costs consist of compensation and
related expenses required to support the development of existing and new
service offerings, license and other fees, content acquisition and Web site
development fees. Product development costs are expensed as incurred. Product
development costs were $566,000 for the year ended December 31, 1997 and $5.9
million for the nine months ended September 30, 1998. Product development
costs increased primarily due to expenses related to the development of the
Company's Internet service offerings. The Company anticipates that product
development costs will continue to increase in absolute dollars as the Company
develops and enhances its Internet service offerings and hires additional
technical and Web development personnel.
Sales and Marketing. Sales and marketing costs consist of salaries and
related expenses and advertising, marketing and promotional expenses. Sales
and marketing costs are expensed as incurred. Sales and marketing
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costs were $213,000 for the year ended December 31, 1997 and $1.5 million and
$114,000 for the nine months ended September 30, 1998 and 1997, respectively.
Sales and marketing costs increased primarily due to the Company's branding
campaign and increased marketing efforts in connection with the deployment of
WebMD. The Company expects that sales and marketing costs will continue to
increase in absolute dollars as the Company continues to expand its branding
and advertising campaigns, deploy WebMD, enter into new strategic agreements
and increase its sales force.
General and Administrative. General and administrative expenses consist
primarily of: (i) salaries and related expenses for executive and
administrative functions; (ii) occupancy expenses; and (iii) overhead
expenses. General and administrative expenses were $1.8 million for the year
ended December 31, 1997 and were $7.0 million and $1.3 million for the nine
months ended September 30, 1998 and 1997, respectively. General and
administrative expenses increased primarily due to increased salaries,
compensation charges, related expenses for additional executive and
administrative personnel and the building of executive and administrative
infrastructure. The Company expects that its general and administrative costs
will continue to increase in absolute dollars as the Company expands its
administrative and executive staff, including customer service personnel, and
adds infrastructure.
Depreciation and Amortization. Depreciation and amortization expense
consists of the depreciation of property and equipment. Depreciation and
amortization was $9,000 for the year ended December 31, 1997 and was $111,000
and $1,000 for the nine months ended September 30, 1998 and 1997,
respectively. Depreciation and amortization increased due to purchases of
property and equipment for the expansion of the Company. The Company expects
that amortization costs will increase significantly in absolute dollars due to
amortization of $45.9 million in goodwill associated with the Acquisitions.
The Company also expects that depreciation may increase in absolute dollars
due to hardware costs associated with the deployment and distribution of
WebMD.
Interest Expense, Net
Interest expense, net consists primarily of interest paid on certain loans
from related parties and certain loans that have been repaid. Interest
expense, net was $725,000 for the year ended December 31, 1997 and was
$177,000 and $478,000 for the nine months ended September 30, 1998 and 1997,
respectively. Interest expense, net decreased for the nine months ended
September 30, 1998 due to the repayment of a $509,605 loan from a related
party and receipt of interest on the Company's investment of funds received
from McKessonHBOC in a private placement.
Discontinued Operations
Effective as of July 1, 1998, the Company sold substantially all of its
cardiac monitoring assets to Matria for an aggregate of $17.0 million in cash
and $6.0 million in additional contingent consideration payable subject to
achievement during calendar year 1999 of certain revenue goals by Matria in
the operation of the purchased assets. The Company incurred a loss from
discontinued operations of $1.2 million, $1.7 million and $39,000 for the
years ended December 31, 1997, 1996 and 1995, respectively, and a loss of
$383,000 and $718,000 for the nine months ended September 30, 1998 and 1997,
respectively. For the nine months ended September 30, 1998, the Company
recognized a gain of $8.1 million on the sale of its cardiac monitoring
operations. On July 1, 1997, the Company sold UltraScan, a diagnostic imaging
services provider, and recognized a gain on the UltraScan sale of $165,000 for
the year ended December 31, 1997 and the nine months ended September 30, 1997.
Income Taxes
At December 31, 1997, the Company had total net operating loss carryforwards
for federal and state income tax purposes of $5.1 million that expire in years
2010 through 2012. Utilization of the Company's net operating loss
carryforwards may be subject to an annual limitation due to the "change of
ownership" provisions of the Internal Revenue Code of 1986, as amended (the
"Tax Code"), and similar state provisions. The annual
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limitation may result in the expiration of net operating losses and credits
before utilization. For financial reporting purposes, a valuation allowance
has been recognized to reduce the net deferred tax assets to zero due to
uncertainties with respect to the Company's ability to generate taxable income
in the future sufficient to realize the benefit of deferred income tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through private equity and debt financings. During the year ended December 31,
1997 and nine months ended September 30, 1998, the Company received $5.8
million and $17.0 million, respectively, in net proceeds from the sale of its
capital stock. On August 29, 1997, the Company borrowed $4.0 million from
Sirrom Capital Corporation ("Sirrom") for working capital and general
corporate purposes. In connection with the loan, the Company issued Sirrom a
warrant to purchase 557,490 shares of Series D Common Stock. In April 1998,
Premiere Technologies exercised warrants to purchase 1,000,000 shares of
Series E Common Stock for an aggregate purchase price of $2.0 million. In July
1998, the Company borrowed an additional $2.0 million from Sirrom.
Effective as of July 1, 1998, the Company sold substantially all of its
cardiac monitoring assets to Matria for an aggregate purchase price of $17.0
million in cash and $6.0 million additional contingent consideration payable
subject to Matria's achievement during calendar year 1999 of certain revenue
goals in the operation of the purchased assets. The Company used approximately
$6.0 million of the proceeds to repay the $4.0 million and $2.0 million loans
from Sirrom. In July 1998, the Company used approximately $2.7 million of the
proceeds for settlement costs of litigation related to Endeavor. The remainder
of the proceeds have been and will continue to be used for product development
costs, sales and marketing costs associated with the introduction of WebMD,
purchases of network computers and related hardware and other general
corporate purposes.
On August 24, 1998, the Company sold 667,000 shares of Series A Preferred
Stock to a wholly owned subsidiary of McKessonHBOC for an aggregate purchase
price of $10.0 million and, on September 1, 1998, sold 134,000 shares of
Series A Preferred Stock to Matria for an aggregate purchase price of $2.0
million. Each share of Series A Preferred Stock is convertible at any time at
the option of the holder into one share of Common Stock, subject to
adjustment, and will be automatically converted into one share of Common Stock
upon the closing of an initial public offering. The Series A Preferred Stock
is non-voting except that the holders of the Series A Preferred Stock vote as
a separate class to elect one member to the Company's Board of Directors and
acquire full voting rights in the event the Company fails to complete an
initial public offering on or before February 20, 1999. Subject to the
investment agreements entered into between the Company and each such
subsidiary of McKessonHBOC and Matria, in the event the Company offers its
Common Stock to the public in this offering at a price below $18.00 per share,
or in the event this offering is not consummated on or before May 22, 1999 or
March 1, 1999, as the case may be, the Company must issue to such subsidiary
of McKessonHBOC or Matria, as the case may be, an additional 150,000 and
30,000 shares, respectively, of Common Stock (subject to adjustments for stock
splits, stock dividends, combinations or the like) for no additional
consideration. Furthermore, if the Company fails to close its initial public
offering on or before November 22, 1999 or September 1, 1999, the Company must
issue to such subsidiary of McKessonHBOC or Matria, as the case may be, an
additional 50,000 and 10,000 shares, respectively, of Series A Preferred Stock
for no additional compensation.
On December 31, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of certifiedemail.com in exchange for 50,000
shares of Series D Common Stock. On January 25, 1999, the Company acquired all
of the outstanding capital stock and converted certain debt of SHN in exchange
for 1,623,041 shares of Series B Preferred Stock. In addition, the Company
converted existing SHN options and warrants into options and warrants to
acquire 126,959 shares of Series B Preferred Stock. At closing, the Company
also paid certain liabilities at SHN. On January 22, 1999, the Company also
acquired all of the outstanding capital stock and converted certain debt of
DMK in exchange for 494,018 shares of Series B Preferred Stock. In addition,
the Company converted existing DMK options and warrants into options and
warrants to acquire 130,982 shares of Series B Preferred Stock. At closing,
the Company also paid certain liabilities of DMK.
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The Company recently sold an aggregate of 860,000 shares of Series B
Preferred Stock to five investors, including 650,000 shares to a wholly owned
subsidiary of McKessonHBOC and 100,000 shares to an affiliate of Kelso &
Company, for an aggregate purchase price of $17.2 million. The Company also
recently sold an aggregate of 828,750 shares of Series C Preferred Stock to 15
investors, including Trigon Healthcare, Inc., an affiliate of Premier, Inc.,
Tenet Healthcare Corporation and principals of Gleacher NatWest Inc.
("Gleacher NatWest") for an aggregate purchase price of $16.6 million.
Pursuant to the Company's advisory services agreement with Gleacher NatWest,
the Company granted Gleacher NatWest warrants to purchase 750,000 shares of
Series D Common Stock at an exercise price of $20.00 per share in lieu of a
cash payment for such services. The Company also recently issued 180,000
shares of Series C Preferred Stock to E.I. du Pont de Nemours and Company
("DuPont") in exchange for content services provided by DuPont in lieu of a
cash payment for such services. Furthermore, the Company recently made a
strategic investment in Nationwide Medical Services, Inc. a/k/a J&C Nationwide
("J&C Nationwide") through the issuance of 100,000 shares of Series D Common
Stock, and the Company has agreed to Web-enable J&C Nationwide's services and
to create a physicians' career and placement center within WebMD.
As of September 30, 1998, the Company's primary source of liquidity
consisted of $11.8 million in cash and cash equivalents, and the Company had
working capital of $13.3 million. Accounts payable and accrued expenses as of
September 30, 1998 were $1.7 million compared to $317,000 as of December 31,
1997. This increase was principally due to fees owed to service providers.
Net cash used by continuing operations was $3.6 million for the year ended
December 31, 1997 and $14.5 million and $2.1 million for the nine months ended
September 30, 1998 and 1997, respectively. The principal uses of cash were to
fund the Company's net losses from operations, partially offset by increases
in depreciation and amortization, non-cash interest and increased accounts
payable and accrued expenses.
Net cash provided by (used in) investing activities was $(1.6) million for
the year ended December 31, 1997 and $10.4 million and $(1.1) million for the
nine months ended September 30, 1998 and 1997, respectively. During 1997,
purchases of property and equipment primarily related to discontinued
operations, and during 1998, approximately half of the purchases of property
and equipment related to continuing operations.
Net cash provided by financing activities of continuing operations was $9.7
million for the year ended December 31, 1997 and $13.2 million and $7.7
million for the nine months ended September 30, 1998 and 1997, respectively.
Financing activities consisted primarily of the proceeds from the issuance of
equity securities and proceeds from the loans from Sirrom.
The Company intends to use the net proceeds from this offering, the
disposition of its cardiac monitoring assets and the recent common and
preferred stock sales to fund the development and deployment of its WebMD
services, including promotion of the WebMD brand, funding of promotional
arrangements, subsidization of costs to subscribers, content development and
licensing and expansion of the Company's marketing and advertising sales
efforts, to fund operating losses and for working capital and other general
corporate purposes. The Company intends to seek acquisitions that could
provide additional service offerings or technologies, and a portion of the net
proceeds of this offering may be used for such acquisitions. While the Company
discusses potential acquisitions from time to time and has recently completed
the Acquisitions, the Company currently has no plans, commitments or
agreements for any such acquisitions, and there can be no assurance that any
other acquisitions will be completed. Pending such uses, the Company intends
to invest the net proceeds from this offering in investment-grade, interest-
bearing instruments. See "Risk Factors--We Will Have Substantial Discretion
Over the Use of Proceeds."
The Company believes that the net proceeds from this offering, the
disposition of its cardiac monitoring assets and the recent common and
preferred stock sales will be sufficient to fund its working capital and
capital expenditure requirements for at least the next 12 months. However, the
Company expects to continue to incur significant operating losses for at least
the next 24 months due to the development and deployment of WebMD and the
Company's branding and advertising campaigns. To the extent the Company
determines that it will require additional funds to support its operations or
the expansion of its business, the Company may sell additional equity, issue
debt or convertible securities or obtain credit facilities through financial
institutions. The
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sale of additional equity or convertible securities will result in additional
dilution to the Company's shareholders. There can be no assurance that
additional financing, if required, will be available to the Company in amounts
or on terms acceptable to the Company. See "Risk Factors--We Have a Limited
Operating History and Are Transitioning to a New Business Model" and "--We
Anticipate Significant Future Losses and Are Unable to Accurately Forecast Our
Revenues."
YEAR 2000 COMPLIANCE
Some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as
the year 2000 approaches and are commonly referred to as the "Year 2000
Problem."
Assessment. The Year 2000 Problem could affect computers, software and other
equipment that the Company uses. Accordingly, the Company is reviewing its
internal computer programs and systems to determine if they will be Year 2000
compliant. The Company believes that its computer systems will be Year 2000
compliant in a timely manner. However, while the Company does not expect the
cost of these efforts to be material to its financial position or any year's
operating results, there can be no assurance to this effect.
Services Sold to Consumers. The Company depends on third party suppliers for
most of the services provided through WebMD. If these parties are affected by
the Year 2000 Problem, its ability to provide services to its subscribers may
be materially adversely affected.
Internal Infrastructure. The Company believes that it has identified
substantially all of the major computers, software applications and related
equipment used in connection with its internal operations that must be
modified, upgraded or replaced to minimize the possibility of a material
disruption to its business. The Company has commenced the process of
modifying, upgrading and replacing systems that have been identified as
potentially being adversely affected and expect to complete this process
before the end of the third quarter of 1999. The Company does not expect the
cost related to these efforts to be material to its business, financial
condition or operating results.
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of the Company's office and facilities
equipment, such as fax machines, photocopiers, telephone switches, security
systems, elevators and other common devices may be affected by the Year 2000
Problem. The Company is currently assessing the potential effect of, and costs
of remediating, the Year 2000 Problem on this equipment. The Company estimates
that its total cost of completing any required modifications, upgrades or
replacements of these internal systems will not have a material effect on its
business, financial condition or operating results.
Suppliers. The Company has been gathering information from and have
initiated communications with its service and content providers to identify
and, to the extent possible, resolve issues involving the Year 2000 Problem.
However, the Company has limited or no control over the actions of its service
and content providers. Thus, while the Company expects that it will be able to
resolve any significant Year 2000 Problems with its systems, it cannot
guarantee that its service and content providers will resolve any or all Year
2000 Problems with their systems before the occurrence of a material
disruption to its business. Any failure of these third parties to resolve Year
2000 problems with their systems in a timely manner could have a material
adverse effect on the Company's business, financial condition or operating
results.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business, financial condition or operating results. However, the
Company believes that it is not possible to determine with complete certainty
that all Year 2000 Problems affecting it have been identified or corrected.
The number of devices that could be affected and the
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interactions among these devices are simply too numerous. In addition, the
Company cannot accurately predict how many failures related to the Year 2000
Problem will occur or the severity, duration or financial consequences of such
failures. As a result, the Company expects that it could possibly suffer the
following consequences:
. a significant number of operational inconveniences and inefficiencies
for the Company, its service and content providers and its subscribers
and consumers that may divert the Company's time and attention and
financial and human resources from its ordinary business activities;
and
. a lesser number of serious system failures that may require significant
efforts by the Company, its service and content providers or its
subscribers and consumers to prevent or alleviate material business
disruptions.
Contingency Plans. The Company is currently developing contingency plans to
be implemented as part of its efforts to identify and correct Year 2000
Problems affecting its internal systems. The Company expects to complete its
contingency plans by the end of the third quarter of 1999. Depending on the
systems affected, these plans could include (a) accelerated replacement of
affected equipment or software; (b) short to medium-term use of backup
equipment and software; (c) increased work hours for the Company's personnel
or use of contract personnel to correct on an accelerated schedule any Year
2000 Problems which arise or to provide manual workarounds for information
systems; and (d) other similar approaches. If the Company is required to
implement any of these contingency plans, such plans could have a material
adverse effect on its business, financial condition or operating results.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes that the adoption of SFAS No. 131 will not have a material
effect on the Company's financial statements.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this prospectus.
WebMD provides a branded, integrated, Web-based solution for the
administrative, communications and information needs of healthcare
professionals and for the healthcare information needs of consumers. The
Company's Web destination consists of two distinct, linked Web sites--a
subscription-based site for healthcare professionals and a free Health and
Wellness Center site for consumers. WebMD is a single point of access to EDI
services, enhanced communications services, branded healthcare content and
other Web-based offerings. For healthcare professionals, WebMD is designed to
simplify healthcare practices by integrating multiple administrative,
communications and research functions into a single, easy to use Web-based
solution. For consumers, WebMD provides premium, branded content to assist
consumers in making informed healthcare decisions, personalized information
about specific health conditions targeted according to the medical profiles of
individual consumers and content-specific online communities that allow
consumers to participate in real-time discussions and support networks via the
Web. The Company's objective is to become the Web's premium brand for
healthcare-related administrative, communications and information services.
INDUSTRY BACKGROUND
Growth of the Internet
The growth of the Internet as a new means of communicating, accessing
information and engaging in commerce has been rapid and is expected to
accelerate. International Data Corporation estimates that the number of Web
users will grow from approximately 100 million in 1998 to approximately 320
million by 2002. A number of factors have contributed to the growth of the
Internet including: (i) the large and growing installed base of personal
computers in homes and businesses; (ii) improvements in network infrastructure
and bandwidth; (iii) easier and cheaper access to the Internet; (iv) increased
awareness of the Internet among consumer and business users; and (v) the
rapidly expanding availability of online content and commerce.
Need for Reduced Costs and Improved Service within Healthcare Industry
Increasing concern over the rising cost of healthcare in the United States
has caused a shift from fee-for-service reimbursement to managed care forms of
reimbursement such as capitation and fixed fees. As a result, the healthcare
industry has experienced significant consolidation as healthcare providers and
hospitals have formed networks and other affiliations to spread their
financial risks, overhead and operating costs over a broader patient
population. Jupiter Communications, an independent Web research company,
estimates that over 80% of employers in the United States are moving to
managed care programs such as health maintenance organizations and physician
practice organization networks. Healthcare providers are facing new pressures
in this changing practice environment. Physicians have generally experienced
declining incomes and increased levels of financial risk due to the rise of
managed care. These changes have led many of the approximately 730,000
physicians in the United States to seek ways to improve practice efficiency in
order to better absorb revenue decreases, comply with managed care guidelines
and manage risks without compromising the quality of patient care. Because
these changes have resulted in patients directly bearing a greater portion of
healthcare costs, they have increasingly demanded greater involvement in
healthcare decisions.
Many healthcare professionals are intensive users of administrative,
communications and information services, such as EDI services, transcription
services, after-hours answering services, paging, voice mail and medical
references. However, these services often are provided by multiple vendors,
are not integrated, require users to become familiar with multiple devices and
are invoiced separately. The Company believes that certain inefficiencies
could be eliminated if a single provider integrated these multiple services.
The Company believes that a significant opportunity exists for healthcare
professionals to use the Internet to increase practice efficiency, achieve
measurable cost savings and improve the quality of patient care.
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Rapid Growth in Internet Use by Healthcare Consumers
Health and medical information is one of the fastest growing areas of
interest on the Internet. According to Media Metrix, an independent Web
research company, in 1997 healthcare-related content was the second most
popular subject of Web-based information retrieval searches. According to
Cyber Dialogue, an independent research company, approximately 70% of the
persons searching for health and medical information on the Internet believe
the Internet empowers them by providing them with information before and after
they go to a doctor's office. Cyber Dialogue also indicates that during the
12-month period ended July 1998, approximately 17 million adults in the United
States searched online for health and medical information, and approximately
50% of these individuals made offline purchases after seeking information
online. Furthermore, Cyber Dialogue estimates that the number of adults in the
United States searching for online health and medical information will grow to
approximately 30 million in the year 2000, and they will spend approximately
$150 billion for all types of health-related products and services offline.
Accordingly, the Company believes that healthcare and pharmaceutical companies
will increasingly attempt to influence the spending decisions of consumers
through online advertising. An independent research company, Jupiter
Communications, estimates that expenditures for online health and medical
advertising will grow to approximately $265 million by 2002. The Company
believes that the first company to establish clear brand leadership will have
a significant opportunity to capitalize on multiple revenue opportunities,
including recurring subscription, advertising and sponsorship revenue.
THE WEBMD SOLUTION
The Company provides healthcare professionals a single, easy to use Web-
based solution that integrates and helps manage their administrative,
communications and information functions. The Company also provides healthcare
consumers with a broad range of healthcare-related information and access to
online healthcare communities at no cost to consumers.
Benefits to Healthcare Professionals
A Single Point of Access. WebMD reduces the need for healthcare
professionals to use multiple administrative, communications and information
services by integrating these services via the Internet. The Company has
entered into relationships to assist healthcare professionals in obtaining all
hardware and ancillary services necessary to use WebMD, including Internet
access and computer hardware.
Premium Services and Content. WebMD provides a suite of premium services and
content, including EDI services for healthcare professionals' eligibility
verification and patient referral needs, the Virtual Receptionist, which
manages incoming calls, e-mail and fax messages, WebMD OnCall for physician-
only answering services, customized physician Web sites and content from
recognized market leaders. The Company intends to add services and content in
the future, including a Web-enabled medical transcription services offering.
Ease of Use. The Company provides its services via the standardized
interface of Web browsers. Therefore, subscribers who use the Company's
services do not require training on multiple proprietary devices.
Cost Savings. The Company offers a bundle of services, including its Virtual
Receptionist unified messaging platform, its WebMD OnCall physician-only
answering service, customized physician Web sites and premium research and
educational content, at a price that it believes is competitive with the price
healthcare professionals would pay for these services if purchased
individually.
Benefits to Healthcare Consumers
Premium and Proprietary Content. WebMD provides healthcare consumers with a
single point of access to premium and proprietary health and wellness content.
Consumers can use the information provided through WebMD without charge to
educate themselves on healthcare-related matters in order to make better
informed healthcare decisions. In addition, WebMD can deliver personalized
content and e-mail updates based on a consumer's profile and can search and
retrieve member-specific healthcare information from the Web.
Online Healthcare Communities. Through recent acquisitions, WebMD provides
access to online communities that provide consumers with personalized
information about their health conditions and allow them
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to participate in message boards, real-time chat rooms and support networks
via the Web. In addition, online communities provide member-generated content
based on shared experiences.
Convenience and Reliability. Through a physician's WebMD Web site, patients
can obtain information regarding office hours, location and other matters
without having to place a telephone call to the physician's office. In
addition, patients can receive healthcare information that is reviewed and
approved by medical professionals under their physician's WebMD Web site--a
reliable and familiar source of information.
STRATEGY
The Company's objective is to become the Web's premium brand for healthcare-
related administrative, communications and information services. Key elements
of the Company's strategy include:
Providing a First-to-Market, Integrated Solution. The Company believes that
the first provider to market with an integrated Web-based solution for the
administrative, communications and information needs of the healthcare
industry has the opportunity to establish the leading healthcare brand on the
Web. The Company believes that WebMD provides healthcare professionals with
the ability to adopt Web-based technology with a minimum of difficulty and
expense. Accordingly, the Company intends to continue to leverage its
strategic relationships to integrate premium services and content and rapidly
distribute WebMD in order to be first-to-market with an integrated solution.
Building Brand Name Recognition. The Company believes that establishing the
WebMD brand and building brand recognition is critical to its ability to
attract new subscribers and increase consumers' use of its Web site.
Therefore, the Company is currently engaged in a major campaign to increase
awareness of the WebMD brand among healthcare professionals and consumers. The
Company plans to continue to allocate significant resources to develop and
build brand recognition through online and offline advertising, strategic
alliances and other promotional activities and marketing initiatives. The
Company intends to build an online community of healthcare professionals,
consumers, hospitals, managed care organizations, medical distributors and
suppliers and pharmaceutical companies under the WebMD brand name. Through
WebMD's easy-to-remember Web address, EDI services, enhanced communications
services, branded healthcare content, consumer information and useful
applications, the Company intends to build user loyalty and to become the Web
address of choice for healthcare professionals and consumers.
Leveraging Strategic Relationships. The Company believes that its strategic
relationships and its knowledge of, and contacts in, the healthcare industry
provide it with a significant competitive advantage. The Company has entered
into strategic relationships with several healthcare and online industry
leaders and intends to enter into additional strategic relationships in the
future. See "--Strategic Relationships." The Company believes that its
strategic relationships allow it to market WebMD and provide premium services
and content more efficiently and effectively than would be possible through
its direct efforts alone. The Company also believes that the Company's ongoing
relationships with leading members of the healthcare community will enhance
the WebMD brand name, increase traffic to its Web site and increase its
ability to attract new subscribers and consumers.
Enhancing the WebMD Offerings. The Company focuses on providing an
attractive suite of EDI services, enhanced communications services, branded
healthcare content and other Web-based solutions through WebMD. The Company
intends to use its knowledge of and experience in the healthcare industry to
offer additional services and content that will directly address the needs of
healthcare professionals and consumers. For example, the Company plans to
release a Web-enabled medical transcription service offering in the near
future.
Pursuing Strategic Acquisitions. The Company intends to acquire companies
with complementary technology, products and services. The Company believes
that acquisitions will help it become the premium Web brand for healthcare-
related communications, information and e-commerce services. To date, we have
acquired SHN, a builder and manager of Web-based communities targeted to
healthcare consumers, DMK, a publisher of health and medical information and
certifiedemail.com, a provider of secure delivery and confirmation of receipt
of electronic mail. The Company intends to migrate SHN's and DMK's members to
WebMD. In addition, the
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Company recently invested in J&C Nationwide and intends to Web-enable J&C
Nationwide's services and to create a physicians' career and placement center
within WebMD. The Company intends to pursue acquisitions that it believes are
complementary to its existing business and will help it build its subscriber
and consumer bases, increase its services and potentially provide additional
sources of revenue.
Capitalizing on Multiple Revenue Opportunities. The Company is focusing on
providing services that generate recurring revenue. The Company expects that
the majority of its revenues will initially consist of recurring subscription
revenues. If the Company is successful in increasing its subscriber base,
building brand recognition and increasing traffic on its Web site, the Company
expects revenues from advertising, transaction and sponsorship fees to
increase as percentages of its total revenues.
WEBMD OFFERINGS
The Company's Web destination consists of two distinct, linked Web sites--a
subscription-based site for healthcare professionals and a free Health and
Wellness Center site for consumers. The Company currently offers subscribers
two monthly service packages: WebMD, which includes all of the services
available through WebMD, except the physician-only answering service; and
WebMD OnCall, which also includes the physician-only answering service.
Professional Offerings
Healthcare professionals who subscribe to WebMD have access to multiple
areas on the WebMD Web site, including:
OFFICE
<TABLE>
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- ----------------------------------------------------------------------------------
<S> <C> <C>
EDI Offers electronic access to Streamlines the process and
real-time insurance makes insurance
eligibility verification and verification and patient
patient referrals referrals faster and easier
- ----------------------------------------------------------------------------------
Virtual Receptionist Integrates Web-based communica- Allows healthcare profes-
tions and information servic- sionals to communicate and
es, including voice mail, retrieve information via
e-mail, fax messaging, paging, the Internet, telephone or
conference calling, worldwide fax
long distance and active mes-
sage notification
- ----------------------------------------------------------------------------------
WebMD OnCall Offers physician-only answering After hours messages can be
services that utilize experi- delivered via pager, fax or
enced professionals to assist e-mail by the physician's
both physicians and patients personal Virtual Reception-
during physicians' off hours ist
- ----------------------------------------------------------------------------------
Physician Web Sites Allows physicians to develop Allows physicians to more
and manage their own custom- effectively market their
ized Web sites and to include practices and better commu-
information such as e-mail ad- nicate with and educate pa-
dresses, office hours, tele- tients
phone numbers, office
locations and directions, hos-
pital affiliations and links
to patient education informa-
tion
- ----------------------------------------------------------------------------------
</TABLE>
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OFFICE
<TABLE>
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Secure Electronic Enables customers to confiden- Ability to communicate in a
Communications tially send, track and verify secure environment to pro-
delivery of e-mails tect patient confidential-
ity
- -------------------------------------------------------------------------------------
Practice Management Provides access to governmental Improves clinical practice
Tools and regulatory compliance and business efficiency
standards and pharmaceutical
updates
- -------------------------------------------------------------------------------------
LIBRARY
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Physician References Provides access to topical med- Allows physicians quick ac-
ical news, comprehensive phy- cess to reliable informa-
sician reference databases, tion necessary for their
medical encyclopedias, jour- practice
nals, dictionaries and
directories from well-recog-
nized sources
- -------------------------------------------------------------------------------------
Interactive Dissectible Offers Web-enabled interactive Healthcare professionals can
Anatomy dissectible anatomy software, use the images for their
including a comprehensive dig- own reference and to pre-
ital database of detailed ana- pare presentations for
tomical images peers and patients
- -------------------------------------------------------------------------------------
MedBookStore Provides online access to medi- Allows healthcare profes-
cal bookstore sionals to purchase current
medical texts and journals
online
- -------------------------------------------------------------------------------------
SUPPLIES
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Medical Supplies Will provide access to online Will allow healthcare pro-
ordering of medical and surgi- fessionals online ordering
cal supplies and equipment capability 24 hours a day
through McKessonHBOC
- -------------------------------------------------------------------------------------
CLASSROOM
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- -------------------------------------------------------------------------------------
<S> <C> <C>
CME Courses Offers CME courses in a variety Provides physicians with the
of practice areas opportunity to obtain re-
quired educational credits
easily and conveniently
- -------------------------------------------------------------------------------------
LOUNGE
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- -------------------------------------------------------------------------------------
<S> <C> <C>
Leisure Content and Provides access to financial Provides financial products
Services services and products, as well and insurance at discounted
as news, stock, sports, travel rates and a single point of
and weather information access to leisure informa-
tion
- -------------------------------------------------------------------------------------
</TABLE>
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The Company intends to provide additional practice management tools to
improve clinical practice and business office efficiency, such as Web-enabled
transcription services through the Company's relationship with MedQuist, fraud
and abuse audit services through the Company's relationship with PDN and
healthcare professional placement services through the Company's relationship
with J&C Nationwide. The Company also intends to provide certain life science
contents through the Company's relationship with DuPont. In addition, the
Company intends to provide streaming audio and video features with its CME
courses through the Company's relationship with iXL.
The Company offers additional services to subscribers for additional monthly
fees. If a prospective subscriber is not connected to the Internet, the
Company can provide dial-up Internet access. The Company can sell a
prospective subscriber a network computer. The Company also provides automated
patient test results to physicians and optional access to paging services. The
Company intends to provide subscribers the opportunity to purchase personal
computers at a set price.
Consumer Offerings
Healthcare consumers have access to the Health and Wellness Center on the
WebMD Web Site for free.
HEALTH AND WELLNESS CENTER
<TABLE>
<CAPTION>
PRODUCT OR SERVICE FEATURES BENEFITS
- ------------------------------------------------------------------------------------
<S> <C> <C>
Premium and Proprietary Consolidates patient education Healthcare consumers can
Healthcare Content information, including access numerous sources of
information for people with reliable consumer-oriented
chronic or acute conditions, healthcare resources
disease management topics, reviewed by medical
wellness content including professionals for free
fitness and nutrition,
clinical databases, medical
encyclopedias, journals and
directories
- ------------------------------------------------------------------------------------
Online Communities Offers 10 online communities Consumers may develop
focused on chronic health loyalty to their online
conditions and a Women's community which the
Health Place, covering eight Company believes
women's health topics translates into more
frequent usage by
consumers and longer stays
on the Web site
- ------------------------------------------------------------------------------------
Chat Rooms and Message Offer multiple message boards, Consumers can share
Boards 24-hour chat rooms and at experiences and exchange
least one scheduled chat event information in a private
per week with chat guests for environment with other
live events which include members who share their
physicians, social workers and health condition
nurses
- ------------------------------------------------------------------------------------
Personalized Searches and retrieves Consumers can receive
Information healthcare information from healthcare information
WebMD's premium and that is tailored to their
proprietary content based on a condition and level of
member's profile, including sophistication and,
age, gender, reading through updated profiles,
comprehension level and other continue to receive new
factors, and provides and compelling content
personalized e-mail updates to
community members
- ------------------------------------------------------------------------------------
</TABLE>
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STRATEGIC RELATIONSHIPS
The Company has entered into strategic relationships for distribution,
services and content. The Company believes that these relationships will
enable it to rapidly develop and distribute WebMD, enhance the WebMD
brand, generate traffic on its Web site and capitalize on additional
distribution and revenue opportunities. The Company has strategic
relationships with the following companies:
Distribution Relationships
McKessonHBOC. McKessonHBOC is the leading healthcare supply management
company in North America and is also the leading provider of integrated
patient care, clinical, financial, managed care and strategic management
software solutions to the healthcare industry. McKessonHBOC has installed
healthcare information systems in approximately 52% of the U.S. community
hospitals with over 100 beds. The Company has entered into a strategic
alliance agreement with McKessonHBOC, and McKessonHBOC has agreed to place or
pay for a certain number of WebMD subscriptions, subject to certain
conditions, to integrated delivery networks, acute care hospitals, long-term
and alternate site care relationships, physician offices, pharmacies,
pharmaceutical and biotechnology companies and medical and surgical supply
manufacturers. In connection with a recently announced promotion, McKessonHBOC
also marketed WebMD with its Connect2000 thin client software. Under this
promotion, organizations that purchased a minimum of 250 WebMD subscriptions
prior to December 31, 1998 received an equal number of Connect2000 seat
licenses at no additional charge. WebMD has agreed to reimburse McKessonHBOC
for the cost of the Connect2000 seat licenses granted through this promotion.
Through the Company's strategic relationship with McKessonHBOC, the Company
intends to offer online ordering of medical and surgical supplies and
equipment. Through the Company's strategic alliance with HBOC Call Center
Group, a division of McKessonHBOC, WebMD provides automated test results and
patient and parent advice lines. The Company is currently Web-enabling these
services. A wholly owned subsidiary of McKessonHBOC has made an aggregate
$23.0 million of equity investments in the Company.
ENVOY. ENVOY is a leading provider of EDI and transaction processing
services. ENVOY's transaction network, which processed approximately 984
million transactions in the 12 months ended March 31, 1998, includes
approximately 200,000 physicians, 4,500 hospitals and 811 payors. ENVOY, which
is the designated single source EDI provider for Aetna U.S. Healthcare, Inc.,
has agreed to use its direct and indirect sales force to market WebMD.
DuPont. DuPont's Life Sciences division consists of agricultural products
and pharmaceuticals, which includes DuPont's 50% interest in The Merck
Pharmaceutical Co. WebMD will provide life sciences content through its
strategic relationship with DuPont. DuPont has also agreed to place or pay for
a certain number of WebMD subscriptions, subject to certain conditions.
MedQuist. MedQuist is a leading national provider of electronic
transcription and document management services to the healthcare industry.
MedQuist operates more than 50 client centers in 24 states and employs over
2,400 trained transcriptionists to serve 500 clients, primarily hospitals and
medical centers, as well as other non-hospital healthcare providers, such as
managed care providers, surgical centers, outpatient clinics and physician
groups. The Company has entered into a strategic alliance agreement with
Transcriptions Ltd., a wholly owned subsidiary of MedQuist, pursuant to which
the Company and MedQuist have agreed to jointly promote their respective
services and Transcriptions Ltd. has agreed to place or pay for a certain
number of WebMD subscriptions, subject to certain conditions. Each party has
the right to maintain an exclusive presence on the other's Web site. In
addition, the Company and MedQuist recently announced a promotion which
provides that physicians who agree to use $1,000 in MedQuist services per
month will receive a WebMD subscription for free. The Company has agreed to
subsidize the cost of this promotion. The Company and MedQuist are currently
developing a Web-enabled medical transcription services offering.
DePuy Orthopaedics. DePuy Orthopaedics, Inc. ("DePuy"), a Johnson & Johnson
company, is a leading manufacturer and distributor of orthopaedics devices and
supplies. DePuy has agreed to market WebMD to its existing customer base of
orthopaedic specialists.
Matria. Matria is a leading provider of comprehensive disease management
services for health plans and employers for pregnancy and the chronic
conditions of diabetes, respiratory disorders and cardiovascular disease.
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Matria has agreed to market WebMD directly to its established customer base of
obstetricians, gynecologists and cardiologists. In September 1998, Matria made
a $2.0 million equity investment in the Company.
E*TRADE. E*TRADE, a leading provider of online investing services, was
recently named the best overall online investment service by Gomez Advisors, a
leading independent authority devoted to online consumer services. The Company
has entered into a strategic alliance agreement with E*TRADE pursuant to which
E*TRADE has agreed to purchase WebMD subscriptions for physicians who open
E*TRADE accounts as part of a limited promotional offer. In addition, E*TRADE
is the exclusive provider of online investing services to WebMD subscribers.
CompuServe. CompuServe Interactive Services, Inc. ("CompuServe"), a
subsidiary of America Online, Inc. and a leading provider of Internet access
to consumers, had approximately two million users as of August 1998.
CompuServe has agreed to feature WebMD as the anchor tenant on its Web site's
Health Channel. In addition, the Company has agreed to market CompuServe as
its exclusive ISP for subscribers in need of Internet services, Internet
access and customer support. WebMD and CompuServe have agreed to share the
cost of a direct mailing initiative of up to 750,000 CompuServe CD-ROMs to
physicians.
CNN. CNN Interactive, a division of Cable News Network, Inc. ("CNN"), has
agreed to position and promote WebMD as its premier provider of content for
CNN's Health Section on CNN's flagship Web site, "cnn.com." CNN will provide
several promotional arrangements, including banner advertisements, links to
WebMD, e-mails and promotions under health-related chat and message boards.
Real Select. Real Select, Inc., the operator of "realtor.com," the official
Web site of the National Association of Realtors, has agreed to feature WebMD
as its premier provider of health and medical related information in its
Health Care Channel within its Resource Center.
Service Relationships
Premiere. Premiere is a leading provider of enhanced communications
services. The Company uses Premiere's computer telephony platform and private
frame relay network to provide enhanced communications services through WebMD.
WebMD and Orchestrate.com entered into a co-marketing agreement for
communications services. In connection with the Company's strategic
relationship with Orchestrate.com, Premiere, its parent, purchased an
aggregate of 2,100,000 shares of the Company's Series E Common Stock. In
addition, the Company and Premiere entered into a sublease for corporate
office space and an equipment lease of call center technology.
J&C Nationwide. J&C Nationwide is a locum tenens and permanent healthcare
professional placement and staffing services provider. WebMD has agreed to
Web-enable J&C Nationwide's services and to create a physicians' career and
placement center within WebMD. WebMD recently made a strategic investment in
J&C Nationwide through the issuance of 100,000 shares of Series D Common Stock
in exchange for approximately 30% of the capital stock of J&C Nationwide.
PDN. WebMD will provide fraud and abuse audit services to subscribers
through its strategic relationship with PDN.
Medsite Publishing. WebMD provides subscribers access to "medbookstore.com"
for purchases of medical books online through its strategic relationship with
Medsite Publishing, Inc.
CFN. WebMD provides certain insurance and home finance products at discount
rates to subscribers through the Company's relationship with Consumer
Financial Network, Inc. ("CFN"). CFN is a division of iXL Holdings, Inc., the
parent company of iXL.
iXL. WebMD provides customized Web sites for physicians through its
relationship with iXL. These Web sites may feature important information for
patients and provide links to patient education and health and wellness
content on WebMD. iXL also provides Web development and physician Web site
hosting services to WebMD. WebMD will provide streaming audio and visual
features to its CME courses through its relationship with iXL.
UUNET. The Company offers subscribers optional dial-up Internet access
through its relationship with UUNET, a subsidiary of MCI WorldCom.
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<PAGE>
NCI. The Company offers subscribers the option to purchase network computers
through its relationship with Network Computers, Inc., a subsidiary of Oracle
Corporation.
DoubleClick. WebMD obtains Internet advertising solutions through the
Company's strategic relationship with DoubleClick, Inc.
Content Relationships
Thomson Healthcare. Thomson Healthcare Information Group ("Thompson
Healthcare") is a publisher of leading healthcare reference works and
journals. Thomson Healthcare provides the Company with comprehensive online
physician reference databases, publications and directories, including the PDR
library and articles from the Medical Economics Company journals, the RedBook
pharmaceutical database and Stedman's medical dictionary. Thomson Healthcare
also provides consumer content, including the PDR Family Guide to Prescription
Drugs and the Contemporary Pediatrics Guide for Parents. In addition, Thomson
Healthcare provides a majority of the Company's CME courses.
InteliHealth. InteliHealth, Inc. ("InteliHealth") provides the Company with
daily healthcare news, provider directories and consumer information
resources, including condition and wellness center content, information from
the National Institutes of Health and the National Health Council and answers
to frequently asked medical questions. InteliHealth also provides the Company
with information regarding regulatory and governmental compliance standards
and pharmaceutical updates. InteliHealth's healthcare information is reviewed
and approved by Johns Hopkins University and Health System, which has been
ranked as the top hospital in the United States for eight consecutive years in
the annual U.S. News & World Report "Honor Roll" of hospitals.
ADAM. A.D.A.M. Software, Inc. ("ADAM") is a leading developer of anatomical
and medical content and software. ADAM provides the Company with Web-enabled
interactive dissectible anatomy software. ADAM also provides the Company
medical, pediatric and sexually transmitted disease encyclopedias for use by
healthcare professionals and consumers.
Medirisk. Medirisk, Inc. ("Medirisk") is a leading provider of analytical
databases and software for the healthcare industry. The Medirisk products
allow users (physicians, hospitals and insurers) to compare physician fees,
reimbursement and utilization patterns for a broad range of treatments.
Medirisk's clinical performance products measure the efficiency and
effectiveness of care in a variety of medical specialties, and its physician
databases offer detailed information about doctors seeking new practice
affiliations.
HealthGate. HealthGate Data Corporation ("HealthGate") provides the Company
with online physician reference databases, including MEDLINE, which currently
contains over 8,000,000 references from medical journals, and other National
Library of Medicine databases which are updated weekly. HealthGate also
provides weekly editions of its award-winning Healthy Living "webzines."
National Jewish. National Jewish Medical and Research Center ("National
Jewish") is a leading medical and research center devoted entirely to
respiratory, allergic and immune system diseases, including asthma,
tuberculosis, emphysema, severe allergies, AIDS, cancer and autoimmune
diseases. U.S. News & World Report ranked National Jewish as the best hospital
in the United States for pulmonary disease treatment in 1998. National Jewish
provides the Company with physician and consumer content and CME courses
regarding these specialty areas.
MCN. Medical Communications Network, Inc., a leading publisher of healthcare
reference materials, provides the Company with articles from Physician's
Practice Digest.
Although the Company views its strategic relationships as a key factor in
its overall business strategy and in the development and commercialization of
its services, there can be no assurance that its strategic partners
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will view their relationships with the Company as significant to their own
business or that they will not reassess their commitment to the Company in the
future. There can be no assurance that any party with whom the Company has an
agreement will perform its obligations as agreed or that any agreement would
be specifically enforceable by the Company. The Company's arrangements with
its strategic partners generally do not establish minimum performance
requirements for the Company's strategic partners, but instead rely on their
voluntary efforts. Therefore, there can be no assurance that these
relationships will be successful. Failure of one or more of these strategic
partners to effectively distribute the Company's products or services or to
provide the Company with satisfactory services or content could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Risk Factors--We Depend on Our Distribution Partners,"
"--We Depend on Our Service Providers" and "--We Depend on Our Content
Providers."
SALES AND MARKETING
The Company markets WebMD through its internal sales force and its strategic
distribution relationships which typically couple the Company's use of the
strategic partner's services or content with the strategic partner's
obligation to market WebMD to its customer or client base. The Company's
distribution partners, which target different healthcare sectors, combined
with the Company's internal sales force, provide the Company with sales and
marketing professionals who are experienced in the healthcare industry. The
Company's and its strategic partners' direct marketing efforts, which may
include promotional offers, direct mail and telemarketing initiatives,
emphasize the ease of use and adoption, attractive pricing and integrated
solution offered by WebMD. The Company has entered into, and intends to
continue to enter into, strategic alliances with parties who have established
customer or client bases that have an anticipated need for the services
provided through WebMD. In connection with certain of these strategic
alliances, such as the alliances with McKessonHBOC, E*TRADE, CompuServe, CNN
and MedQuist, the Company has agreed to bear the cost of certain subsidized
promotional offers, to compensate such partners for each subscriber that WebMD
obtains through their marketing efforts or to make guaranteed payments to such
partners. The Company intends to continue to enter into additional promotional
arrangements in the future. See "Risk Factors--We Anticipate Significant
Future Losses and Are Unable to Accurately Forecast Our Revenues."
The Company is currently engaged in a significant branding and promotional
campaign to increase awareness of the WebMD brand. The Company is employing a
combination of online advertising and other marketing and promotional efforts
aimed at defining a desirable online destination for healthcare professionals
and consumers, attracting new subscribers and consumers, increasing traffic on
its Web site and developing additional revenue opportunities. The Company also
promotes Web-based services through traditional print media, including trade
journals, newspapers and magazines targeted at healthcare professionals, and
participates in tradeshows, conferences and speaking engagements as part of
its ongoing public relations program. The Company plans to continue to
allocate significant resources to marketing WebMD.
CUSTOMER SERVICE AND SUPPORT
The Company believes that effective customer service is essential to
attracting and retaining subscribers and consumers. The Company provides
ongoing telephone support through its customer service and sales support
centers which are accessible by a toll-free call and are available from 8:00
a.m. to 8:00 p.m. Eastern Time Monday through Friday. WebMD's live operators
screen all requests for telephone support and direct the call to the
appropriate customer service personnel. Technical support personnel are
responsible for consulting with the Company's strategic partners regarding
technical support issues and for resolving technical problems encountered by
users, strategic partners or other parties. Through CompuServe, WebMD will
provide 24-hour customer service for WebMD subscribers who use CompuServe as
their ISP.
COMPETITION
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in
the early 1990's, the number of Web sites on the Internet competing for users'
attention has proliferated with no substantial barriers to entry, and the
Company expects that
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competition will continue to intensify. The Company competes, directly and
indirectly, for subscribers, consumers, content and service providers,
advertisers and acquisition candidates with the following categories of
companies: (i) online services or Web sites targeted to the healthcare
industry generally; (ii) publishers and distributors of traditional off-line
media, including those targeted to healthcare professionals, many of which
have established or may establish Web sites; (iii) general purpose consumer
online services which provide access to healthcare-related content and
services; (iv) public sector and non-profit Web sites that provide healthcare
information without advertising or commercial sponsorships; (v) vendors of
healthcare information, products and services distributed through other means,
including direct sales, mail and fax messaging; and (vi) Web search and
retrieval services and other high-traffic Web sites. In addition, with regard
to its EDI service offering, the Company also competes with providers of
single function EDI terminals, such as those provided by VeriFone
Incorporated. The Company does not have the contractual right to prevent its
subscribers, other than subscribers under certain promotional plans, from
terminating their service or changing to a competing network.
The Company believes that the principal competitive factors in attracting
and retaining healthcare subscribers are the depth, breadth and timeliness of
services and content, the ability to offer compelling content and services and
brand recognition. Other important factors in attracting and retaining
healthcare professionals include ease of use, quality of service and cost. The
Company believes that the principal competitive factors that will attract
advertisers include price, the number of healthcare professionals who
subscribe to WebMD, the aggregate traffic on WebMD, the demographics of the
Company's subscriber and user bases and the creative implementation of
advertisement placements.
The Company also competes in the communications services markets. These
markets are also intensely competitive, rapidly evolving and subject to rapid
technological change. Other providers currently offer each of the individual
services and certain combinations of the services offered by the Company. The
Company's voice mail services compete with voice mail services provided by
certain RBOCs as well as by independent voice mail vendors. The Company's
communications services and features, such as conference calling, compete with
services provided by companies with significantly greater resources than the
Company, as well as smaller interexchange long distance providers.
Telecommunications companies also compete for consumers based on price, and
major competitors often conduct extensive advertising campaigns to capture
market share. There can be no assurance that a decrease in rates charged by
competitors would not have a material adverse effect on the Company's
business, financial condition and operating results. The Company expects that
the communications and information services markets will continue to attract
new competitors and new technologies, possibly including alternative
technologies that are more sophisticated and cost effective than the Company's
technology.
To be competitive, the Company must license leading technologies, enhance
its existing services and content, develop new technologies that address the
increasingly sophisticated and varied needs of healthcare professionals and
healthcare consumers and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. There
can be no assurance that the Company will be successful in using new
technologies effectively or adapting its Web site and proprietary technology
to user requirements or emerging industry standards. Any pricing pressures,
reduced margins or loss of market share resulting from the Company's failure
to compete effectively would materially adversely affect the Company's
business, financial condition and operating results.
Many of the Company's current and potential competitors have greater
resources to devote to the development, promotion and sale of their services;
longer operating histories; greater financial, technical and marketing
resources; greater name recognition; and larger subscriber bases than the
Company and, therefore, have a significantly greater ability to attract
subscribers and advertisers. Many of these competitors may be able to respond
more quickly than the Company to new or emerging technologies in the Internet
and the personal communications market and changes in Internet user
requirements and to devote greater resources than the Company to the
development, promotion and sale of their services. In addition, the Company
does not have contractual rights to prevent its strategic partners from
entering into competing businesses or directly competing with the Company. See
"Risk Factors--We Depend on Our Distribution Partners," "--We Depend on Our
Service Providers" and "--We Depend on Our Content Providers." There can be no
assurance that the
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Company's current or potential competitors will not develop products and
services comparable or superior to those developed by the Company or adapt
more quickly than the Company to new technologies, evolving industry trends or
changing Internet user preferences. Increased competition could result in
price reductions, reduced margins or loss of market share, any of which would
materially and adversely affect the Company's business, financial condition
and operating results. There can be no assurance that the Company will be able
to compete successfully against current and future competitors, or that
competitive pressures faced by the Company will not have a material adverse
effect on its business, financial condition and operating results. See "Risk
Factors--We Face Intense Competition and Risks Associated With Technological
Change."
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may
be adopted in the future that address issues such as online content, user
privacy, pricing and characteristics and quality of products and services. For
example, although it was held unconstitutional, the Communications Decency Act
of 1996 prohibited the transmission over the Internet of certain types of
information and content. In addition, several telecommunications carriers are
seeking to have telecommunications over the Internet regulated by the FCC in
the same manner as other telecommunications services. Because the growing
popularity and use of the Internet has burdened the existing
telecommunications infrastructure in many areas, local exchange carriers have
petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs.
Internet user privacy has become an issue both in the United States and
abroad. Current United States privacy law consists of a few disparate statutes
directed at specific industries that collect personal data, none of which
specifically covers the collection of personal information online. The Company
cannot guarantee that the United States or foreign nations will not adopt
legislation purporting to protect such privacy. Any such legislation could
affect the way in which the Company is allowed to conduct its business,
especially those aspects that involve the collection or use of personal
information, and could have a material adverse effect on the Company's
business, financial condition and operating results. Moreover, it may take
years to determine the extent to which existing laws governing issues such as
property ownership, libel, negligence and personal privacy are applicable to
the Internet.
Currently, the Company's operations are not regulated by any healthcare
agency. However, with regard to healthcare issues on the Internet, the
recently enacted Health Insurance Portability and Accountability Act of 1996,
mandates the use of standard transactions, standard identifiers, security and
other provisions by the year 2000. It will be necessary for the Company's
platform and for the applications that it provides to be in compliance with
the proposed regulations. Congress is also likely to consider legislation that
would establish uniform, comprehensive federal rules about an individual's
right to access his own or someone else's medical information. This
legislation would likely define what is to be considered "protected health
information" and outline steps to ensure the confidentiality of this
information. The proposed Health Information Modernization and Security Act
would provide for establishing standards and requirements for the electronic
transmission of health information.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and
by certain foreign governments that could impose taxes on the sale of goods
and services and certain other Internet activities. A recently-passed law
places a temporary moratorium on certain types of taxation on Internet
commerce. The Company cannot predict the effect of current attempts at taxing
or regulating commerce over the Internet. Any legislation that substantially
impairs the growth of e-commerce could have a material adverse effect on the
Company's business, financial condition and operating results.
Issuances of the Company's securities are regulated by the Commission and
the securities commissions of states where the Company offers or sells its
securities. The Company issued options to acquire an aggregate of 7,280 shares
of Series D Common Stock at an exercise price of $2.00 per share to five
independent sales
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representatives in the State of Texas for which the Company may not have had
an exemption available under the securities laws of the State of Texas.
Similarly, the Company issued options to acquire 111 shares of Series D Common
Stock at an exercise price of $2.00 per share to an independent sales
representative in the State of Oklahoma for which the Company may not have had
an exemption under the securities laws of the State of Oklahoma. In addition,
the Company may have offered to issue securities to an independent sales
representative in the State of New Hampshire for which the Company may not
have had an exemption available under the securities laws of the State of New
Hampshire. With respect to the potential option issuance in the State of New
Hampshire or option issuances made in the State of Texas, the Company notified
each of the optionholders of the potential lack of an available exemption.
Each optionholder to whom these notifications were sent returned
acknowledgments and waivers of their rights to rescind the option grants. The
option grant to the Oklahoma resident is the subject of a no-action request
currently pending with the State of Oklahoma Division of Securities. The
options issued in the State of New Hampshire are no longer outstanding due to
a failure by the recipient to meet certain performance requirements. All of
these securities are potentially subject to recision. While management is not
aware of any claims against the Company relating to these options as of the
date hereof, there can be no assurance that the Company will not be subject to
possible claims, penalties, fines, private or governmental actions relating to
these issuances of securities. See "Risk Factors--We Are Subject to Government
Regulation and Legal Uncertainties" and "--We Could Be Subject to Sales or
Other Taxes."
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright, trademark and trade secret
laws and contractual provisions to establish and protect its proprietary
rights. The Company has applied for federal registration of the service marks
"WebMD," "Web-MD" and "WebMD OnCall." By letter dated July 6, 1998, the PTO
refused registration of the "Web-MD" mark when used on or in connection with
the Company's services. Although the Company has responded to the PTO's
refusal of registration and believes that it is likely the "WebMD," "Web-MD"
and "WebMD OnCall" marks will be accepted for registration by the PTO, the
Company cannot guarantee that it will be able to secure registration for the
"WebMD," "Web-MD" or "WebMD OnCall" marks. If the Company is required to
change its corporate name and stop using the "WebMD" mark, current and
potential customers could be confused and the Company's business could be
disrupted. Any of these potential effects could seriously harm the Company's
business, prospects, financial condition and operating results. In addition,
any name change effected after this offering could result in confusion to
investors which could seriously harm the market price of the Company's Common
Stock. The Company has also registered the domain name "webmd.com." In
connection with the acquisition of SHN, the Company acquired the registered
trademark "Sapient Health Network," two patent applications pending in the PTO
and 19 domain name registrations. In connection with the acquisition of DMK,
the Company acquired the registered trademarks "Direct Medical Knowledge" and
"DMK Electronic Library," two trademark applications pending in the PTO and
three domain names.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate, that the Company will be able to secure
trademark or service mark registrations for marks in the United States or in
foreign countries or that third parties will not infringe upon or
misappropriate the Company's copyrights, trademarks, service marks and similar
proprietary rights. In addition, effective copyright and trademark protection
may be unenforceable or limited in certain foreign countries, and the global
nature of the Internet makes it impossible to control the ultimate destination
of the Company's services. It is possible that competitors of the Company or
others will adopt product or service names similar to the Company's, thereby
impeding the Company's ability to build brand identity and possibly leading to
customer confusion. Moreover, because domain names derive value from the
individual's ability to remember such names, the Company cannot guarantee that
its domain name will not lose its value if, for example, users begin to rely
on mechanisms other than domain names to access online resources. The
inability of the Company to protect its marks adequately could have a material
adverse effect on the acceptance of the WebMD brand and on the Company's
business, financial condition and operating results. In the future, litigation
may be necessary to enforce and protect the Company's trade secrets,
copyrights and other intellectual property rights. Litigation would divert
management resources and be expensive and may not effectively protect the
Company's intellectual property.
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The Company also relies on a variety of technology that it licenses from
third parties, including its Internet server software, which is used in the
Company's Web site to perform key functions. There can be no assurance that
these third party technology licenses will continue to be available to the
Company on commercially reasonable terms. The loss of or inability of the
Company to maintain or obtain upgrades to any of these technology licenses
could materially adversely affect the Company's business, financial condition
and operating results. In addition, because the Company licenses a substantial
portion of its content from third parties, its exposure to copyright
infringement actions may increase because the Company must rely upon such
parties for information as to the origin and ownership of such licensed
content. The Company generally obtains representations as to the origin and
ownership of such licensed content and generally obtains indemnification to
cover any breach of any such representations; however, there can be no
assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such
representations. See "Risk Factors--We Must Establish and Strengthen the WebMD
Brand" and "--We Must Protect Our Intellectual Property."
FACILITIES
The Company's corporate headquarters and call center occupy approximately
20,000 square feet of office space in Atlanta, Georgia under a lease expiring
February 1, 2000, with an option to renew the lease term for one year. In
addition, the Company leases approximately 5,300 square feet of space in
Atlanta, Georgia for its emergency call center. The Company also has offices
in Portland, Oregon and San Francisco, California. The Company believes that
its current office space is sufficient to meet its present needs and does not
anticipate any difficulty securing additional space, as needed, on terms
acceptable to the Company.
EMPLOYEES
As of January 27, 1999, the Company employed 146 persons on a full-time
basis. None of the Company's employees are members of a labor union or are
covered by a collective bargaining agreement. The Company believes its
relationship with its employees is good.
LEGAL PROCEEDINGS
Endeavor, the Company's subsidiary, retained certain liabilities, including
liabilities relating to actual and potential litigation, when the Company sold
its cardiac monitoring operations to Matria. These liabilities include
potential sanctions associated with receipt of service of a civil subpoena
from the OIG on July 28, 1998. In a letter from the OIG dated November 25,
1998, Endeavor was advised that, to provide assurances to the OIG that
facsimile machines and telephone lines used in the offices of referral sources
are dedicated to cardiac monitoring, Matria will need to audit use of
facsimile machines and telephone lines and periodically report the results of
the audit to the OIG. After reaching agreement with Matria regarding precise
auditing procedures, the OIG has orally stated that it intends to enter into a
settlement agreement related to the subpoena. In addition, these retained
liabilities include a potential claim by Life Watch, an Illinois corporation
and subsidiary of Ralin Medical, Inc., which in February 1998 asserted orally
that the Company's use of certain cardiac monitoring devices constituted an
infringement of a patent held by Life Watch. Life Watch then offered to grant
license rights to the Company under such patent. The Company has responded by
informing Life Watch that Card Guard Scientific Survival, Ltd. owns all rights
with regard to such devices and that Endeavor was merely a distributor of such
devices. There has been no further action in this regard. In the event that
this matter results in litigation, an adverse decision could result in
substantial damages and attorneys' fees, either of which could have a material
adverse effect on the Company's business, financial condition or operating
results.
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations. The Company is not currently a party to
any other legal proceedings, the adverse outcome of which, individually or in
the aggregate, would have a material adverse effect on the Company's business,
financial condition or operating results. See "Risk Factors--We Are Subject to
Government Regulation and Legal Uncertainties" and "--We May Be Subject to
Risks from the Sale of Our Cardiac Monitoring Operations."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of January 15, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey T. Arnold(1).... 29 Chairman of the Board and Chief Executive Officer
William P. Payne........ 51 Vice Chairman of the Board
Jay P. Gilbertson....... 38 President and Chief Operating Officer and Director
K. Robert Draughon...... 38 Chief Financial Officer
W. Michael Heekin(1).... 45 Executive Vice President, General Counsel, Secretary and Director
Albert J. Bergonzi(2)... 49 Director
Lucius E. Burch,
III(3)................ 56 Director
U. Bertram Ellis, Jr.... 45 Director
J. Rex Fuqua............ 48 Director
S. Taylor Glover(2)..... 47 Director
Boland T. Jones(1)...... 38 Director
Jouko J. Rissanen(3).... 53 Director
Glenn W. Sturm(1)....... 45 Director
</TABLE>
- --------
(1) Member of Executive Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
(3) Member of Compensation Committee of the Board of Directors.
Jeffrey T. Arnold, the founder of the Company, has served as Chairman of the
Board and Chief Executive Officer since the Company's inception in October
1996. In addition, Mr. Arnold served as the President of the Company from its
inception until September 1997. From April 1994 until Endeavor's merger with
the Company in March 1997, Mr. Arnold served in various capacities at
Endeavor, including as Chairman and Chief Executive Officer. Prior to founding
Endeavor, Mr. Arnold was employed as a sales representative by MMD, Inc., a
pharmaceutical company.
William P. Payne has served as Vice Chairman of the Company since September
1998. Mr. Payne also serves as Vice Chairman of Premiere and as Chairman of
Premiere's subsidiary, Orchestrate.com, a provider of Internet-based enhanced
communications services. From February 1997 to June 1998, Mr. Payne was a Vice
Chairman of NationsBank Corporation. He was President and Chief Executive
Officer of the Atlanta Committee for the Olympic Games from 1991 to 1997. Mr.
Payne is also a director of Premiere, Anheuser-Busch Companies, Inc.,
Jefferson-Pilot Corporation, ACSYS, Inc. and Cousins Properties, Inc.
Jay P. Gilbertson has served as President and Chief Operating Officer of the
Company since December 1998. He served as a director of the Company as a
representative of HBO & Company, ("HBOC"), a subsidiary of McKessonHBOC, from
August to November 1998. He was reappointed to the Board in January 1999. From
January 1993 to November 1998, he served in various positions with HBOC,
including President, Co-Chief Operating Officer, Chief Financial Officer,
Treasurer and Principal Accounting Officer. Mr. Gilbertson also serves on the
Board of Directors of Anacomp, Inc.
K. Robert Draughon has served as the Chief Financial Officer of the Company
since February 1998. From January 1988 to February 1998, he served as Chief
Investment Officer for Fuqua Capital Corporation, a private investment firm
based in Atlanta, Georgia. Mr. Draughon also serves on the Board of Directors
of XRT, Corp., an intracoronary radiation therapy provider.
W. Michael Heekin has served as an Executive Vice President of the Company
since November 1998 and General Counsel since January 1999. Mr. Heekin served
as Chief Operating Officer of the Company from August
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1997 to November 1998. Mr. Heekin has also served as a director and Secretary
of the Company since September 1997. From March 1993 to August 1997, Mr.
Heekin served as Senior Vice President and Corporate Secretary of American
Heritage Life Investment Corporation. Prior to March 1993, Mr. Heekin served
as an Associate Dean of Florida State University College of Law.
Albert J. Bergonzi has served as a director of the Company since December
1998. Since 1985, Mr. Bergonzi has served in various positions at
McKessonHBOC, most recently as Group President, Information Technology
Business.
Lucius E. Burch, III has served as a director of the Company since its
inception. He served as President from 1981 to 1994 and has been Chairman from
1994 to present of Massey Burch Investment Group, Inc., a private venture
fund. Mr. Burch also serves on the Board of Directors of QMS, Inc., Norrell
Corporation and Physicians Resource Group, Inc.
U. Bertram Ellis, Jr. has served as a director of the Company since June
1997. Since April 1996, he has served as Chairman and Chief Executive Officer
of iXL Holdings, Inc., the parent company of iXL and CFN, and as President,
Chief Executive Officer and Chief Operating Officer of Broadcast Development
Corporation, a television broadcast consulting company. Mr. Ellis founded and
served as President and Chief Executive Officer of Ellis Communications, Inc.,
a broadcast group of 15 television and radio stations from 1993 to 1996. Mr.
Ellis also serves as a director of NOVA Information Systems, Inc.,
OrthAlliance, Inc., First Union National Bank of Georgia, Ames Scullin &
O'Haire and Upper Chattahoochee Riverkeeper.
J. Rex Fuqua has served as a director of the Company since February 1997.
Mr. Fuqua has been President and Chief Executive Officer of Fuqua Capital
Corporation, a private investment firm based in Atlanta, Georgia, since 1989.
Mr. Fuqua serves on the Board of Directors of Aaron Rents, Inc. and Graham-
Field Health Products, Inc. Mr. Fuqua also serves on the Board of Directors of
Convergence.com Corporation ("Convergence.com"), a privately-held broadband
Internet access company. Mr. Fuqua is also Managing Director of Fuqua Ventures
LLC, a firm which invests in emerging technology companies.
S. Taylor Glover has served as a director of the Company since September
1997. Mr. Glover has served in various capacities at Merrill Lynch Pierce
Fenner & Smith Incorporated since 1973, most recently as Senior Vice
President-Investments of the Private Client Group. Mr. Glover also serves on
the Board of Directors of Gaston-Loughlin, Inc., a privately-held workers
compensation managed care company, and Convergence.com.
Boland T. Jones has served as a director of the Company since August 1998.
Since 1990, Mr. Jones has served as Chairman of the Board of Directors and
Chief Executive Officer of Premiere. Mr. Jones also serves on the Board of
Directors of Intellivoice Communications, Inc., a privately-held developer of
speech applications and Internet telephony, and Webforia, a privately-held
developer and provider of Internet tools for users to search, catalog and
group information.
Jouko J. Rissanen has served as a director of the Company since its
inception. Mr. Rissanen has founded several medical companies, including
Cardiac Systems, Inc., Ocudyne, Inc., Occumedics, Inc., MedFusion, Inc. and
Sensor Technology, Inc. He served as President of Sensor Technology, Inc. from
1987 to 1994, at which time the company was sold to Eli Lilly and Company.
Currently, Mr. Rissanen is an individual investor and land developer, and
serves as a consultant to Guidant Corporation.
Glenn W. Sturm has served as a director of the Company since February 1997.
Mr. Sturm is a partner in the law firm of Nelson Mullins Riley & Scarborough,
L.L.P., where he serves as Corporate Chairman and as a member of the Executive
Committee. Mr. Sturm is a director of Phoenix International Ltd., Inc., The
InterCept Group, Inc. and Towne Services, Inc. Mr. Sturm is a principal in
Centaurus Ventures, a recently formed venture fund which invests in and
advises electronic commerce, transaction processing and computer telephony
companies.
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The Board of Directors is divided into three classes, and each class serves
for a staggered three-year term, or until successors of such class have been
elected and qualified. Messrs. Arnold, Gilbertson, Heekin and Jones are Class
I directors and serve until the annual meeting of shareholders held in 2000.
Messrs. Burch, Glover, Payne and Rissanen are Class II directors and serve
until the annual meeting of shareholders held in 2001. Messrs. Bergonzi,
Ellis, Fuqua and Sturm are Class III directors and will serve until the annual
meeting of shareholders held in 2002. At each annual meeting of shareholders,
a class of directors is elected for a three-year term to succeed the directors
or director of the same class whose terms are then expiring. To the extent
there is an increase in the number of directors, the Board of Directors will
distribute the additional directorships among the three classes so that, as
nearly as possible, each class will consist of an equal number of directors.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. There are no
family relationships among any of the executive officers or directors of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Executive Committee,
Audit Committee and Compensation Committee. Messrs. Arnold, Heekin, Jones and
Sturm are members of the Executive Committee, which exercises the power of the
Board of Directors between Board meetings, subject to certain limitations.
Messrs. Bergonzi and Glover are members of the Audit Committee, which reviews
the audit functions of the Company, including the accounting and financial
reporting practices of the Company, the adequacy of the Company's system of
internal accounting controls, the quality and integrity of the Company's
financial statements and the Company's relations with its independent
auditors. Messrs. Burch and Rissanen are members of the Compensation
Committee, which establishes the compensation of the Company's executive
officers, including salaries, bonuses, commissions, benefit plans and
compensation issues which are subject to Section 162(m) of the Tax Code, and
administers the Option Plan in accordance with the terms thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was formed on September
17, 1998. The current members of the Compensation Committee are Lucius E.
Burch, III and Jouko J. Rissanen. Neither Messrs. Burch or Rissanen has been
an officer or employee of the Company at any time.
For the years ended December 31, 1996 and 1997 and for the nine months ended
September 30, 1998, the Company paid approximately $2,100, $5,000 and $3,600,
respectively, in health, life and dental insurance premiums for Mr. Rissanen
and his wife. The Company does not intend to continue paying these premiums in
the future.
In August 1996, Mr. Rissanen lent $200,000 to Endeavor pursuant to an oral
agreement. In March 1998, pursuant to a conversion of debt, indemnification
and release agreement among the Company, Endeavor, Mr. Rissanen and Finn
Partners, a general partnership of which Mr. Rissanen is the managing partner
and in which he owns a 16.7% equity interest, the parties agreed to convert
such debt into 100,000 shares of Series D Common Stock of the Company which
were issued to Finn Partners.
In January 1997, the Company lent (i) Jeffrey T. Arnold $4,000 to purchase
4,000,000 shares of Common Stock, (ii) Mr. Rissanen $1,400 to purchase
1,400,000 shares of Series B Common Stock and (iii) Mr. Burch $1,000 to
purchase 1,000,000 shares of Series C Common Stock. These unsecured loans are
evidenced by promissory notes bearing interest at the rate of 8.75% per annum.
Principal and interest are payable on the earlier of: (i) January 20, 1999;
(ii) the closing of an underwritten initial public offering, upon the
completion of which the securities will trade on a national securities
exchange or through the Nasdaq National Market System; or (iii) the closing of
a transaction, including, without limitation, a merger, acquisition, tender
offer or sale of assets, pursuant to which all or substantially all of the
capital stock or assets of the Company are sold, exchanged or transferred.
62
<PAGE>
In March 1997, a majority of the shareholders of Endeavor approved and
adopted a Plan and Agreement of Merger pursuant to which Endeavor was merged
(the "Merger") into QDS Acquisition Corporation, a wholly owned subsidiary of
the Company, and Endeavor was the surviving entity. Prior to the Merger, the
shareholders of Endeavor consisted of: Mr. Arnold; Mr. Rissanen; Mr. Burch;
Robert A. Frist; and nine medical doctors. Messrs. Arnold, Rissanen, Burch and
Frist, who owned a majority of Endeavor's capital stock, voted for the Merger.
The minority shareholders of Endeavor asserted the right granted to them under
Georgia Law to dissent with regard to such action and to demand payment for
the fair value of their shares in exchange for the surrender of such shares.
Approval of the Merger was also required of the Company as the sole
shareholder of QDS Acquisition Corporation. The Company's Board of Directors
was, thus, required to approve the Merger. The Merger was approved unanimously
by the Board, which at that time consisted of Messrs. Arnold, Rissanen, Burch
and Frist and three other individuals. In addition, at the time of the Merger,
the four largest shareholders of the Company were Messrs. Arnold, Rissanen,
Burch and Frist, and the sole voting shareholder was Mr. Arnold. In July 1998,
the Company paid an aggregate of approximately $2.7 million to settle the
dissenters' rights action and entered into a consulting agreement with one of
the dissenters.
DIRECTOR COMPENSATION
The Company awards options to purchase its Common Stock to non-employee
directors for their service on the Board of Directors. Each non-employee
director received a grant of options to acquire 20,000 shares of Common Stock
at an exercise price of $15.00 per share on November 13, 1998, the date the
Director Option Plan was approved. In the future, on the date other non-
employee directors are elected to the Board of Directors, they will be granted
options to acquire 20,000 shares of Common Stock with an exercise price equal
to the fair market value of the Common Stock on the date of grant. Further, on
January 1 of each calendar year, each non-employee director will also receive
an additional annual grant of options to acquire 5,000 shares of Common Stock
with an exercise price equal to the fair market value on the date of grant.
See "--Option Plans -- Director Option Plan." The Company reimburses its
directors for out-of-pocket expenses incurred in connection with their
rendering of services as directors. The Company currently does not intend to
pay cash fees to its directors for attendance at meetings.
Effective May 22, 1998, William P. Payne became an employee and the Chairman
of the Board of Orchestrate.com, a wholly owned subsidiary of Premiere. As
Chairman of Orchestrate.com, one of Mr. Payne's principal duties is to assist
the Company in the development of its business for the purpose of increasing
revenue opportunities for Premiere and enhancing the value of Premiere's
investment in the Company. In consideration of Mr. Payne's devotion of up to
60% of his time directly to the business of the Company, the Company
reimburses Premiere $375,000 per year for Mr. Payne's salary, $125,000 per
year for Mr. Payne's minimum bonus and $6,000 per year for Mr. Payne's
automobile allowance, each for the balance of Mr. Payne's two-year employment
with Orchestrate.com. In addition, the Company granted Mr. Payne options to
acquire 200,000 shares of Common Stock with an exercise price of $2.00 per
share. The Company also reimburses Mr. Payne for any expenses he incurs in
discharging his duties to the Company.
63
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the fiscal
year ended December 31, 1998 by the Company's Chief Executive Officer and each
of the Company's other two highest paid executive officers whose total
compensation exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION (1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Jeffrey T. Arnold ...... $ 214,302 (2) $ -- 1,000,000 $6,000 (3)
Chairman and Chief
Executive Officer
K. Robert Draughon...... 154,000 -- 320,000 5,500 (3)
Chief Financial Officer
W. Michael Heekin....... 150,000 -- -- 6,000 (3)
Executive Vice
President, General
Counsel and Secretary
</TABLE>
- --------
(1) The column for "Other Annual Compensation" has been omitted because there
is no compensation required to be reported in such column. The aggregate
amount of perquisites and other personal benefits provided to each Named
Executive Officer is less than 10% of the total annual salary and bonus of
such officer.
(2) Consists of $180,000 in base salary plus $34,302 representing repayment of
indebtedness owed on a tax adjusted basis to the Company. See "Certain
Transactions."
(3) Consists of amounts paid for car allowances.
OPTION GRANTS
The following table sets forth information concerning grants of stock
options to the Named Executive Officers during the fiscal year ended December
31, 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (4)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
GRANTED (1) FISCAL YEAR (2) SHARE (3) DATE 5% 10%
----------- --------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey T. Arnold....... 1,000,000 40.9% $15.00 Sept. 2002 $
K. Robert Draughon...... 265,000 10.8 2.00 Feb. 2002
55,000 2.2 15.00 Nov. 2002
W. Michael Heekin....... -- -- -- --
</TABLE>
OPTION GRANTS DURING LAST FISCAL YEAR
- --------
(1) All options vest according to the following schedule: (i) one-third on the
date of grant; (ii) one-sixth on the first and second anniversaries of the
date of grant; and (iv) one-third on the third anniversary of the date of
grant. In addition, one-half of all shares that have not vested and become
exercisable shall immediately vest and become exercisable upon the
effectiveness of an initial public offering of the Company's stock.
(2) Based on a total of 2,256,132 options granted to all employees during the
fiscal year ended December 31, 1998.
(3) All options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant.
(4) Potential realizable values are computed by (i) multiplying the number of
shares of Common Stock subject to a given option by an assumed initial
public offering price of $ per share and (ii) assuming that the
64
<PAGE>
aggregate stock value derived from that calculation compounds at the
annual rate of 5% and 10% for the remainder of the four-year term of the
option. In accordance with the rules of the Commission, the potential
realizable values for such options shown in the table are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from
the date the respective options were granted to their expiration date.
These assumed rates of appreciation do not represent the Company's
estimate or projection of the appreciation of shares of Common Stock of
the Company.
The following table sets forth information concerning exercisable and
unexercisable stock options held as of December 31, 1998 by each of the Named
Executive Officers. No options were exercised by the Named Executive Officers
in 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey T. Arnold........... 333,333 666,667 $ $
K. Robert Draughon.......... 106,666 213,334
W. Michael Heekin........... 150,000 150,000
</TABLE>
- --------
(1) Value determined by subtracting the exercise price from the initial public
offering price, which is assumed to be $ per share.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Arnold Employment
Agreement") effective September 30, 1998 with Jeffrey T. Arnold. The Arnold
Employment Agreement has a two-year term and renews for consecutive one-year
terms, unless either party gives 360-days notice prior to the expiration of
any term. Mr. Arnold is paid an annual salary of $180,000 and is entitled to
an annual bonus as determined by the Board of Directors (or the Compensation
Committee thereof). The Arnold Employment Agreement also provides that,
subject to certain exceptions, Mr. Arnold will not compete with the Company
during the term of his employment and for one year thereafter. In the event of
termination of Mr. Arnold's employment without cause, Mr. Arnold will be
entitled to 12 months' salary as severance. The Arnold Employment Agreement
grants Mr. Arnold options to acquire 1,000,000 shares of Common Stock. Mr.
Arnold's options vest one-third on the date of grant and one-sixth, one-sixth
and one-third on the first three anniversaries thereof; provided, however,
that one-half of all shares that have not vested and become exercisable shall
immediately vest and become exercisable upon the effectiveness of an initial
public offering of the Company's stock. All of Mr. Arnold's options shall
immediately vest and become exercisable in the event of a Change of Control
(as defined below). "Change of Control" means a change of the possession,
direct or indirect, of the power to direct or cause the direction of
management and policies of the Company, 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 of the respective employment agreement the beneficial owner of any
securities of the Company becomes the beneficial owner, directly or
indirectly, of 20% or more of the combined voting power of the Company's
outstanding voting securities ordinarily having the right to vote for the
election of directors of the Company.
The Company has entered into employment agreements (the "Employment
Agreements") effective February 1, 1998 and July 11, 1997 with K. Robert
Draughon and W. Michael Heekin, respectively. The Employment Agreements have
two-year terms and renew for one additional term unless either party gives
180-days notice prior to the end of the initial two-year term. Messrs.
Draughon and Heekin are paid an annual salary of $175,000 and $150,000,
respectively, and are entitled to an annual bonus in an amount recommended by
the Chief Executive Officer and approved by the Board of Directors (or the
Compensation Committee thereof). The Employment Agreements also provide that
the executives will not compete with the Company during the term
65
<PAGE>
of their employment and for one year thereafter. In the event of termination
of the executive's employment without cause, the executive will be entitled to
12 month's salary as severance. The Employment Agreements grant Messrs.
Draughon and Heekin options to acquire 265,000 and 300,000 shares,
respectively, of Common Stock, and the options vest one-third on the date of
employment and one-sixth, one-sixth and one-third on the first three
anniversaries thereof; provided, however, that one-half of all shares that
have not vested and become exercisable shall immediately vest and become
exercisable upon the effectiveness of an initial public offering of the
Company's stock. All of the executives' options will immediately vest and
become exercisable in the event of a Change of Control (as defined in the
preceding paragraph) after the effectiveness of an initial public offering of
the Company's stock.
OPTION PLANS
Option Plan. In September 1997, the Board of Directors adopted and the
Company's shareholders approved the Option Plan under which 2,000,000 shares
of Common Stock of the Company are available to be granted to employees,
consultants and others rendering services to the Company. The Option Plan is
effective as of January 1, 1997 by its terms. On September 17, 1998, the Board
of Directors adopted certain amendments to the Option Plan, which provided, in
part, for the increase in the number of authorized shares of Common Stock
under the Option Plan to 5,000,000. The amendments to the Option Plan were
approved by the shareholders in January 1999. Options may be either incentive
stock options within the meaning of Section 422 of the Tax Code, which permits
the deferral of taxable income related to the exercise of such options, or
nonqualified options not entitled to such deferral. Incentive stock options
may only be granted to employees. In addition, the Option Plan allows for the
award of restricted stock.
The Option Plan is administered by the Board of Directors and the
Compensation Committee. Subject to the provisions of the Option Plan, the
Board of Directors and the Compensation Committee, in their discretion, select
the recipients of awards and the number of options granted thereunder and
determine other matters such as: (i) vesting and exercisability schedules;
(ii) the exercise price of options (which cannot be less than 100% of the fair
market value of the Common Stock on the date of grant for all stock options);
and (iii) the duration of awards.
As of January 27, 1999, the Company had granted options to purchase
3,968,132 shares of the Common Stock of the Company outstanding under the
Option Plan. In addition, the Company assumed options to acquire approximately
193,000 shares of Common Stock in connection with the SHN and DMK
acquisitions.
Director Option Plan. In November 1998, the Board adopted the Director
Option Plan, which was approved by the Company's shareholders in January 1999.
The Director Option Plan provides for non-qualified stock options to be
granted to non-employee directors of the Company. The Director Option Plan
authorizes the issuance of up to 1,000,000 shares of Common Stock pursuant to
options having an exercise price equal to the fair market value of the Common
Stock on the date the options are granted. The Director Option Plan contains
provisions providing for adjustment of the number of shares available for
options and subject to unexercised options in the event of stock splits,
dividends payable in Common Stock, business combinations or certain other
events affecting the Common Stock of the Company. The Board of Directors
administers the Director Option Plan subject to certain limitations.
The Director Option Plan provides for: (i) an initial grant of options to
acquire 20,000 shares of Common Stock to each non-employee director who served
on the Board of Directors on November 13, 1998, the date the Director Option
Plan was approved by the Board of Directors; (ii) a grant of options to
acquire 20,000 shares of Common Stock to each non-employee director who is
elected to the Board of Directors after the date of approval of the Director
Option Plan; and (iii) an annual grant of options on January 1 of each
calendar year to acquire 5,000 shares of Common Stock to each non-employee
director. Each option shall be exercisable in full beginning six months after
the date of grant and shall expire ten years after the date of grant, unless
cancelled sooner as a result of termination of service or death, or unless
such option is fully exercised prior to the end of the option period. As of
January 27, 1999, options to acquire 225,000 shares of Common Stock were
outstanding under the Director Option Plan.
66
<PAGE>
CERTAIN TRANSACTIONS
In July 1996, Endeavor, the Company's subsidiary, loaned Jeffrey T. Arnold,
the Company's Chairman and Chief Executive Officer, $57,142 to purchase 5,000
shares of common stock of Endeavor. This loan is evidenced by a promissory
note bearing interest at 8.5% per annum. The principal and accrued interest
are payable in 24 equal installments of $2,597.43 beginning on August 1, 1996
and continuing on the first day of each month thereafter until the
indebtedness is paid in full. In March 1997, the terms of this note were
modified to provide that the obligation to make payments on the note began on
July 1, 1997 rather than August 1, 1996. The principal and interest on the
note are payable in 24 equal installments of $2,381. During Mr. Arnold's
employment and through December 31, 1998, the Company has paid Mr. Arnold
$52,015 in compensation additional to his annual salary under his employment
agreement with the Company, which Mr. Arnold has repaid to the Company in
payment of the obligations under the above-referenced note. In addition, the
Company has paid Mr. Arnold $11,814 for use by Mr. Arnold in making all tax
payment obligations imposed upon Mr. Arnold as a result of this additional
compensation.
In August 1997, each of J. Rex Fuqua and S. Taylor Glover, each a director
of the Company, lent the Company $100,000. The unsecured loans are evidenced
by promissory notes payable in full on demand on or after November 21, 1997.
The interest rate applicable to the unpaid principal under the notes is the
prime rate (as published in the "Money Rates" section of the Eastern Edition
of the Wall Street Journal). In conjunction with these loans, the Company
granted to each of Messrs. Fuqua and Glover an option to purchase 10,000
shares of Series D Common Stock at a price of $2.00 per share. The options are
effective for three years and expire on the consolidation, merger, sale of all
or substantially all of the Company's assets or dissolution or winding up of
the Company.
In December 1997, Premiere purchased 1,100,000 shares of Series E Common
Stock for $2,200,000. In conjunction with the stock purchase, the Company
issued Premiere a warrant to purchase an additional 1,000,000 shares of Series
E Common Stock for $2,000,000. In April 1998, Premiere exercised the warrant
in full. All shares held by Premiere are subject to registration rights. See
"Description of Capital Stock--Registration Rights." Boland T. Jones, a
director of the Company, is the Chairman and Chief Executive Officer of
Premiere. The Company also subleases from a subsidiary of Premiere the space
for its corporate headquarters and call center in Atlanta, Georgia. The term
of the sublease ends on February 1, 2000, with an option to renew the lease
term for one additional year. The sublease requires monthly payments by the
Company to Premiere of $36,466.50 and the payment of certain additional costs
and expenses. The Company also leases from Premiere certain equipment and
certain other personal property necessary for the operation of the Company's
call center. The term of this lease ends on February 1, 2000, with an option
to renew the lease term for one additional year. This lease requires monthly
payments by the Company to Premiere of $24,311. The Company provides its
subscribers with Premiere's enhanced communications services pursuant to a Co-
Marketing and Integration Agreement, as amended (the "Premiere Agreement"),
with a subsidiary of Premiere, Orchestrate.com. The Premiere Agreement is
effective until January 31, 2001 and contains minimum commitments for per
account and transaction payments by the Company to Premiere. The minimum
commitments began at $10,000 per month as of September 1998. For each month
following September 1998, the minimum commitments increase by $10,000 per
month to a maximum of $80,000 per month in April 1999 and thereafter. The
Premiere Agreement also provided for a $350,000 development fee which was paid
by the Company in January 1999 and a $100,000 technical integration fee which
was paid in November 1998. Additionally, the Premiere Agreement requires that
the Company spend $750,000 for joint marketing efforts with Premiere.
In February 1998, the Company granted to Mr. Fuqua the option to purchase
35,000 shares of the Series D Common Stock of the Company at a price of $2.00
per share. This option expires three years from the date of grant. The Company
granted this option in exchange for services provided by K. Robert Draughon to
the Company while he was an employee of Fuqua Capital Corporation, of which
Mr. Fuqua is the President, Chief Executive Officer and a shareholder.
67
<PAGE>
In June 1998, the Company entered into two agreements with iXL whereby iXL
provides certain Web development services to the Company. Under such
agreements, the Company will pay to iXL a minimum of $3.2 million for services
over the next two years. U. Bertram Ellis is the Chairman, Chief Executive
Officer and a shareholder of iXL Holdings, Inc., the parent of iXL, and
Messrs. Fuqua and Rissanen are shareholders of iXL Holdings, Inc.
On August 24, 1998, a wholly owned subsidiary of McKessonHBOC purchased
667,000 shares of Series A Preferred Stock for $10,005,000. In connection with
this investment, McKessonHBOC also received a warrant to purchase 300,000
shares of Series A Preferred Stock with an exercise price of $18.00 per share.
On January 27, 1999, the same subsidiary of McKessonHBOC also purchased
650,000 shares of Series C Preferred Stock for $13,000,000. All shares held by
McKessonHBOC are subject to registration rights. See "Description of Capital
Stock--Registration Rights." The Company has entered into two strategic
alliance agreements with McKessonHBOC, whereby McKessonHBOC agreed to market
WebMD. These agreements require McKessonHBOC to place or pay for a certain
number of WebMD subscriptions, subject to certain conditions. This agreement
also requires WebMD to provide McKessonHBOC with $5.0 million in research and
development services, to pay McKessonHBOC $5 per month per subscription placed
by McKessonHBOC and to provide a credit for subscribers toward purchases of
medical and surgical supplies through McKessonHBOC. See "Business--Strategic
Relationships--Distribution Relationships--McKessonHBOC." Jay P. Gilbertson,
the Company's President and Chief Operating Officer and a director, was
President and Co-Chief Operating Officer and Chief Financial Officer of HBOC,
a predecessor company of McKessonHBOC, prior to November 1998. Albert J.
Bergonzi has been a director of the Company since November 1998 and is the
Group President, Information Technology Business of McKessonHBOC.
All sales of capital stock were made at a price per share equal to the fair
market value of such stock on the date of sale as determined by the Board of
Directors. Certain of the transactions described above may be on terms more
favorable to officers, directors and principal shareholders than they could
obtain in a transaction with an unaffiliated party. The Company intends to
adopt a policy requiring that all material transactions between the Company
and its officers, directors or other affiliates must (i) be approved by a
majority of the disinterested members of the Board of Directors of the
Company, and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
For additional information concerning Messrs. Arnold, Burch and Rissanen,
see "Management--Compensation Committee Interlocks and Insider Participation."
For additional information concerning Mr. Payne, see "Management--Director
Compensation."
68
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of January
27, 1999, and as adjusted to reflect the sale of the Common Stock offered
hereby, by: (i) each person or entity known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock;
(ii) each director and Named Executive Officer of the Company; (iii) all
directors and executive officers of the Company as a group; and (iv) each
Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING (2) AFTER THE OFFERING (2)
----------------------------- ----------------------------
NAME OF BENEFICIAL OWNER NUMBER OF
(1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ------------------------ --------------- --------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Jeffrey T. Arnold (3)... 3,883,332 21.5% -- %
Boland T. Jones (5)..... 2,200,000 12.7 --
Premiere Technologies,
Inc. (4).............. 2,100,000 12.1 --
Jouko J. Rissanen (6)... 2,050,000 11.8 --
HBO & Company of Georgia
(7)................... 1,617,000 9.2 --
Finn Partners (6)....... 1,500,000 8.6 --
Lucius E. Burch, III.... 1,000,000 5.8 --
Sirrom Investments, Inc.
(13).................. 557,490 3.1
J. Rex Fuqua (8)........ 545,000 3.1 --
S. Taylor Glover (9).... 519,305 3.0 --
Jay P. Gilbertson (10).. 333,333 1.9 --
K. Robert Draughon
(11).................. 285,416 1.6 --
W. Michael Heekin (12).. 225,000 1.3 --
U. Bertram Ellis, Jr.... 200,000 1.2 --
Glenn W. Sturm.......... 100,000 -- --
William P. Payne........ -- -- --
Albert J. Bergonzi...... -- -- --
All directors and
executive officers as
a group (13 persons)
(14).................. 11,341,386 60.0
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o WebMD, Inc., 400 The Lenox Building, 3399 Peachtree
Road, N.E., Atlanta, Georgia 30326. Except as otherwise indicated, such
beneficial owners have sole voting and investment power with respect to
all shares of Common Stock owned by them, subject to community property
laws where applicable.
(2) Percentage of ownership is based on shares of Common Stock
outstanding as of January 27, 1999 and shares outstanding after
this offering (assuming no exercise of the Underwriters' over-allotment
option). Shares of Common Stock issuable pursuant to options or warrants
held by the respective person or group which may be exercised within 60
days after January 27, 1999 are referred to herein as "presently
exercisable stock options" or "presently exercisable warrants." Pursuant
to the rules of the Commission, presently exercisable stock options or
warrants are deemed to be outstanding and to be beneficially owned by the
person or group holding such options for the purpose of computing the
percentage ownership of such person or group, but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person or group.
(3) Includes 666,666 shares subject to presently exercisable options.
(4) The address of Premiere is 3399 Peachtree Road, N.E., The Lenox Building,
Suite 600, Atlanta, Georgia 30326.
(5) Includes 2,100,000 shares of Common Stock held of record by Premiere, of
which Mr. Jones is Chairman of the Board and Chief Executive Officer. Mr.
Jones disclaims beneficial ownership of the shares held by Premiere.
(6) Includes (i) 550,000 shares of Common Stock held of record; and (ii)
1,500,000 shares of Common Stock held of record by Finn Partners, of
which Mr. Rissanen is the managing general partner and in which he owns a
one-third interest along with his wife. Other than the 500,000 shares
held by Finn Partners attributable to Mr. Rissanen, he disclaims
beneficial ownership of the shares held by Finn Partners.
(7) The address of HBO & Company of Georgia, a wholly owned subsidiary of
McKessonHBOC, is 301 Perimeter Center North, Atlanta, Georgia 30346.
Includes 300,000 shares subject to a presently exercisable warrant.
(8) Includes: (i) 350,000 shares held of record; (ii) 150,000 shares held by
Fuqua Holdings I, L.P., of which Fuqua Holdings, Inc. is the general
partner and Mr. Fuqua is the President; and (iii) 45,000 shares subject
to presently exercisable stock options.
(9) Includes 10,000 shares subject to presently exercisable stock options.
(10) Includes 333,333 shares subject to presently exercisable stock options.
(11) Includes 235,416 shares subject to presently exercisable stock options.
(12) Includes 225,000 shares subject to presently exercisable stock options.
(13) Includes 557,490 shares subject to presently exercisable warrants. If the
Underwriters exercise their over-allotment option in full, Sirrom
Investments, Inc. will sell shares and will beneficially own
shares, or % of the Common Stock outstanding after this offering.
(14) Includes 1,515,415 shares subject to presently exercisable stock options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject to and
qualified in its entirety by the provisions of the Company's Articles of
Incorporation and Bylaws, and by the applicable provisions of Georgia Law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's authorized capital stock currently consists of the following:
(i) 75,000,000 shares of Common Stock, without par value and without
designation as to series; (ii) 3,000,000 shares, without par value, designated
as Series B Common Stock; (iii) 1,500,000 shares, without par value,
designated as Series C Common Stock; (iv) 15,000,000 shares, without par
value, designated as Series D Common Stock; (v) 2,500,000 shares, without par
value, designated as Series E Common Stock; and (vi) 10,000,000 shares of
Preferred Stock, with such rights and preferences as the Board of Directors
shall determine, with 1,600,000 of such shares designated as Series A
Preferred Stock, 3,400,000 of such shares designated as Series B Preferred
Stock and 2,000,000 of such shares designated as Series C Preferred Stock. All
shares designated as Series B, C, D and E Common Stock and Series A, B and C
Preferred Stock currently issued and outstanding will be converted
automatically by their terms on a one-for-one basis into shares of Common
Stock without designation on the closing date of this offering. The authorized
shares of Series B, C, D and E Common Stock will be eliminated, and the
authorized shares of Series A, B and C Preferred Stock will revert to
authorized, but unissued, shares of Preferred Stock. Accordingly, no
information regarding the currently outstanding shares of Series B, C, D and E
Common Stock and Series A, B and C Preferred Stock is set forth below. As of
January 27, 1999, there were 12,596,805 shares of Common Stock outstanding,
held of record by 47 shareholders, 801,000 shares of Series A Preferred Stock
outstanding, held of record by two shareholders, 2,973,263 shares of Series B
Preferred Stock, held of record by 78 shareholders and 1,008,750 shares of
Series C Preferred Stock, held of record by 16 shareholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record for matters on which Common Stock holders are entitled to vote. There
are no sinking fund provisions nor any cumulative voting, preemptive,
redemption or conversion rights applicable to the Common Stock. The rights,
preferences and privileges of holders of Common Stock are subject to, and may
be adversely affected by, the rights of holders of any shares of any series of
Preferred Stock which may be issued by the Company's Board of Directors from
time to time in the future. Subject to the preference rights of the holders of
any outstanding shares of Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends and other distributions, if any, as
may be declared by the Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution or winding up of the Company,
are entitled to share ratably in all assets of the Company after the payment
of its debts and other liabilities. The outstanding shares of Common Stock are
fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority pursuant to the Articles of
Incorporation, without the approval of or any action by the shareholders, to
issue up to 10.0 million shares of Preferred Stock in such series and with
such preferences, powers, limitations and relative rights as may be determined
by the Board of Directors from time to time. The terms of the voting,
conversion, dividend, liquidation, preemptive and redemption rights and
preferences, and other qualifications, powers and privileges conferred upon
the holders of any such Preferred Stock, may be more favorable than those, if
any, granted to holders of Common Stock. The designation of any Preferred
Stock with greater rights, privileges and preferences than those applicable to
the Common Stock may adversely affect the voting power, market price and other
rights and privileges of the Common Stock, and may hinder or delay the removal
of directors, attempted tender offers, proxy contests or takeovers, or other
attempts to change control of the Company, some or all of which may be desired
by holders of the Common Stock.
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CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND THE GEORGIA LAW
Certain provisions of the Company's Articles of Incorporation and Bylaws and
the Georgia Law, summarized in the following paragraphs, may be considered to
have anti-takeover effects and may hinder, delay, deter or prevent a tender
offer, proxy contest or other attempted takeover that a shareholder may deem
to be in such shareholder's best interest, including such an attempted
transaction as might result in payment of a premium over the market price for
shares held by such shareholder.
Number, Term and Removal of Directors. The Company's Articles provide that
the Company shall have not more than 15 directors, and the number of directors
shall be set by resolution of the Board of Directors in accordance with the
Company's Bylaws. Currently, the Company has twelve directors. The Board of
Directors is divided into three classes of directors, each serving for
staggered three-year terms. Directors may be removed from the Board of
Directors only for cause and only upon the affirmative vote of at least a
majority of the shareholders entitled to vote for directors at a duly held
shareholders' meeting for which notice of the removal action was properly
given. Upon a vacancy created in the Board of Directors by such removal action
or for any other reason (including an increase in the size of the Board of
Directors), a successor or new director may be appointed only by the
affirmative vote of a majority of the directors then in office.
Special Shareholder Meetings; Actions by Written Consent of
Shareholders. The Company's Bylaws provide that special meetings of
shareholders or a class or series of shareholders may be called at any time by
the Board of Directors, the Chairman of the Board or the Chief Executive
Officer of the Company, and that such meetings shall be called upon the
written request of the holders of shares representing at least 50% of the
votes entitled to be cast on each issue presented at such meeting (25% at any
time the Company has fewer than 100 shareholders of record). The Bylaws also
provide that shareholders seeking to bring business before a shareholders'
meeting or to nominate candidates for election as directors must provide
notice thereof not less than 60 nor more than 90 days prior to the first
anniversary of the previous year's annual shareholder meeting, and, in such
notice, provide to the Company certain information concerning the proposal or
nominee. All actions by the shareholders must be taken at a meeting with prior
notice in accordance with the Bylaws. No actions by the shareholders can be
taken by written consent.
Constituency Provisions. The Articles of Incorporation permit the Board of
Directors, its committees and individual directors to consider the interests
of various constituencies, including employees, customers, suppliers, and
creditors of the Company, communities in which the Company maintains offices
or operations and other factors which directors deem pertinent in carrying out
and discharging the duties and responsibilities of their positions and in
determining what is believed to be in the best interests of the Company.
WARRANTS
On August 29, 1997, the Company issued to Sirrom a warrant to purchase
557,490 shares of Series D Common Stock at an exercise price of $0.01 per
share. The warrant may be exercised at any time on or before August 1, 2002.
Sirrom will be a selling shareholder in the event the Underwriters exercise
their over-allotment option and intends to sell up to shares of Common
Stock which are currently subject to the warrants.
On July 21, 1998, the Company issued Matria a warrant to purchase 80,000
shares of Series D Common Stock at an exercise price equal to the price at
which shares are offered to the public hereby. The warrant may be exercised at
any time on or before July 20, 2003.
On August 24, 1998, the Company issued McKessonHBOC a warrant to purchase
300,000 shares of Series A Preferred Stock at an exercise price of $18.00 per
share. The warrant may be exercised at any time on or before August 23, 2001.
On September 1, 1998, the Company issued McKessonHBOC a warrant for up to
66,666, 66,667, and 66,667 shares of Series A Preferred Stock at an exercise
price equal to fair market value on the dates of grant (March 31, 1999, 2000
and 2001, respectively), provided that such grants shall be effective only if
the marketing efforts of McKessonHBOC and the Company under the strategic
alliance agreement between such parties
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<PAGE>
generates to the Company gross revenues of at least $1.0 million, $8.0 million
and $15.0 million for the twelve months ended March 31, 1999, 2000 and 2001,
respectively. Each grant is exercisable for three years after the date of the
grant.
On September 1, 1998, the Company issued Matria a warrant to purchase 60,000
shares of Series A Preferred Stock at an exercise price of $18.00 per share.
The warrant may be exercised at any time on or before August 31, 2001.
On January 22, 1999, the Company completed the acquisition of DMK and, in
connection therewith, assumed two warrants previously issued by DMK to
Eucalyptus, Ltd. In accordance with the terms of the acquisition, such
warrants currently provide for the right to purchase 56,372 shares of Series B
Preferred Stock at an exercise price of $2.217 per share. The warrants may be
exercised at any time on or before December 29, 2003.
On January 25, 1999, the Company completed the acquisition of SHN and, in
connection therewith, assumed certain warrants previously issued by SHN to 21
individuals and entities. In accordance with the terms of the acquisition,
such warrants currently provide for the right to purchase 12,286 shares of
Series B Preferred Stock at exercise prices ranging from $1.66 to $23.40 per
share. The exercise periods of these warrants vary.
On January 27, 1999, the Company issued the twelve principals of Gleacher
NatWest a warrant to purchase 750,000 shares of Series D Common Stock at an
exercise price of $20.00 per share. The warrant vests immediately with regard
to 500,000 shares and vests on January 27, 2000 with regard to the remaining
250,000 shares. The warrant may be exercised at any time on or before January
27, 2004.
On January 28, 1999, the Company issued J&C Nationwide a warrant to purchase
50,000 shares of Series D Common Stock at an exercise price of $20.00 per
share. The warrant may be exercised at any time on or before January 28, 2004.
On January 28, 1999, the Company issued Premier a warrant to purchase
100,000 shares of Series C Preferred Stock at an exercise price of $20.00 per
share. The warrant may be exercised at any time on or before January 28, 2004.
In conjunction therewith, the Company issued Premier a warrant for 50,000 and
50,000 shares of Series C Preferred Stock at an exercise price equal to fair
market value on the dates of grant (January 28, 2000 and 2001, respectively),
provided that such grants will be effective only if the marketing efforts of
Premier and the Company under the strategic alliance agreement between such
parties generates to the Company gross revenues of at least $4.5 million and
$8.0 million in calendar years 1999 and 2000, respectively. Each grant is
exercisable for five years after the date of grant.
REGISTRATION RIGHTS
The holders of approximately 8,312,240 shares of Common Stock and Common
Stock equivalents and their permitted transferees are entitled to certain
rights with respect to the registration of such shares under the Securities
Act. In addition, the terms of the Preferred Stock Sales require the Company
to issue 240,000 additional shares of Common Stock upon certain events; and
such shares would also be subject to such registration rights.
Demand Rights. The SHN holders, with respect to approximately 1,750,000
shares of Common Stock and Common Stock equivalents, have the one-time right
to require the Company to file a registration statement under the Securities
Act, provided that (i) such request is made at least 180 days after the
effective date of a registration statement relating to an initial public
offering and (ii) the Company shall not be obligated to file or cause to be
declared effective a registration statement until 90 days after the effective
date of a registration statement filed pursuant to the demand of another
holder who has exercised its demand rights.
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<PAGE>
McKessonHBOC, with respect to 1,617,000 shares of Common Stock and Common
Stock equivalents, has the right to require the Company to file up to two
registration statements on Form S-1 under the Securities Act and up to four
registration statements on Form S-3 under the Securities Act; provided that
such requests are made at least 180 days after the completion of an initial
public offering or at any time after August 24, 1999 if an initial public
offering has not been completed by such date (a "Demand IPO"). In addition,
each registration must be with respect to at least 200,000 shares of Common
Stock. Premiere has the one-time right to require the Company to file a
registration statement under the Securities Act, provided that such request is
made at least 180 days after the completion of an initial public offering. In
addition, the registration must be with respect to a minimum number of shares
of Common Stock having an aggregate proposed offering price equal to at least
$10.0 million.
Certain holders of Series B Preferred Stock and Series C Preferred Stock
collectively (the "B and C Holders"), with respect to 968,750 shares, have the
one time right to require the Company to file a registration statement under
the Securities Act, subject to certain limitations, including that (i) such
request is made at least one year after the effective date of a registration
statement relating to an initial public offering and (ii) the Company shall
not be obligated to file or cause to be declared effective a registration
statement until 120 days after the effective date of a registration statement
filed pursuant to the demand of another holder who has exercised its demand
rights.
Premier, with respect to 450,000 shares, has the one-time right to require
the Company to file a registration statement under the Securities Act,
provided that (i) such request is made at least 180 days after the effective
date of a registration statement relating to an initial public offering and
(ii) the Company shall not be obligated to file or cause to be declared
effective a registration statement until 90 days after the effective date of a
registration statement filed pursuant to the demand of another holder who has
exercised its demand rights.
Piggyback Rights. The Company has also granted piggyback registration rights
to the SHN holders, Matria, McKessonHBOC, Premiere and Sirrom. In each of
these instances, the Company is required to notify the holders of the
Company's intent to register under certain circumstances its Common Stock
under the Securities Act and allow such holders an opportunity to include
their shares of Common Stock in the Company's registration. With respect to
Matria, McKessonHBOC and Premier, such notice must be given only if the
Company determines to register any Common Stock in a public offering solely
for cash on a form other than Forms S-4 or S-8 or another form not available
for registering the shares of Common Stock held by Matria, McKessonHBOC and
Premier, provided that McKessonHBOC shall not have the right to participate in
an initial public offering declared effective prior to August 24, 1999, Matria
shall not have the right to participate in an initial public offering declared
effective prior to September 1, 1999 and Premier shall not have the right to
participate in an initial public offering declared effective prior to January
28, 2000. With respect to Premiere, such notice must be given only if the
Company determines to register any Common Stock in any underwritten public
offering for its own account (excluding an initial public offering or an
offering conducted at the demand of Premiere or an offering that is registered
on Forms S-4 or S-8 or another form not available for registering the shares
of Common Stock held by Premiere) or in a demand registration pursuant to a
Demand IPO. With respect to Sirrom, such notice must be given only if the
Company proposes to file a registration statement with respect to any of the
Common Stock on a form suitable for a secondary offering. These registration
rights are subject to certain limitations and restrictions, including the
right of the underwriters to limit the number of shares offered in such
registration if such underwriter determines that the number of shares
requested to be registered cannot be underwritten.
In each of the above instances, subject to certain limitations and
conditions, including provisions granting certain preferences, such
registrations may include securities sold for the account of the Company or
other shareholders, or both. The Company generally is required to bear the
expenses relating to the sale of the holders' securities under registration,
except for underwriting discounts and commissions, and in certain cases the
fees and expenses of the holders' counsel and filing fees related to the
registration statement. The Company also is obligated to indemnify the holders
whose shares are included in any of the Company's registrations against
certain losses and liabilities, including liabilities under the Securities Act
and state securities laws.
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<PAGE>
DIRECTOR EXCULPATION AND INDEMNIFICATION
The Company's Articles of Incorporation provide that no director shall be
personally liable to the Company or any of its shareholders for any breach of
the duties of such position, except that such elimination of liability does
not apply to: (i) appropriations of business opportunities from the Company in
violation of such director's duties; (ii) knowing or intentional misconduct or
violation of law; (iii) liability for assent to distributions which are
illegal or improper under the Georgia Law or the Company's Articles; and (iv)
liability for any transaction in which an improper personal benefit is
derived. In addition, the Articles state that if the Georgia Law is ever
amended to allow for greater exculpation of directors than presently
permitted, the directors shall be relieved from liabilities to the fullest
extent provided by the Georgia Law, as so amended, without further action by
the shareholders of the Company, unless the Georgia Law provides otherwise. No
modification or repeal of this provision will adversely affect the elimination
or reduction in liability provided thereby with respect to any alleged act
occurring before the effective date of such modification or repeal. The
Company has entered into indemnification agreements with each of its directors
and certain of its officers that provide such individuals with similar rights
to indemnification and contribution.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have shares of Common
Stock outstanding ( shares if the Underwriter's over-allotment option is
exercised in full), assuming no exercise of options after , 1999. Of this
amount, the shares offered hereby will be available for immediate sale in
the public market as of the date of this prospectus. An additional shares
are not subject to an 180-day lockup and will be available for sale in the
public market 90 days following the date of this prospectus pursuant to Rule
701. Approximately additional shares will be available for sale in the
public market following the expiration of 180-day lockup agreements with the
Representatives of the Underwriters or the Company, subject in some cases to
compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER THE DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
---------------------- ------------------------ -------
<C> <C> <S>
Upon effectiveness.. Freely tradeable shares sold
in offering and shares salable
under Rule 144(k) that are not
subject to 180-day lockup.
90 days............. (1) Shares salable under Rule 144,
144(k) or 701 that are not
subject to 180-day lockup.
180 days............ Lockup released; shares
salable under Rule 144, 144(k)
or 701.
Over 180 days....... Restricted securities held for
one year or less.
</TABLE>
- --------
(1) If the Underwriters waive the 180-day lockup agreements within the first
90 days after the date of the Prospectus, an additional shares will be
available for sale in the public market 90 days following the date of this
prospectus, subject in some cases to compliance with the volume and other
limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year is entitled to sell within any three-month period commencing 90 days
after the date of this Prospectus a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock
(approximately shares immediately after the offering) or (ii) the
average weekly trading volume during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale. A person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned his or her shares for at least two
years is entitled to sell such shares pursuant to Rule 144(k) without regard
to the limitations described above. Persons deemed to be affiliates must
always sell pursuant to Rule 144, even after the applicable holding periods
have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common
Stock of the Company, the personal circumstances of the sellers and other
factors. Prior to the offering, there has been no public market for the Common
Stock, and there can be no assurance that a significant public market for the
Common Stock will develop or be sustained after the offering. Any future sale
of substantial amounts of the Common Stock in the open market may adversely
affect the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders and optionholders have
agreed pursuant to the Underwriting Agreement and other agreements that they
will not sell any Common Stock without the prior written consent of BancBoston
Robertson Stephens Inc. for a period of 180 days from the date of this
prospectus (the "180-day Lockup Period") except that the Company may, without
such consent, grant options and sell shares pursuant to the Company's stock
plans.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this prospectus. As of , 1999, the holders of options to
purchase approximately shares of Common
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<PAGE>
Stock will be eligible to sell their shares upon the expiration of the 180-day
Lockup Period, subject in certain cases to vesting of such options.
The Company intends to file a registration statement on Form S-8 under the
Securities Act within 180 days after the completion of the offering to
register shares of Common Stock subject to outstanding stock options or
reserved for issuance under the Company's Option Plan and Director Option
Plan, thus permitting the resale of such shares by nonaffiliates in the public
market without restriction under the Securities Act.
In addition, certain shareholders have registration rights with respect to
5,600,000 shares of Common Stock and Common Stock equivalents. The Company may
also be required to issue 240,000 additional shares upon certain events
specified under the terms of the Company's preferred stock, and such shares
would also be subject to registration rights. Registration of these securities
subject to registration rights under the Securities Act would result in such
shares becoming freely tradeable without restriction under the Securities Act.
See "Description of Capital Stock--Registration Rights" and "Risk Factors--We
May Have Substantial Sales of Our Common Stock After the Offering."
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<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and E*TRADE
Securities, Inc. (the "Representatives"), have severally agreed with the
Company and the Selling Shareholders, subject to the terms and conditions of
the Underwriting Agreement, to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock set forth opposite their
names below. The Underwriters are committed to purchase and pay for all such
shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc....................................
Hambrecht & Quist LLC................................................
E*TRADE Securities, Inc..............................................
---
Total..............................................................
===
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that they propose to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not more than $ per share, of
which $ may be reallowed to other dealers. After the completion of the
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall affect the amount
of proceeds to be received by the Company and the Selling Shareholders as set
forth on the cover page of this Prospectus.
Certain Selling Shareholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of Common Stock at the same price per
share as the Company will receive for the shares that the Underwriters
have agreed to purchase from the Company. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above
table represents as a percentage of the shares offered hereby. If
purchased, such additional shares will be sold by the Underwriters on the same
terms as those on which the shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each executive officer and director and certain securityholders of the
Company have agreed with the Representatives not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of Common Stock, any options or warrants to purchase any
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock owned as of the date of this prospectus or thereafter
acquired directly by such holders or with respect to which they have or
thereafter acquire the power of disposition for a period of 180 days following
the date of this prospectus (the "Lock-Up Period"), without the prior written
consent of BancBoston Robertson Stephens Inc. However, BancBoston Robertson
Stephens Inc. may, in its sole discretion at any time or from time to time,
without notice, release all or any portion of the securities subject to the
lock-up agreements. Approximately of such shares will be eligible for
immediate public sale following expiration of the Lock-Up Period, subject to
the provisions of Rule 144. In addition, the Company has agreed that during
the Lock-Up Period, it will not, without the prior written
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<PAGE>
consent of BancBoston Robertson Stephens Inc., issue, sell, contract to sell
or otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
issuance of Common Stock upon the exercise of outstanding options and the
Company's issuance of options under the Option Plan, the Director Option Plan
and other agreements. See "Shares Eligible For Future Sale."
The Representatives have advised the Company that, pursuant to rules
promulgated by the Commission, certain persons participating in the offering
may engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with the offering if the Common Stock originally sold by such
Underwriter or syndicate member is repurchased by the Representatives in
syndicate covering transactions, in stabilizing transactions or otherwise. The
Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales to accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
Prior to this offering, there has been no public market for the Company's
securities. The initial public offering price of the Common Stock will be
determined by negotiation among the Company, the Selling Shareholders and the
Representatives. Among the factors to be considered in such negotiations will
be prevailing market conditions, the results of operations of the Company in
recent periods, market valuations of publicly traded companies that the
Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development, the current state of the industry and the economy as a
whole, and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia
("Nelson Mullins"). Glenn W. Sturm, a partner of Nelson Mullins, is a director
of the Company, and as of January 27, 1999, Mr. Sturm beneficially owned
100,000 shares of Common Stock. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of WebMD, Inc. at December 31, 1996
and 1997 and for each of the three years in the period ended December 31,
1997, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Sapient Health Network, Inc. as of September 30,
1997 and 1998 and the period from November 21, 1995 (date of inception)
through September 30, 1996 and each of the years in the two-year period ended
September 30, 1998, have been included herein and in the WebMD registration
statement on Form S-1 in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, appearing elsewhere
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<PAGE>
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP dated November 18, 1998 contains
an explanatory paragraph that states that SHN has incurred losses since
inception and has a net capital deficiency; these conditions raise substantial
doubt about the entity's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome
of that uncertainty.
The financial statements of DMK, a development stage company, as of December
31, 1997, and for the year then ended and for the period from May 24, 1995
(date of incorporation) to December 31, 1997 included in this registration
statement and the related prospectus, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
financial statements of DMK for the period from May 24, 1995 (date of
incorporation) to December 31, 1996 were audited by other auditors, and the
report of PricewaterhouseCoopers LLP relies on the report of these other
auditors in so far as it relates to the amounts included for the period from
May 24, 1995 (date of incorporation) to December 31, 1996. The report of
PricewaterhouseCoopers LLP includes an explanatory paragraph about DMK's
recurring losses and negative cash flows from operations which raise
substantial doubt about its ability to continue as a going concern.
ADDITIONAL INFORMATION
The Company has filed with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system a registration statement on Form S-1
(together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in such Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. For further information, reference is made to such registration
statement, including the exhibits thereto, which may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; and at the following Regional Offices of the
Commission, except that copies of the exhibits may not be available at certain
of the Regional Offices: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part
of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission. The Commission maintains
a World Wide Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements, and registration statements and
other information regarding registrants that file electronically with the
Commission through the EDGAR system. Reports and other information concerning
the Company also may be inspected at the offices of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company is not presently a reporting company and does not file reports
or other information with the Commission. On the effective date of the
Registration Statement, however, the Company will become a reporting company.
Further, the Company will register its securities under the Exchange Act.
Accordingly, the Company will become subject to the additional reporting
requirements of the Exchange Act and in accordance therewith will file
reports, proxy statements and other information with the Commission. In
addition, after the completion of this offering, the Company intends to
furnish its shareholders with annual reports containing audited financial
statements and with quarterly reports containing unaudited summary financial
information for each of the first three quarters of each fiscal year.
79
<PAGE>
WEBMD, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WEBMD, INC.--CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-8
DIRECT MEDICAL KNOWLEDGE, INC.--FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-20
Balance Sheets........................................................... F-23
Statements of Operations................................................. F-24
Statements of Shareholders' Equity....................................... F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
DIRECT MEDICAL KNOWLEDGE, INC.--UNAUDITED CONDENSED FINANCIAL STATEMENTS
Unaudited Condensed Statements of Operations............................. F-36
Unaudited Condensed Balance Sheets....................................... F-37
Unaudited Condensed Statements of Cash Flows............................. F-38
Notes to Unaudited Condensed Financial Statements........................ F-39
SAPIENT HEALTH NETWORK, INC.--FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-40
Balance Sheets........................................................... F-41
Statements of Operations................................................. F-42
Statements of Shareholders' Deficit...................................... F-43
Statements of Cash Flows................................................. F-44
Notes to Financial Statements............................................ F-45
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
WebMD, Inc.
We have audited the accompanying consolidated balance sheets of WebMD, Inc.
(formerly Endeavor Technologies, Inc.) and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of WebMD, Inc. and subsidiaries at December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
July 21, 1998
F-2
<PAGE>
WEBMD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- -------------------
PRO FORMA
1996 1997 1998 1998
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ -- $ 2,696 $ 11,737
Current portion of note receivable...... -- 100 117
Inventory............................... -- -- 1,956
Other current assets.................... -- 53 1,203
------- ------- --------
Total current assets................... -- 2,849 15,013
Property and equipment, net.............. -- 73 2,176
Intangibles, net......................... -- 118 --
Note receivable, less current portion.... -- 106 33
------- ------- --------
Total assets from continuing operations.. -- 3,146 17,222
Total assets from discontinued opera-
tions................................... 3,497 6,044 --
------- ------- --------
Total assets........................ $ 3,497 $ 9,190 $ 17,222
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses... $ -- $ 317 $ 1,667
------- ------- --------
Total current liabilities................ -- 317 1,667
Long-term debt, net of discount.......... -- 2,965 --
------- ------- --------
Total liabilities from continuing opera-
tions................................... -- 3,282 1,667
Total liabilities from discontinued oper-
ations.................................. 2,939 1,762 --
------- ------- --------
Total liabilities...................... 2,939 5,044 1,667
Shareholders' equity:
Preferred Stock; no par value;
10,000,000 shares authorized:
Series A, non-voting; 1,600,000 shares
authorized; 0,0, 801,000 and 0 shares
issued and outstanding at December 31,
1996 and 1997, September 30, 1998 and
September 30, 1998 pro forma,
respectively.......................... -- -- 12,015 $ --
Common stock, no par value; 97,000,000
shares authorized:
Common Stock, voting; 3,000,000,
3,000,000, 3,000,000 and 13,207,805
shares issued and outstanding at
December 31, 1996 and 1997,
September 30, 1998 and September 30,
1998 pro forma, respectively.......... 1,190 1,181 1,181 29,391
Series B, non-voting; 700,000,
1,400,000, 1,400,000 and 0 shares
issued and outstanding at December 31,
1996 and 1997, September 30, 1998 and
September 30, 1998 pro forma,
respectively.......................... 400 400 400 --
Series C, non-voting; 750,000,
1,500,000, 1,500,000 and 0 shares
issued and outstanding at December 31,
1996, 1997 and September 30, 1998 and
September 30, 1998 pro forma,
respectively.......................... 786 786 786 --
Series D, non-voting; 0, 3,506,805,
4,406,805 and 0 shares issued and
outstanding at December 31, 1996 and
1997, September 30, 1998 and September
30, 1998 pro forma, respectively...... -- 4,832 10,854 --
Series E, non-voting; 0, 1,100,000,
2,100,000 and 0 shares issued and
outstanding at December 31, 1996 and
1997, September 30, 1998 and September
30, 1998 pro forma, respectively...... -- 2,155 4,155 --
Deferred compensation................... -- (8) (1,007) (1,007)
Redeemable warrant issued in connection
with debt.............................. -- 1,110 1,110 1,110
Stock subscription receivables.......... (57) (200) -- --
Accumulated deficit..................... (1,761) (6,110) (13,939) (13,939)
------- ------- -------- --------
Total shareholders' equity............. 558 4,146 15,555 $ 15,555
======= ======= ======== ========
Total liabilities and shareholders'
equity.............................. $ 3,497 $ 9,190 $ 17,222
======= ======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
WEBMD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ -- $ -- $ 75
Operating expenses:
Product development ... -- -- 566 -- 5,867
Sales and marketing.... -- -- 213 114 1,499
General and
administrative....... -- -- 1,806 1,255 7,039
Depreciation and
amortization......... -- -- 9 1 111
--------- --------- --------- --------- ----------
Total operating
expenses.............. -- -- 2,594 1,370 14,516
--------- --------- --------- --------- ----------
Operating loss.......... -- -- (2,594) (1,370) (14,441)
Interest expense, net... -- -- (725) (478) (177)
--------- --------- --------- --------- ----------
Net loss from continuing
operations............ -- -- (3,319) (1,848) (14,618)
Discontinued operations:
Loss from discontinued
operations........... (39) (1,682) (1,195) (718) (383)
Gain on disposal of
discontinued
operations........... -- -- 165 165 8,102
--------- --------- --------- --------- ----------
Net loss before
extraordinary item.... (39) (1,682) (4,349) (2,401) (6,899)
Extraordinary loss on
early extinguishment
of notes payable..... -- -- -- -- (930)
--------- --------- --------- --------- ----------
Net loss................ $ (39) $ (1,682) $ (4,349) $ (2,401) $ (7,829)
========= ========= ========= ========= ==========
Net loss per share
(basic and diluted):
Continuing operations.. $ -- $ -- $ (0.40) $ (0.23) $ (1.25)
Discontinued
operations........... (0.04) (0.64) (0.12) (0.07) 0.66
Extraordinary loss on
early extinguishment
of note payable...... -- -- -- -- (0.08)
--------- --------- --------- --------- ----------
Net loss per share...... $ (0.04) $ (0.64) $ (0.52) $ (0.30) $ (0.67)
========= ========= ========= ========= ==========
Weighted average shares
outstanding........... 1,000,000 2,611,918 8,300,261 7,918,030 11,749,964
========= ========= ========= ========= ==========
Pro forma net loss per
share................. $ (0.52) $ (0.66)
========= ==========
Pro forma weighted
average shares
outstanding........... 8,300,261 11,854,598
========= ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
WEBMD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D SERIES E
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ --------- ------ --------- ------ --------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995 (Combined)........ 1,000,000 $ 48 -- $ -- -- $ -- -- $ -- -- $ --
Net loss............... -- -- -- -- -- -- -- -- --
---------- ------ --------- ----- --------- ----- --------- ------- --------- ------
Balance at December 31,
1995 (Combined)........ 1,000,000 48 -- -- -- -- -- -- -- --
Stock subscription
receivable including
non-cash compensation
charge................ 2,500,000 1,428 -- -- -- -- -- -- -- --
Issuance of common
stock for cash........ -- -- 700,000 400 250,000 500 -- -- -- --
Transfer of common
stock from Series A to
Series C.............. (500,000) (286) -- -- 500,000 286 -- -- -- --
Net loss............... -- -- -- -- -- -- -- -- -- --
---------- ------ --------- ----- --------- ----- --------- ------- --------- ------
Balance at December 31,
1996 (Combined)........ 3,000,000 1,190 700,000 400 750,000 786 -- -- -- --
Issuance of Endeavor
common stock to
founders.............. 2,000,000 -- 700,000 -- 750,000 -- -- -- -- --
Dissent of QDS minority
shareholders.......... (1,000,000) (9) -- -- -- -- -- -- -- --
Cancellation of the
common stock of QDS... (2,000,000) -- (700,000) -- (750,000) -- -- -- -- --
Issuance of Endeavor
common stock in
exchange for QDS
stock................. 2,000,000 -- 700,000 -- 750,000 -- -- -- -- --
Transfer of common
stock from Series A to
Series D.............. (1,000,000) -- -- -- -- -- 1,000,000 -- -- --
Stock subscription
receivable............ -- -- -- -- -- -- 100,000 200 -- --
Issuance of common
stock for cash, net of
issuance costs........ -- -- -- -- -- -- 1,897,500 3,596 1,100,000 2,155
Issuance of common
stock upon conversion
of note payable....... -- -- -- -- -- -- 509,305 1,018 -- --
Issuance of common
stock options......... -- -- -- -- -- -- -- 18 -- --
Non-cash stock option
compensation.......... -- -- -- -- -- -- -- -- -- --
Issuance of common
stock warrants........ -- -- -- -- -- -- -- -- -- --
Payment of stock
subscription
receivable............ -- -- -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- -- -- --
---------- ------ --------- ----- --------- ----- --------- ------- --------- ------
Balance at December 31,
1997................... 3,000,000 1,181 1,400,000 400 1,500,000 786 3,506,805 4,832 1,100,000 2,155
Issuance of common
stock for cash........ -- -- -- -- -- -- 900,000 1,900 1,000,000 2,000
Issuance of preferred
stock for cash........ -- -- -- -- -- -- -- -- -- --
Issuance of common
stock options......... -- -- -- -- -- -- -- 1,015 -- --
Non-cash stock option
compensation.......... -- -- -- -- -- -- -- 3,107 -- --
Payment on stock
subscription
receivable............ -- -- -- -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- -- -- -- --
---------- ------ --------- ----- --------- ----- --------- ------- --------- ------
Balance at September 30,
1998 (unaudited)....... 3,000,000 $1,181 1,400,000 $ 400 1,500,000 $ 786 4,406,805 $10,854 2,100,000 $4,155
========== ====== ========= ===== ========= ===== ========= ======= ========= ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
WEBMD, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------
STOCK SHAREHOLDERS'
SERIES A DEFERRED REDEEMABLE SUBSCRIPTION ACCUMULATED TOTAL
SHARES AMOUNT COMPENSATION WARRANT RECEIVABLES DEFICIT EQUITY
------- ------- ------------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995 (Combined)........ -- $ -- $ -- $ -- $ -- $ (40) $ 8
Net loss............... -- -- -- -- -- (39) (39)
------- ------- ------------- ----------- ----------- ------------ ------------
Balance at December 31,
1995 (Combined)........ -- -- -- -- -- (79) (31)
Stock subscription
receivable including
non-cash compensation
charge................ -- -- -- -- (57) -- 1,371
Issuance of common
stock for cash........ -- -- -- -- -- -- 900
Transfer of common
stock from Series A to
Series C.............. -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- (1,682) (1,682)
------- ------- ------------- ----------- ----------- ------------ ------------
Balance at December 31,
1996 (Combined)........ -- -- -- -- (57) (1,761) 558
Issuance of Endeavor
common stock to
founders.............. -- -- -- -- -- -- --
Dissent of QDS minority
shareholders.......... -- -- -- -- -- -- (9)
Cancellation of the
common stock of QDS... -- -- -- -- -- -- --
Issuance of Endeavor
common stock in
exchange for QDS
stock................. -- -- -- -- -- -- --
Transfer of common
stock from Series A to
Series D.............. -- -- -- -- -- -- --
Stock subscription
receivable............ -- -- -- -- (200) -- --
Issuance of common
stock for cash, net of
issuance costs........ -- -- -- -- -- -- 5,751
Issuance of common
stock upon conversion
of note payable....... -- -- -- -- -- -- 1,018
Issuance of common
stock options......... -- -- (18) -- -- -- --
Non-cash stock option
compensation.......... -- -- 10 -- -- -- 10
Issuance of common
stock warrants........ -- -- -- 1,110 -- -- 1,110
Payment of stock
subscription
receivable............ -- -- -- -- 57 -- 57
Net loss............... -- -- -- -- -- (4,349) (4,349)
------- ------- ------------- ----------- ----------- ------------ ------------
Balance at December 31,
1997................... -- -- (8) 1,110 (200) (6,110) 4,146
Issuance of common
stock for cash........ -- -- -- -- -- -- 3,900
Issuance of preferred
stock for cash........ 801,000 12,015 -- -- -- -- 12,015
Issuance of common
stock options......... -- -- (1,015) -- -- -- --
Non-cash stock option
compensation.......... -- -- 16 -- -- -- 3,123
Payment on stock
subscription
receivable............ -- -- -- -- 200 -- 200
Net loss............... -- -- -- -- -- (7,829) (7,829)
------- ------- ------------- ----------- ----------- ------------ ------------
Balance at September 30,
1998 (unaudited)....... 801,000 $12,015 $ (1,007) $ 1,110 $ -- $ (13,939) $ 15,555
======= ======= ============= =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
WEBMD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------
1995 1996 1997 1997 1998
------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss.................... $ (39) $ (1,682) $ (4,349) $ (2,401) $ (7,829)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. -- -- 9 3 111
Gain on disposal of
discontinued operations... -- -- (165) (165) (8,102)
Non-cash compensation
expense................... -- -- 11 -- 2,000
Non-cash interest expense.. -- -- 593 553 1,035
Changes in operating assets
and liabilities:
Inventory................. -- -- -- -- (1,956)
Other current assets...... -- -- (53) (221) (1,150)
Accounts payable and
accrued expenses......... -- -- 317 86 1,350
------ -------- -------- --------- ---------
Net cash used in operating
activities by continuing
operations................. -- -- (3,637) (2,145) (14,541)
Net cash provided by (used
in) operating activities of
discontinued operations.... 22 1,627 (249) (1,556) 166
------ -------- -------- --------- ---------
Net cash used in operating
activities................. (17) (55) (3,886) (3,701) (14,375)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and
equipment.................. -- -- (76) (12) (2,214)
Purchases of property and
equipment for discontinued
operations................. (387) (2,325) (1,713) (1,243) (1,102)
Payment of dissenters'
claim...................... -- -- -- -- (2,653)
Proceeds received on note
receivable................. -- -- -- -- 56
Proceeds from sale of
discontinued operations.... -- -- 200 200 16,292
------ -------- -------- --------- ---------
Net cash provided by (used
in) investing activities... (387) (2,325) (1,589) (1,055) 10,379
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from sale of
common stock............... -- -- 5,751 3,675 5,023
Net proceeds from sale of
preferred stock............ -- -- -- -- 12,015
Proceeds from issuance of
notes payable and other
debt....................... -- -- 2,890 2,890 2,000
Proceeds from issuance of
common stock warrants
associated with notes
payable.................... -- -- 1,110 1,110 --
Amounts received on stock
subscriptions.............. -- -- 57 57 200
Payments on notes payable... -- -- -- -- (6,000)
Deferred financing costs.... -- -- (124) (15) --
------ -------- -------- --------- ---------
Net cash provided by
financing activities of
continuing operations...... -- -- 9,684 7,717 13,238
Net cash provided by (used
in) financing activities of
discontinued operations.... 404 2,380 (1,513) (1,202) (201)
------ -------- -------- --------- ---------
Net cash provided by
financing activities....... 404 2,380 8,171 6,515 13,037
------ -------- -------- --------- ---------
Net increase in cash and
cash equivalents........... -- -- 2,696 1,759 9,041
Cash and cash equivalents at
beginning of period........ -- -- -- -- 2,696
------ -------- -------- --------- ---------
Cash and cash equivalents at
end of period.............. $ -- $ -- $ 2,696 $ 1,759 $ 11,737
====== ======== ======== ========= =========
</TABLE>
See accompanying notes.
F-7
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Endeavor Technologies, Inc., a Georgia corporation, was formed on October
17, 1996 and was renamed WebMD, Inc. (the "Company") in August 1998. The
Company will provide a branded, integrated, Web-based solution for the
administrative, communications and information needs of healthcare
professionals and for the healthcare information needs of consumers. The
Company has two wholly-owned subsidiaries: Quality Diagnostic Services, Inc.
("QDS") and Telemedics, Inc. ("Telemedics"). QDS provides arrhythmia
monitoring services. Telemedics distributes arrhythmia monitoring devices.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. On March 26, 1997, the Company acquired
QDS. The assets and liabilities of QDS were acquired in a transaction
accounted for as a reverse acquisition/recapitalization and are recorded at
historical cost. Additionally, the results of operations of the combined
companies are reflected as if the above transaction took place at January 1,
1995. All significant intercompany accounts and transactions have been
eliminated in consolidation. Consequently, for comparative purposes, the
combined financial statements have been presented as if the Company and its
subsidiaries were a single entity for the period.
Effective July 1, 1997, the Company sold all of the outstanding stock of
UltraScan, Inc. ("UltraScan") for $400. Subsequent to December 31, 1997, the
Company entered into negotiations to sell substantially all of the assets of
its subsidiaries, QDS and Telemedics (see Note 2 and 13). The consolidated
financial statements reflect the results of UltraScan, QDS, and Telemedics as
discontinued operations. See Note 2 for further discussion.
Use of 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 and
the accompanying notes. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash and cash
equivalents. The Company maintains cash and cash equivalents with three
separate financial institutions located in Georgia. At December 31, 1997,
substantially all of the Company's cash and cash equivalents are invested in
short-term money market accounts, which bear minimal risk, and are available
on demand.
The carrying amount reported in the balance sheet for cash and cash
equivalents and accounts payable approximate their fair values due to the
short-term nature of these financial instruments. The carrying amount reported
in the balance sheet for long-term debt approximates its fair value based on
discounted cash flows.
F-8
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, generally five to seven years.
Product Development Costs
Product development costs which consist primarily of license fees for
content acquisition, web site development services, and the allocation of
overhead costs are expensed as incurred.
Advertising Costs
Advertising costs are charged to expense in the period the costs are
incurred. Advertising expense for the year ended December 31, 1997 was $164.
Income Taxes
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes."
Revenue Recognition
The Company recognizes revenue when services are provided. Advance billings
and collections relating to future access services are recorded as deferred
revenue and recognized as revenue when earned.
Unaudited Financial Statements
According to management, the accompanying unaudited financial statements as
of September 30, 1998 and for the nine months ended September 30, 1997 and
1998 have been prepared on substantially the same basis as the audited
financial statements and include all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
financial information set forth therein.
Unaudited Pro Forma Information
If the offering contemplated by this prospectus is consummated, all classes
of the Preferred Stock and Common Stock outstanding as of the closing date
will be converted into shares of undesignated common stock. The pro forma
stockholders' equity as of September 30, 1998 reflects conversion into
10,207,805 shares of common stock.
Stock Split
On October 2, 1997, the Company effected a one-for-two reverse stock split.
The share and per share amounts in the financial statements have been
retroactively adjusted for the reverse stock split.
Net Loss Per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings per Share", and in February 1998, the Securities and Exchange
Commission issued Staff Accounting Bulletin ("SAB") No. 98 related to SFAS
128. SFAS 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is similar to
the previously reported fully diluted earnings per share. The Company's common
stock equivalents were antidilutive and therefore were not included in the
computation of weighted average shares used in computing diluted loss per
share.
F-9
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Options and warrants to purchase 3,257,490 shares of common stock with a
weighted average exercise price of $1.66 per share were outstanding in 1997,
but were not included in the computation of diluted loss per share because the
Company reported a loss and, therefore, the effect would be anti-dilutive.
Pro forma weighted average shares outstanding include the weighted average
conversion of 801,000 shares of Preferred Stock.
Stock Based Compensation
SFAS No. 123, "Accounting for Stock Based Compensation" sets forth
accounting and reporting standards for stock-based employee compensation
plans. As permitted by SFAS 123, the Company continues to account for stock
option grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations
(collectively "APB 25"). Under APB 25, no compensation expense is recognized
for stock options granted to employees at fair market value. Accordingly, as
all employee options were granted at their fair market value, the adoption of
SFAS 123 has not affected the Company's results of operations or financial
position relating to grants to employees. Certain stock, stock options and
warrants were granted with exercise prices below the then fair market value or
at fair market value to third parties. In connection with these issuances, the
Company recognized $1,371 and $11 in compensation expense during 1996 and
1997, respectively.
Recently Issued Accounting Standards
The Company adopted SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," as of December 31,
1997. The Statement requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the asset's carrying amount. There was no effect on the consolidated
financial statements as a result of the adoption of this Statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 is effective for financial
statement periods beginning after December 31, 1997. SFAS 131 establishes
standards for disclosures about operating segments, products and services,
geographic areas and major customers. Management believes that the adoption of
SFAS 131 will not have a material effect on the Company's financial
statements.
2. DISCONTINUED OPERATIONS
Effective July 1, 1997, the Company sold all of the outstanding shares of
common stock of Ultrascan to its former President. The sale resulted in a net
gain of approximately $165. The operations of this subsidiary are included in
the statements of operations as a loss from discontinued operations. Revenue
and net losses from Ultrascan for the year ended December 31, 1996 and the six
month period ended June 30, 1997, were approximately $13 and $189 and $37 and
$417, respectively. As of December 31, 1997, a note receivable of $206 is due
from the purchaser related to this sale.
Subsequent to year end but prior to the issuance of the financial
statements, the Company entered into negotiations to sell substantially all of
the assets of QDS and Telemedics. The Company does not expect the sale to
result in a loss. The operations of these subsidiaries are included in the
statements of operations as a loss from discontinued operations. Net patient
service revenue from QDS for the years ended December 31, 1995, 1996 and 1997
were approximately $659, $3,257 and $7,091, respectively. Product sales from
Telemedics for the year ended December 31, 1997 (the first year of operations)
were approximately $283. Net losses for QDS and Telemedics combined for the
years ended December 31, 1995, 1996 and 1997 were $39, $1,645 and $778,
respectively.
F-10
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. DISCONTINUED OPERATIONS (CONTINUED)
QDS revenues from arrhythmia monitoring services are recognized as the
services are performed over the contract term. Telemedics product sales
revenue from the sale of arrhythmia monitoring devices are recognized upon
shipment. QDS and Telemedics revenue is earned throughout the United States,
and QDS extends credit to certain customers who are insured under third-party
payor agreements. Net patient service revenue for QDS is reported at the
estimated net realizable amounts from third-party payors and others for
services rendered.
Contractual allowances have been reflected as a reduction in gross charges
to arrive at net patient service revenue. An allowance for doubtful accounts
is established for revenue estimated to be uncollectible and is adjusted
periodically based upon management's evaluation of current economic
conditions, historical collection experience and other relevant factors that,
in the opinion of management, require recognition in estimating such
allowance.
The Company's payor mix for its QDS subsidiary includes commercial payors
representing 59% and 60% of accounts receivable as of December 31, 1996 and
1997, respectively. Amounts due from the Medicare and Medicaid programs are
30% and 24% of accounts receivable as of December 31, 1996 and 1997,
respectively. Due to the dependence upon revenues from the Medicare and
Medicaid programs, there are significant risks associated with any proposed
changes in federal and state regulations under these programs.
QDS obtained greater than 90% of all medical equipment from one vendor
located in Israel through an exclusive buying contract.
Balance sheet information for QDS, Telemedics and Ultrascan is provided as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash.......................................... $ 141 $ 192 $--
Other current assets.......................... 918 1,919 --
Property and equipment, net................... 2,428 3,280 --
Intangibles, net.............................. 10 653 --
------ ------ ----
Total assets................................... $3,497 $6,044 $--
====== ====== ====
LIABILITIES
Accounts payable, accrued expenses and other.. $2,738 $1,762 $--
Amounts due to related parties, net of current
portion...................................... 201 -- --
------ ------ ----
Total liabilities.............................. $2,939 $1,762 $--
====== ====== ====
</TABLE>
F-11
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. DISCONTINUED OPERATIONS (CONTINUED)
Supplemental cash flow information from the operations of QDS, Telemedics
and Ultrascan is provided as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ------- ------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................. $ (39) $(1,682) $(1,195) $ (718) $(383)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization...... 120 326 777 359 529
Loss on write-off of property and
equipment......................... -- -- 235 -- 97
Non-cash compensation expense...... -- 1,371 -- -- 224
Changes in operating assets and
liabilities:
Accounts receivable, net.......... (154) (693) (1,155) (624) (507)
Other current assets.............. 2 (35) 11 32 4
Accounts payable and accrued
expenses......................... 14 733 (280) (693) 15
Deferred contract revenue......... 42 64 216 88 187
----- ------- ------- ------- -----
Net cash (used in) provided by
operating activities................ $ (15) $ 84 $(1,391) $(1,556) $ 166
===== ======= ======= ======= =====
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common
stock............................... $ 38 $ 900 $ -- $ -- $ --
Proceeds from amounts due to related
parties............................. 547 1,302 500 500 --
Payments on amounts due to related
parties............................. (146) (1,505) (262) (262) (201)
Proceeds from issuance of notes
payable and other debt.............. 42 1,879 206 206 --
Payments on notes payable and other
debt................................ (77) (196) (1,957) (1,646) --
----- ------- ------- ------- -----
Net cash provided by (used in)
financing activities................ $ 404 $ 2,380 $(1,513) $(1,202) $(201)
===== ======= ======= ======= =====
</TABLE>
F-12
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. DISCONTINUED OPERATIONS (CONTINUED)
The net increases in cash balances associated with the discontinued
operations were $2, $139, and $53 during the years ended December 31, 1995,
1996 and 1997 and have been reflected in cash flows from operating activities
of discontinued operations.
In connection with the acquisition of QDS by the Company, certain
shareholders of QDS asserted their rights granted under Georgia law to dissent
with regard to such action and to demand payment for the fair value of their
shares in exchange for the surrender of such shares. In accordance with
Georgia law, the Company offered to pay the former shareholders approximately
$400 for their interest in QDS. The former shareholders rejected that offer.
On August 1, 1997, in accordance with statutory provisions relating to the
valuation process, QDS filed a complaint against the dissenting shareholders
for the judicial appraisal of their shares. In July 1998, the Company paid the
former shareholders of QDS, approximately $2,700 in settlement of the
dissenters' rights action.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Computer equipment and
purchased software..... $ -- $ 23
Furniture and fixtures.. -- 53
Property and equipment
from discontinued oper-
ations................. 2,901 4,263
------ ------
2,901 4,339
Less accumulated depre-
ciation................ -- (3)
Less accumulated depre-
ciation from discontin-
ued operations......... (473) (983)
------ ------
Property and equipment,
net.................... $2,428 $3,353
====== ======
</TABLE>
4. COMMITMENTS
Operating Lease Commitments
The Company leases its facilities and certain office equipment under
operating lease agreements expiring through 2001. Lease expense was
approximately $204 for the years ended December 31, 1997. At December 31,
1997, future minimum lease commitments under operating leases, a significant
portion of which are with a shareholder, are $669, $729 and $61 for 1998, 1999
and 2000, respectively.
Additionally, certain UltraScan equipment leases with total lease
commitments of $848 as of December 31, 1997, are under guarantee by the
Company. These leases expire through 2002. In April 1998, a primary vendor of
QDS and Telemedics, took occupancy of space previously occupied by the Company
under a sublease agreement for which the Company is a guarantor. Total lease
commitments as of December 31, 1997 are $428 and the lease expires in 2001.
F-13
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
A summary of long-term debt at December 31, 1996 relating to QDS and 1997
relating to the Company, follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Note payable to Sirrom Capital Corporation ("Sirrom")
interest payable monthly at 13.5%, principal due on August
1, 2002, secured by substantially all of the Company's
assets, guarantee of subsidiaries and the pledge of
3,000,000 shares of an officer and shareholder............ $ -- $ 4,000
Note payable to bank, interest payable monthly at prime plus
1% (9.25% at December 31, 1996), principal payable monthly
of $18, secured by accounts receivable, property and
equipment and guarantee of an officer and shareholder..... 1,040 --
Note payable to bank, interest payable monthly at prime plus
1% (9.25% at December 31, 1996), principal payable monthly
of $8, secured by accounts receivable, property and
equipment and guarantee of an officer and shareholder..... 158 --
Note payable to bank, interest payable monthly at prime plus
1% (9.25% at December 31, 1996), principal payable monthly
of $12, secured by accounts receivable, property and
equipment and guarantee of an officer and shareholder..... 501 --
Line of credit, interest payable monthly at prime plus 1%
(9.25% at December 31, 1996), secured by accounts
receivable and equipment and guarantee of an officer and
shareholder............................................... 52 --
------- -------
1,751 4,000
Less current portion........................................ (1,751) --
Less unamortized discount on debt........................... -- (1,035)
------- -------
$ -- $ 2,965
======= =======
</TABLE>
Finance costs related to the Sirrom debt instrument totaling $124 were
capitalized and are being amortized over five years.
6. DUE TO RELATED PARTIES
In August 1996, QDS received a $200 loan from a shareholder for working
capital needs. The indebtedness bears no interest and is payable on demand. As
of December 31, 1997, no payments had been made on this obligation. In
February 1998, the Company converted the indebtedness into 100,000 shares of
Series D common stock.
In October 1995, QDS received $170 from and executed a promissory note with
a former shareholder. Principal and interest are payable monthly at 8.75%
through January 1998. The indebtedness is secured by Atlanta Cardiology Group,
P.C., a former shareholder. Principal outstanding as of December 31, 1996 and
1997 was approximately $62 and $1, respectively.
7. STRATEGIC ALLIANCES
During the fourth quarter of 1997, the Company entered into a strategic
alliance with a subsidiary of Premiere Technologies, Inc., a shareholder of
the Company ("Premiere"), to promote, sell and provide joint communication
services to customers through integration of the Company's and Premiere's
services. Product development costs incurred during 1997 associated with this
alliance were $350. The Company has committed
F-14
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. STRATEGIC ALLIANCES (CONTINUED)
to spend an additional $100 for continued technical development and $750 for
promotion associated with this alliance during 1998. The agreement also
contains minimum commitment payments which begin at $10 per month and increase
by $10 per month to $80 in the eighth month and thereafter.
During the fourth quarter of 1997, the Company entered into a strategic
alliance with HealthGate Data Corporation, Inc., ("HealthGate") for HealthGate
to develop, design and host two web sites on behalf of the Company. HealthGate
will provide private label access to medical related links, technical support,
and statistical information on usage and will create search engine databases.
HealthGate is responsible for royalty fees paid to content providers. Product
development costs incurred during 1997 associated with this alliance were
approximately $188. The Company is committed to pay approximately $188
associated with this alliance during 1998.
8. RETIREMENT PLAN
The Company has a defined contribution 401(k) plan. The plan is for the
benefit of generally 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, 1997.
9. RELATED PARTY TRANSACTIONS
In August 1997, the Company received loans of $100 each from two
shareholders of the Company. Each unsecured loan was evidenced by a promissory
note payable and paid in full during 1997. In conjunction with these loans,
the Company granted each of the two shareholders the option to purchase 10,000
shares of Series D Common Stock of the Company at an exercise price of $2.00
per share. In connection with these options, the Company recorded their fair
value, as determined by the minimum value method, as additional interest
expense.
The Company has entered into an office sublease and an equipment lease with
a shareholder of the Company, which expire on February 1, 2000. Total monthly
lease commitments under these leases are $61.
10. SHAREHOLDERS' EQUITY
Common Stock
As discussed in Note 1, the merger between the Company and QDS has been
accounted for as a reverse acquisition/recapitalization and, as a result, for
comparative purposes, the financial statements, including equity transactions
have been presented as if the Company and QDS were a single entity for all
periods presented. Shares were issued to founders of Endeavor in exchange for
nominal consideration.
The Company has authorized and issued shares of Series A, B, C, D and E
common stock. The rights of the series are identical except that (i) Series B,
C, D and E shares of common stock are non-voting and (ii) Series B, C and E
common stock have a liquidation preference of $0.29, $1.00 and $1.00 per
share, respectively. Upon a liquidation of the Company, if the assets of the
Company are insufficient to permit full payment of the liquidation preference,
then the assets of the Company available for such distribution shall be
distributed pro rata based on the relative liquidation preferences.
Upon the effective date of a public offering of the Company's common stock,
the Series A, B, C, D and E common stock will be automatically converted into
one series of voting common stock.
F-15
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
Stock Warrant
On August 29, 1997, the Company borrowed $4,000 from Sirrom. In connection
with the loan, Sirrom received a warrant to purchase 557,490 shares of the
Company's Series D common stock for $0.01 per share. Under the warrant, if any
portion of the indebtedness is outstanding on the second anniversary date of
the agreement, the number of shares under the warrant is increased by an
additional 118,615 shares of the Company's Series D common stock. If any
portion of the indebtedness is outstanding on the third anniversary date of
the agreement, the number of shares under the warrant is increased by another
121,165 shares of the Company's Series D common stock. If any portion of the
indebtedness is outstanding on the fourth anniversary date of the agreement,
the number of shares under the warrant is increased by another 123,800 shares
of the Company's Series D common stock. None of these additional warrants have
been issued; therefore, they are not considered outstanding. Of the $4,000 in
borrowings, $1,110 was allocated to the value of the warrant and recorded as a
separate component of equity such amount will be adjusted in the future based
on its fair value as discussed below. The warrant expires on August 1, 2002.
In connection with the warrant, $75 was amortized to interest expense during
1997.
In addition, for a period of thirty days after the expiration date, Sirrom
may require the Company to purchase all, but not less than all, of the common
shares underlying the warrant. The put price is calculated as the fair market
value of the shares of common stock issuable to Sirrom upon exercise of the
warrant and totaled $1,110 at December 31, 1997.
Stock Option Plan
Effective January 1, 1997, the Board of Directors and shareholders of the
Company adopted the 1997 Stock Incentive Plan (the "1997 Plan"), which
provides for issuance of stock options and restricted stock awards to
employees, consultants and directors. Options may be granted under the 1997
Plan with an exercise price not less than the fair value of the Company's
common stock on the date of the grant, as determined by the Board of Directors
or a committee of the Board in the absence of a readily available market for
the Company's stock. Options become exercisable and expire as determined by
the Board of Directors or a committee of the Board (generally over 2 to 7
years).
Pro forma information regarding net income and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a minimum
value pricing model with the following weighted average assumptions for 1997:
risk-free interest rates of 6.19%; no dividend yield; and an expected life of
an option of four years.
Option valuation models used under SFAS 123 were 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 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
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options granted to employees are amortized to expense over the vesting period.
The weighted average fair value per option granted in 1997 was $0.44. The
Company's pro forma net loss and net loss per share would have been $(4,514)
and $(0.54), respectively, for the year ended December 31, 1997.
F-16
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (continued)
The following stock options were outstanding under the 1997 Plan for the
year ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE PER
OF OPTIONS SHARE
---------- ------------------
<S> <C> <C>
Outstanding at January 1, 1997................. -- --
Granted........................................ 1,590,000 $2.00
---------
Balance at December 31, 1997................... 1,590,000 $2.00
=========
Exercisable at December 31, 1997............... 247,334 $2.00
=========
</TABLE>
As discussed above, the Company granted a warrant to purchase 557,490 shares
of the Company's Series D common stock for $0.01 per share to Sirrom. The fair
value of the warrant has been recorded in equity and is amortized to interest
over the life of the debt. The Company granted a warrant to purchase 1,000,000
shares of the Company's Series E common stock for $2.00 per share to Premiere.
The warrant was issued in connection with a sale of the Company's Series E
common stock and the fair value of the warrant has been recorded as issuance
cost. The two warrants described above have not been included in the table
below.
The Company also granted options and warrants to certain outside directors,
consultants and certain third parties. These options and warrants are not
covered under the incentive and nonqualified stock option plan and are
included in the table below:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS AND EXERCISE PRICE
WARRANTS PER SHARE
----------- --------------
<S> <C> <C>
Outstanding at January 1, 1997.................... -- --
Granted........................................... 110,000 $2.00
-------
Balance at December 31, 1997...................... 110,000 $2.00
=======
Exercisable at December 31, 1997.................. 80,000 $2.00
=======
</TABLE>
Certain options and warrants were issued with exercise prices below the then
fair market value or were issued at fair market value to third parties. In
connection with these issuances, the Company recognized $11 in compensation
expense during 1997. Certain sales representatives of the Company entered into
stock option agreements that do not fix the number of shares until certain
sales goals are met. Because the exercise price of these options is fixed but
the number of shares is variable, this is a variable stock option plan and,
the Company may have to record compensation expense relating to these options
to the extent the fair market value of the underlying stock is in excess of
the exercise price at the time when the number of shares is determined.
F-17
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 610 $ 1,966
Allowance for bad debts................................... 161 456
Valuation allowance....................................... (660) (2,116)
----- -------
111 306
Deferred tax liability:
Depreciation.............................................. 111 306
----- -------
$ -- $ --
===== =======
</TABLE>
At December 31, 1997 the Company has total net operating loss carryforwards
for federal and state income tax purposes of approximately $5,121 that expire
in years 2010 through 2012.
Utilization of the Company's net operating loss carryforwards may be subject
to an annual limitation due to the "change of ownership" provisions of the
Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization. For financial reporting purposes, a valuation allowance has been
recognized to reduce the net deferred tax assets to zero due to uncertainties
with respect to the Company's ability to generate taxable income in the future
sufficient to realize the benefit of deferred income tax assets.
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- -------
<S> <C> <C> <C>
Tax at statutory rate................................. $(13) $(572) $(1,479)
State taxes, net of federal benefit................... (2) (67) (174)
Permanent differences................................. 2 8 197
Valuation allowance................................... 13 631 1,456
---- ----- -------
$-- $ -- $ --
==== ===== =======
</TABLE>
12. SUBSEQUENT EVENTS--UNAUDITED
Sale of Common Stock
On April 29, 1998, Premiere Technologies, Inc. exercised its option to
purchase 1,000,000 shares of Series E Common Stock at $2.00 per share.
Change in capitalization
On August 3, 1998, the shareholders of the Company voted to change the
designation of its Common Stock Series A to Common Stock and increase the
number of authorized shares of Common Stock to 75,000,000 shares. The
shareholders of the Company also voted to increase the number of authorized
shares of Common Stock Series D to 15,000,000 shares and authorized 10,000,000
shares of Preferred Stock.
F-18
<PAGE>
WEBMD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENTS -- UNAUDITED (CONTINUED)
Sales of Preferred Stock
In August 1998, the Company sold 667,000 shares of its Series A Preferred
Stock to HBO & Company at $15.00 per share. In connection with this sale, the
Company also issued HBO & Company warrants to purchase 300,000 shares of the
Company's Series A Preferred Stock at $18.00 per share.
In September 1998, the Company sold 134,000 shares of its Series A Preferred
Stock to Matria Healthcare, Inc. at $15.00 per share. In connection with this
sale, the Company also issued Matria Healthcare, Inc. warrants to purchase
60,000 shares of the Company's Series A Preferred Stock at $18.00 per share.
In January 1999, the Company sold 860,000 and 828,750 shares of its Series B
and Series C Preferred Stock, respectively, to 20 investors at $20.00 per
share.
Sale of QDS and Telemedics
Effective July 1, 1998, the Company completed the sale of substantially all
of the assets of QDS and Telemedics.
Note Payable
On July 8, 1998, the Company borrowed an additional $2,000 from Sirrom.
Interest is payable monthly at 13.5% and principal is due in its entirety on
August 1, 2002. On July 22, 1998, the Company repaid all outstanding
borrowings from Sirrom. In connection with the retirement of these borrowings,
the Company recognized an extraordinary loss of $930.
Product Launch
During the fourth quarter of 1998, the Company began offering Internet
services and recording revenues.
Recent Acquisitions
In January 1999, the Company acquired the outstanding stock of Sapient
Health Network, Inc and Direct Medical Knowledge, Inc. The consideration was
approximately 2.4 million shares of the Company's Series B Preferred Stock.
These acquisitions will be accounted for as purchases and the Company expects
to record goodwill of approximately $45,900.
Equity Issued for Services
In January 1999, the Company issued a warrant to purchase 750,000 shares of
its Series D Common Stock with an exercise price of $20.00, in exchange for
financial advisory services to be provided over a two year period. The
services agreement provides for a monetary penalty of up to $3.4 million and
the potential loss of the ability to exercise a portion of the warrants if the
financial advisor does not perform under its agreement with the Company. In
connection with this agreement, the Company will amortize the value of the
warrants issued over the life of the agreement.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Direct Medical Knowledge, Inc.:
We have audited the accompanying balance sheet of Direct Medical Knowledge,
Inc. a development stage company (the Company) as of December 31, 1997, and
the related statements of operations, changes in shareholders' equity, and
cash flows for the year then ended and for the period from May 24, 1995 (date
of incorporation) to December 31, 1997. 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 audit. The financial
statements of the Company for the period from May 24, 1995 (date of
incorporation) to December 31, 1996 were audited by other auditors, whose
reports expressed an unqualified opinion on those statements. Our opinion, in
so far as it relates to the amounts included for the period from May 24, 1995
(date of incorporation) to December 31, 1996, is based solely on the reports
of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit and the report of the other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above, after the restatement described in
Note 9, present fairly, in all material respects, the financial position of
Direct Medical Knowledge, Inc., a development stage company, as of December
31, 1997, and the results of its operations and its cash flows for the year
then ended and for the period from May 24, 1995 (date of incorporation) to
December 31, 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring losses and negative
cash flows from operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 6, 1998, except for Notes 8 and 9, for which the date is January 18,
1999
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Direct Medical Knowledge, Inc.
We have audited the accompanying balance sheet of Direct Medical Knowledge,
Inc. (the Company) as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the management of Direct
Medical Knowledge, Inc. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Medical Knowledge,
Inc., at December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Note 9, the Company previously recorded net deferred tax
assets due to net operating loss carryforwards from 1996 and 1995. The Company
has restated these financial statements to record a retroactive valuation
allowance against its net deferred tax assets.
/s/ Berg & Company
San Francisco, California
February 7, 1997, except for Notes 8 and 9 as to which the date is January 16,
1999
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Direct Medical Knowledge, Inc.
We have audited the accompanying balance sheet of Direct Medical Knowledge,
Inc., a development stage company (the Company) as of December 31, 1995, and
the related statements of operations, stockholders' equity, and cash flows for
the period from May 24, 1995 (date of incorporation) to December 31, 1995.
These financial statements are the responsibility of the management of Direct
Medical Knowledge, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Medical Knowledge,
Inc., at December 31, 1995, and the results of its operations and its cash
flows for the period from May 24, 1995 (date of incorporation) to December 31,
1995 in conformity with generally accepted accounting principles.
/s/ Berg & Company
San Francisco, California
January 16, 1999
F-22
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,082 $ 100
Accounts receivable, trade.................................. 6 --
Accounts receivable, shareholder............................ 69 --
Prepaid expenses............................................ 9 7
------- ------
Total current assets..................................... 1,166 107
Property and equipment, net................................... 709 470
Intangibles, net.............................................. 14 19
Content license fees, net..................................... 67 47
Other assets, net............................................. 26 18
------- ------
Total assets........................................... $ 1,982 $ 661
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 243 $ 162
Accrued expenses............................................ 13 $ 3
Deferred revenue............................................ 30 125
Accrued dividends........................................... -- 54
------- ------
Total current liabilities................................ 286 344
------- ------
Commitments (Note 5)
Shareholders' equity:
Common stock, no par value; authorized 5,000,000 shares;
1,048,667 and 1,025,000 shares issued and outstanding at
December 31, 1997 and 1996, respectively.................. 5 --
Note receivable from shareholder............................ (250) --
Convertible preferred stock, no par value; authorized
2,600,000 shares; 2,536,071 and 975,000 shares issued and
outstanding; liquidation preference of $4,073 and $1,029
at December 31, 1997 and 1996, respectively............... 4,098 1,000
Deficit accumulated during the development stage............ (2,157) (683)
------- ------
Total shareholders' equity............................... 1,696 317
------- ------
Total liabilities and shareholders' equity............. $ 1,982 $ 661
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 24, 1995 MAY 24, 1995
YEAR ENDED YEAR ENDED (DATE OF (DATE OF
DECEMBER 31, DECEMBER 31, INCORPORATION) TO INCORPORATION) TO
1997 1996 DECEMBER 31, 1995 DECEMBER 31, 1997
------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues, including
shareholder revenues
of $424 in 1997, $0 in
1996 and 1995, and
$424 from inception to
December 31, 1997..... $ 592 $ 350 $ -- $ 942
------- ----- ----- -------
Operating expenses:
Cost of revenues...... 48 24 -- 72
Product development
costs............... 762 340 38 1,140
General and
administrative...... 699 311 100 1,110
Depreciation and
amortization........ 337 78 2 417
Sales and marketing... 221 72 23 316
------- ----- ----- -------
Total operating
expenses.............. 2,067 825 163 3,055
------- ----- ----- -------
Operating loss.......... (1,475) (475) (163) (2,113)
Interest and other
income (expense),
net................... 46 12 (1) 57
------- ----- ----- -------
Net loss from continuing
operations before
income taxes.......... (1,429) (463) (164) (2,056)
Income tax expense...... (1) (1) (1) (3)
------- ----- ----- -------
Net loss before
preferred stock
dividend.............. $(1,430) $(464) $(165) $(2,059)
======= ===== ===== =======
Preferred stock
dividend.............. (44) (54) -- (98)
------- ----- ----- -------
Net loss attributable to
common stock.......... $(1,474) $(518) $(165) $(2,157)
======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 24, 1995 (DATE OF INCORPORATION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK DEFICIT
---------------------------------- ACCUMULATED
COMMON STOCK RECEIVABLE DURING THE TOTAL
---------------- SERIES A SERIES B FROM DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDER STAGE EQUITY
--------- ------ --------- ------ --------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 24, 1995
(date of
incorporation)......... -- -- -- -- -- -- -- -- --
Issuance of common
stock for cash
$0.00001 per share in
October 1995.......... 1,000,000 -- --
Issuance of Series A
convertible preferred
stock for cash at
$1.00 per share in
December 1995......... 300,000 $ 300 $ 300
Net loss for the
period................ $ (165) (165)
--------- --- --------- ------ --------- ------ ----- ------- -------
Balance, December 31,
1995................... 1,000,000 -- 300,000 300 -- -- -- (165) 135
Conversion of Series A
convertible preferred
stock into common
stock in January
1996.................. 25,000 -- (25,000) -- --
Issuance of Series A
convertible preferred
stock for cash at
$1.00 per share in May
1996.................. 200,000 200 200
Issuance of Series A
convertible preferred
stock for cash at
$1.00 per share July
1996.................. 500,000 500 500
Declaration of Series A
convertible preferred
stock dividends in
December 1996......... (54) (54)
Net loss for the year.. (464) (464)
--------- --- --------- ------ --------- ------ ----- ------- -------
Balance, December 31,
1996................... 1,025,000 -- 975,000 1,000 -- -- -- (683) 317
Issuance of common
stock through exercise
of stock options
$0.205 per share...... 23,667 $ 5 5
Declaration of Series A
convertible preferred
stock dividends in
July 1997............. (44) (44)
Issuance of Series A
convertible preferred
stock in lieu of
dividends payable in
July 1997............. 97,658 98 98
Issuance of Series B
convertible preferred
stock for cash and
note receivable at
$2.05 per share in
July 1997............. 1,463,413 $3,000 $(750) 2,250
Payment on shareholder
note receivable....... 500 500
Net loss for the year.. (1,430) (1,430)
--------- --- --------- ------ --------- ------ ----- ------- -------
Balance, December 31,
1997................... 1,048,667 $ 5 1,072,658 $1,098 1,463,413 $3,000 $(250) $(2,157) $ 1,696
========= === ========= ====== ========= ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 24, 1995 MAY 24, 1995
(DATE OF (DATE OF
INCORPORATION) INCORPORATION)
YEAR ENDED YEAR ENDED TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(1,430) $(464) $(165) $(2,059)
------- ----- ----- -------
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization of
property and
equipment........... 228 64 2 294
Amortization of
copyright fees...... 104 9 -- 113
Amortization of
organization
costs............... 5 5 -- 10
Changes in operating
assets and
liabilities:
Increase in accounts
receivable,
trade.............. (6) -- -- (6)
Increase in accounts
receivable,
shareholder........ (69) -- -- (69)
Increase in prepaid
expenses........... (1) (4) (4) (9)
Increase in other
assets............. (8) (15) (27) (50)
Increase in accounts
payable and
accrued expenses... 90 135 31 256
(Decrease) Increase
in deferred
revenue............ (95) 125 -- 30
------- ----- ----- -------
Total adjustments.. 248 319 2 569
------- ----- ----- -------
Net cash used in
operating
activities....... (1,182) (145) (163) (1,490)
------- ----- ----- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (468) (502) (33) (1,003)
Purchase of content
licenses............. (123) (57) -- (180)
------- ----- ----- -------
Net cash used in
investing
activities....... (591) (559) (33) (1,183)
------- ----- ----- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of stock............. 2,255 700 300 3,255
Advances from
shareholder.......... 250 -- 44 294
Repayment of
shareholder
advances............. (250) (39) (5) (294)
Payments on shareholder
note receivable...... 500 -- -- 500
------- ----- ----- -------
Net cash provided
by financing
activities....... 2,755 661 339 3,755
------- ----- ----- -------
Net increase in
cash............ 982 (43) 143 1,082
Cash and cash
equivalents, beginning
of period............. 100 143 -- --
------- ----- ----- -------
Cash and cash
equivalents, end of
period................ $ 1,082 $ 100 $ 143 $ 1,082
======= ===== ===== =======
SUPPLEMENTAL CASH FLOW
INFORMATION AND
NONCASH ACTIVITIES:
Declaration of
dividends payable.... $ 44 $ 54 $ -- $ 98
======= ===== ===== =======
Issuance of convertible
preferred stock to
extinguish dividends
payable.............. $ 98 $ -- $ -- $ 98
======= ===== ===== =======
Issuance of convertible
preferred stock for
note receivable...... $ 750 $ -- $ -- $ 750
======= ===== ===== =======
Interest paid.......... $ 1 $ 1 $ 1 $ 3
======= ===== ===== =======
Income taxes paid...... $ 1 $ 1 $ 1 $ 3
======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. COMPANY BACKGROUND:
Description of business:
Direct Medical Knowledge, Inc. ("the Company") was incorporated on May 24,
1995 to provide individualized, customized medical and health information to
individuals through contracts with major health providers. The Company uses
web technology, electronic retrieval, and on-line support groups to deliver
health information over the internet. Since its incorporation, the Company has
focused on developing its products and marketing strategy and recruiting human
resources. It has not generated a significant amount of revenue and,
accordingly, is a development stage company.
Basis of presentation:
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has sustained recurring
losses and negative cash flows from operations. The Company's continued
existence is dependent upon its ability to increase operating revenues and/or
raise additional equity financing. Management is currently in the process of
negotiating additional equity financing with potential investors. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Business Risks and Credit Concentrations:
The Company operates in the internet content industry segment which is new,
rapidly evolving and highly competitive. The Company relies on third party
suppliers of health information content. There can be no assurance that the
Company will be able to complete product development and secure content
sufficient to support its operations.
The Company performs ongoing credit evaluations of its customers' financial
condition. It generally requires no collateral and maintains reserves for
potential credit losses on customer accounts, when necessary. Management
estimates that no such reserves are warranted at December 31, 1997 or December
31, 1996. At December 31, 1997, one shareholder comprises 91% of accounts
receivable and, with one other customer, accounted for 100% of revenue for the
year then ended.
Two customers accounted for 100% of revenue for the year ended December 31,
1996, while the shareholder and the other two customers accounted for 100% of
revenue for the period from May 24, 1995 (date of incorporation) to December
31, 1997.
Cash and Cash Equivalents:
The Company considers all highly liquid monetary instruments with an
original maturity of three months or less to be cash equivalents.
Substantially all of the Company's cash is held at one major financial
institution.
F-27
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Content License Fees:
License fees for website content are capitalized and amortized over the life
of the license. During 1997 and 1996, most license agreements covered one year
periods with the option to renew annually. Subsequent to year-end, the Company
is transitioning to three to five year agreements. Accumulated content license
fee amortization totaled $113 and $9, at December 31, 1997 and 1996
respectively.
Property and Equipment:
Property and equipment are stated at cost. Maintenance and repairs are
charged to operations as incurred. Depreciation and amortization are
determined on the straight-line method over the estimated useful lives of the
related assets, which range from three to five years. When assets are retired
or otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from the accounts, and any resulting gain or loss is
reflected in operations in the period realized.
Revenue Recognition:
Revenue from report orders is recognized upon delivery of the corresponding
report. Support services, including revenue from marketing and distribution
agreements with ongoing support requirements, are recognized ratably over the
life of the contract. Revenue from website development is recognized using the
percentage-of-completion method. Amounts billed in excess of revenue earned
and advance payments are deferred and recorded as revenues when earned.
Content Development:
The Company expenses content development costs as incurred.
Income Taxes:
In accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), Accounting for Income Taxes, deferred income taxes are recognized for
the differences between the tax basis of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. A valuation allowance is recognized for deferred tax assets
when it is more likely than not that some portion or all of the deferred tax
asset will not be realized. Income tax expense is comprised of tax payable or
refundable for the current period plus the change during the period in
deferred tax assets and liabilities.
Impairment of Long-Lived Assets:
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of, requires that long-lived assets and certain intangible
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If undiscounted
expected future cash flows are less than the carrying value of the assets, an
impairment loss is to be recognized based on the fair value of the assets. The
Company considers the requirements of SFAS No. 121 on an ongoing basis. No
impairment losses have been recognized to date.
Recently Issued Accounting Pronouncements:
During 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, Software Revenue Recognition, which
supersedes SOP 91-1. This statement is effective for fiscal years beginning
after December 15, 1997. The impact of adopting this statement has not been
determined at this time.
F-28
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recently Issued Accounting Pronouncements (continued):
During 1997, the Financial Accounting Standards Board issued Statements No.
129, Disclosure of Information About Capital Structure, and No. 130, Reporting
Comprehensive Income. These statements establish standards for reporting and
disclosing information about an organization's capital structure and
comprehensive income. They are effective for fiscal years beginning after
December 15, 1997. The impact of adopting these statements has not been
determined at this time.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Computer equipment and purchased software.......... $ 162 $ 54
Website equipment and software..................... 507 462
Furniture and fixtures............................. 259 9
Leasehold improvements............................. 75 10
------ ----
1,003 535
Accumulated depreciation and amortization.......... (294) (65)
------ ----
Property and equipment, net........................ $ 709 $470
====== ====
</TABLE>
Depreciation expense amounted to $198 and $62 for the years ended December
31, 1997 and 1996, respectively, $2 for the period from May 24, 1995 (date of
incorporation) to December 31, 1995, and $262 for the period from May 24, 1995
(date of incorporation) to December 31, 1997. Amortization expense for
leasehold improvements was $30 and $1 for the years ended December 31, 1997
and 1996, respectively, $1 for the period from May 24, 1995 to December 31,
1995, and $32 for the period from May 24, 1995 (date of incorporation) to
December 31, 1997.
4. INCOME TAXES:
The provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE
ENDED PERIOD FROM
DECEMBER 31, MAY 24 TO
-------------- DECEMBER 31,
1997 1996 1995
------ ------ ------------
<S> <C> <C> <C>
Current tax expense:
Federal......................................... -- --
State........................................... $ 1 $ 1 $ 1
Deferred tax expense
Federal......................................... $ (577) (164) (40)
State........................................... $ (76) (44) (13)
Valuation allowance for deferred tax assets....... 653 208 53
------ ------ ----
$ 1 1 1
====== ====== ====
</TABLE>
F-29
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES (CONTINUED):
The primary components of the net deferred tax asset are:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net operating loss carryforwards............................. $ 910 $ 282
Other........................................................ 4 --
----- -----
914 282
Valuation allowance.......................................... (914) (262)
----- -----
-- 20
Deferred tax liability....................................... -- (20)
----- -----
Net deferred tax asset....................................... $ -- $ --
===== =====
</TABLE>
Due to uncertainty surrounding the realization of deferred tax assets, the
Company has recorded a valuation allowance against its net deferred tax asset.
As of December 31, 1997, the Company has net operating loss carryforwards of
approximately $2,286 for federal income tax purposes. These carryforwards
expire in years 2010 through 2012. In addition, the Company has carryforwards
of approximately $2,283 as of December 31, 1997 for California franchise tax
purposes, expiring in 2003.
As a result of changes in the Company's ownership, the amount of loss
carryforwards available to offset future federal and state taxable income may
be limited by IRS Code Section 382 pursuant to the Tax Reform Act of 1986. The
amount of such limitation, if any, has not been determined.
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE
DECEMBER PERIOD FROM
31, MAY 24 TO
------------ DECEMBER 31,
1997 1996 1995
----- ----- ------------
<S> <C> <C> <C>
Provision computed at federal statutory rate.... $(564) $(167) $(56)
State taxes, net of federal tax benefit......... (75) (43) (13)
Change in valuation allowance................... 653 208 53
Permanent difference............................ 1 1 1
Others.......................................... (14) 2 16
----- ----- ----
Net tax provision............................... $ 1 $ 1 $ 1
===== ===== ====
</TABLE>
F-30
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LEASE OBLIGATIONS:
The Company leases office facilities under noncancelable operating leases.
Minimum future payments under these lease agreements for the years ending
December 31 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1998............................................................. $198
1999............................................................. 198
2000............................................................. 198
2001............................................................. 198
2002............................................................. 182
----
Total minimum lease payments..................................... $974
====
</TABLE>
The Company's rental expense for office facilities was approximately $86,
$36 and $16 for the years ended December 31, 1997 and 1996 and for the period
from May 24 to December 31, 1995, respectively, and $138 for the period from
May 24, 1995 (date of incorporation) to December 31, 1997.
6. CONVERTIBLE PREFERRED STOCK:
The Company is authorized to issue up to 2,600,000 shares of no par
preferred stock in one or more series. The Company has designated 1,100,000 of
the preferred shares as Series A and 1,500,000 as Series B.
Series A and Series B preferred shareholders are entitled to receive, when
and if declared by the Board of Directors, out of funds legally available, a
preferential, noncumulative annual cash dividend of $0.08 per share and $0.16
per share, respectively. Preferred shareholders are also entitled to
participate in cash dividends paid to common shareholders in an amount per
share as would be payable on the number of whole shares of common stock into
which the preferred shares could be converted. So long as any preferred shares
are outstanding, no cash or property dividends may be declared or paid on
common stock until all preferred stock dividends have been paid or declared
and set apart. Through December 31, 1997, $98 in Series A dividends have been
declared, and 97,658 shares of Series A preferred stock have been issued in
lieu of cash dividends. Concurrent with the issuance of Series B preferred
stock, the Company's Articles of Incorporation were amended to eliminate
mandatory dividend provisions on Series A preferred stock.
Preferred shareholders are entitled to vote together with the holders of
common stock. The number of votes equals the number of whole shares of common
stock into which each holder's preferred shares could be converted. So long as
at least 100,000 shares of Series A remain outstanding, Series A shareholders
are collectively entitled to elect one director. So long as at least 100,000
shares of Series B remain outstanding, Series B shareholders are collectively
entitled to elect one director. Common shareholders are also collectively
entitled to elect one director. All shareholders are collectively entitled to
elect the remaining directors. Certain transactions which could affect the
relative rights and privileges of preferred shareholders, as defined in the
Articles of Incorporation, require majority approval by Series A shareholders
and 60% approval by Series B shareholders, respectively. Certain other
transactions require approval by not less than two-thirds of Series A
shareholders.
At the option of the shareholder, preferred shares are convertible into
common stock at any time on a one-for-one basis, subject to certain
adjustments. Series A and Series B preferred shares are automatically
converted into common stock on a one-for-one basis, subject to certain
adjustments, in the event of a public offering with
F-31
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. CONVERTIBLE PREFERRED STOCK (CONTINUED):
gross proceeds of at least $15 million and a price of at least $7 per share,
subject to certain adjustments, or upon the consent by 50% of Series A
shareholders or by 60% of Series B shareholders. Any declared and unpaid
dividends must be paid upon automatic conversion. The Company has reserved
sufficient common shares for conversion.
In the event of any liquidation, dissolution or winding up of the Company,
preferred shareholders are entitled to receive an amount equal to $1.00 per
share of Series A and $2.05 per share of Series B plus all declared and unpaid
dividends on a pari passu basis prior and in preference to any distributions
to common shareholders. After payment has been made to the preferred
shareholders, any remaining assets will be distributed ratably to all
shareholders in proportion to the amount of stock owned by each shareholder.
If the Company's assets are insufficient to provide for the full preference
amount for the preferred stock outstanding, then such assets will be
distributed ratably among preferred shareholders in proportion to the amount
of such stock owned by each shareholder.
7. STOCK OPTION PLAN:
The Company has an Stock Option Plan (the Plan) under which the Board of
Directors may grant common stock options to employees, directors and
consultants. Under the Plan, options generally vest 20% one year from the
vesting commencement with an additional 2% vesting each month thereafter. A
total of 350,000 shares of the Company's common stock have been reserved for
issuance under the Plan. Shares sold under the Plan are subject to various
restrictions as to resale and right of repurchase by the Company.
Options under the Plan may be either "incentive stock options" (ISO) or
"nonqualified stock options" (NQSO) as defined under Section 422 of the
Internal Revenue Code. Options shall be exercisable within the periods or upon
the events determined by the Board of Directors or a committee appointed by
the Board of Directors as set forth by a written stock option grant, provided
however, that no option shall become exercisable after the expiration of 10
years from the date the option is granted. Additionally, no option granted to
a person who directly or by attribution owns more than 10% of the total
combined voting power of all classes of stock of the Company shall be
exercisable after the expiration of five years from the date the option is
granted. Vested options held by individuals upon termination of their
relationship with the Company may be exercised no later than three months
following the date of termination or twelve months following death or
disability until expiration of the option.
The exercise price of an NQSO shall not be less than 85% of the fair market
value of the shares on the date the option is granted. The exercise price of
an ISO shall not be less than 100% of the fair market value of the shares on
the date the option is granted. The exercise price of any ISO granted to a
person owning more than 10% of the total combined voting power of all classes
of stock of the Company shall not be less than 110% of the fair market value
of the shares on the date the option is granted.
F-32
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLAN (CONTINUED):
The following table summarizes activity under the Company's stock option
plan for the year ended December 31, 1997. There was no activity under the
Plan in prior periods.
<TABLE>
<CAPTION>
WEIGHTED
SHARES NUMBER OF AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
--------- ----------- --------
<S> <C> <C> <C>
Reserved for issuance........................ 350,000 -- --
Granted...................................... (297,600) 297,600 $0.205
Exercised.................................... (23,667) 0.205
Cancelled or forfeited....................... 18,833 (18,833) 0.205
-------- ------- ------
Balance as of December 31, 1997.............. 71,233 255,100 $0.205
======== ======= ======
</TABLE>
Of the 23,667 options exercised during the year, 14,251 are unvested and are
subject to repurchase by the Company at the exercise price.
The Company accounts for the plan in accordance with APB No. 25, Accounting
for Stock Issued to Employees, and related interpretations. The following
information concerning the Company's stock options outstanding as of December
31, 1997 is provided in accordance with Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123).
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
---------------------------------- ---------------------
NUMBER WEIGHTED
OUTSTANDING AVERAGE WEIGHTED NUMBER WEIGHTED
AT REMAINING AVERAGE VESTED AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE (YEARS) PRICE 1997 PRICE
--------------- ------------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.205............. 255,100 9.55 $0.205 61,136 $0.205
</TABLE>
The fair value of each option has been estimated on the date of grant using
the minimum value method with the following assumptions.
<TABLE>
<S> <C>
Expected life................................................... 5 years
Risk-free interest rate......................................... 6.12%
Expected dividend rate.......................................... --
</TABLE>
Based on this method, the pro forma effects of applying SFAS 123 are
determined to be immaterial for the year ended December 31, 1997. Therefore,
the application of SFAS 123 would not result in a significant difference from
the reported net loss. The weighted average fair value of options granted for
the year ended December 31, 1997 was $0.05.
These pro forma effects may not be representative of the effects on reported
results of operations for future years as options vest over several years and
additional awards are expected to be made each year.
8. SUBSEQUENT EVENTS:
Credit facility:
In February 1998, the Company obtained a $1 million credit facility to
finance equipment purchases through December 31, 1998. Borrowings under this
facility are executed as 36 month promissory notes collateralized by
F-33
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED):
the purchased equipment. Interest accrues at an effective rate of 18% per
annum, including an additional interest payment of 15% of the original loan
amount due at the end of the loan term. Borrowings under this facility were
$469 as of December 31, 1998.
Note and Warrant Purchase Agreement:
In September 1998, the Company entered into a Note and Warrant Purchase
Agreement, (the "Agreement") with a shareholder, whereby the Company may
borrow up to a maximum of $500 under Convertible Promissory Notes (the
"Notes"). Each of the Notes is non-interest bearing, has a term of six months
and, in the event the Company issues shares of its Preferred Stock during the
term of the Notes, is convertible into that Preferred Stock at a conversion
price equal to the price per share paid by investors purchasing the preferred
stock. Warrants to purchase common stock of the Company are attached to each
of the Notes. Each of the Warrants allows the holder to purchase one share of
common stock for each dollar borrowed at an exercise price of $0.25 per share
and is exercisable for a period of five years. As of December 31, 1998, the
Company had borrowed $500 and issued warrants to purchase 500,000 shares of
common stock under the Agreement.
Stock options:
On June 6, 1998, the Company's shareholders approved an increase in the
number of shares available under the Company's Stock Option Plan by 400,000 to
750,000. Subsequent to December 31, 1997 options to purchase 534,605 shares of
the Company's common stock were granted to employees, directors and
consultants under this plan at an exercise price of $0.205 per share.
Merger:
In January 1999, the shareholders approved the merger of the Company with a
wholly-owned subsidiary of WebMD, Inc. ("WebMD"). Under the terms of the
merger agreement, shares of the Company's capital stock will be exchanged for
shares of WebMD Series B Preferred Stock as set forth below. Outstanding
options and warrants to purchase the Company's common stock will be assumed by
WebMD and will be subject to the same terms and conditions, with the exception
that they will be exercisable for shares of WebMD Series B Preferred Stock
based upon the exchange ratio set forth below for the Company's common stock.
The $500 Convertible Promissory Note outstanding as of the date of the merger
will be exchanged for 25,000 shares of WebMD Series B Preferred Stock.
The ratios for the exchange of the Company's capital stock for shares of
WebMD Series B Preferred Stock are as follows:
<TABLE>
<CAPTION>
DIRECT MEDICAL EQUIVALENT SHARE OF
KNOWLEDGE, INC. WEBMD SERIES B
CAPITAL STOCK PREFERRED STOCK
--------------- -------------------
<S> <C>
Common Stock............................................ 0.11274380
Series A Convertible Preferred Stock.................... 0.16867768
Series B Convertible Preferred Stock.................... 0.22225378
</TABLE>
F-34
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. RESTATEMENT:
The Company previously recognized a deferred tax asset as of December 31,
1996. A valuation allowance was recognized against the deferred tax assets as
of December 31, 1997. The financial statements as of December 31, 1996, for
the years ended December 31, 1997 and 1996, for the period from May 24, 1995
(date of incorporation) to December 31, 1995 and for the period from May 24,
1995 (date of incorporation) to December 31, 1997 were restated to recognize a
valuation allowance for these deferred tax assets as of December 31, 1996 and
1995. The effect of the restatement on net earnings is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE FOR THE
ENDED PERIOD FROM PERIOD FROM
DECEMBER 31, MAY 24 TO MAY 24 TO
-------------- DECEMBER 31, DECEMBER 31,
1997 1996 1995 1997
------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Net loss as previously
reported.............. $(1,691) $(256) $(112) $(2,059)
Net effect of the
restatement........... 261 (208) (53) --
------- ----- ----- -------
Net loss................ $(1,430) $(464) $(165) $(2,059)
======= ===== ===== =======
</TABLE>
F-35
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues, including shareholder revenues of $104 and
$270, respectively..................................... $ 198 $ 434
Operating expenses:
Cost of revenues....................................... 41 34
Product development costs.............................. 786 561
Sales and marketing.................................... 305 130
General and administrative............................. 851 467
Depreciation and amortization.......................... 323 223
--------- ---------
Operating Loss........................................... (2,108) (981)
Interest and other income (expense), net............... 8 22
--------- ---------
Net loss from continuing operations before income
taxes................................................ (2,100) (959)
Income tax provision (benefit)........................... -- 1
--------- ---------
Net loss before preferred stock dividend............... (2,100) (960)
Preferred stock dividend................................. -- 44
--------- ---------
Net loss attributable to common stock.................. $ (2,100) $ (1,004)
========= =========
Net loss per common share................................ $ (2.01) $ (0.98)
========= =========
Weight average shares outstanding...................... 1,046,047 1,025,167
========= =========
</TABLE>
F-36
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 7 $ 1,082
Accounts receivable, trade........................ 25 6
Accounts receivable, shareholder.................. -- 69
Prepaid expenses and other........................ 42 9
------- -------
Total current assets........................... 74 1,166
Property and equipment, net......................... 690 709
Intangibles, net.................................... 8 14
Content license fees, net........................... 50 67
Other assets, net................................... 24 26
------- -------
Total assets................................... $ 846 $ 1,982
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 327 $ 243
Accrued expenses.................................. 65 13
Deferred revenue.................................. 38 30
Convertible promissory note to shareholder........ 100 --
Senior secured promissory note, current portion... 148 --
------- -------
Total current liabilities...................... 678 286
Long-term Obligations:
Senior secured promissory note, less current
portion......................................... 321 --
Shareholder's equity (deficit):
Common stock, no par value; authorized 5,000,000
shares; 1,046,233 and 1,048,667 shares issued
and outstanding................................. 4 5
Note receivable from shareholder.................. -- (250)
Convertible preferred stock, no par value;
authorized 2,600,000 shares; 2,536,071 shares
issued and outstanding; liquidation preference
of $4,072,658 and $4,072,658.................... 4,098 4,098
Warrants for purchase of common stock............. 2 --
Deficit accumulated during the development
stage........................................... (4,257) (2,157)
------- -------
Total shareholders' equity (deficit)........... (153) 1,696
------- -------
Total liabilities and shareholders' equity..... $ 846 $ 1,982
======= =======
</TABLE>
F-37
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (2,100) $ (960)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and
equipment.......................................... 236 151
Amortization......................................... 87 73
Changes in operating assets and liabilities:......... 166 (102)
--------- --------
Net cash used in operating activities................... (1,611) (838)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (1) (138)
Reimbursement of prior years' equip. purchases.......... 297 --
Purchase of content licenses............................ (64) (65)
--------- --------
Net cash provided by (used in) investing activities..... 232 (203)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock......................... -- 2,250
Repurchase of common stock.............................. (1) --
Borrowings under convertible promissory note............ 100 --
Payments on shareholder note receivable................. 250 250
Borrowings/(Payments) against senior secured promissory
note.................................................. (45) --
--------- --------
Net cash provided by financing activities............... 304 2,500
--------- --------
Net (decrease) increase in cash........................... (1,075) 1,459
--------- --------
Cash and cash equivalents, beginning of period............ 1,082 100
--------- --------
Cash and cash equivalents, end of period.................. $ 7 $ 1,559
========= ========
</TABLE>
F-38
<PAGE>
DIRECT MEDICAL KNOWLEDGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for fair
presentation have been included. For further information, refer to the
financial statements and footnotes for the year ended December 31, 1997,
included elsewhere herein.
NOTE 2--SUBSEQUENT EVENT
On January 22, 1999, the shareholders of Direct Medical Knowledge, Inc. sold
their shares through a share exchange to WebMD, Inc.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sapient Health Network, Inc.:
We have audited the accompanying balance sheets of Sapient Health Network,
Inc. (the Company) as of September 30, 1997 and 1998, and the related
statements of operations, shareholders' deficit, and cash flows for the period
from November 21, 1995 (date of inception) through September 30, 1996 and each
of the years in the two-year period ended September 30, 1998. 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 generally accepted auditing
standards. 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 financial position of Sapient Health Network,
Inc. as of September 30, 1997 and 1998, and the results of its operations and
its cash flows for the period from November 21, 1995 (date of inception)
through September 30, 1996 and each of the years in the two-year period ended
September 30, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
Sapient Health Network, Inc. will continue as a going concern. As discussed in
note 2 to the financial statements, the Company has incurred losses since
inception and has a net capital deficiency; these conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 2 to the financial
statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
November 18, 1998
F-40
<PAGE>
SAPIENT HEALTH NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1997 1998
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 117,671 $ 1,159,659
Accounts receivable................................ 2,113 34,555
Unbilled revenue................................... -- 536,333
Prepaid expenses and other current assets.......... 6,021 30,981
---------- ------------
Total current assets.............................. 125,805 1,761,528
Property and equipment, net......................... 635,569 505,790
Restricted investment............................... 200,000 200,000
Other assets, net................................... 35,681 57,908
Deposits............................................ 68,034 68,508
---------- ------------
Total assets..................................... $1,065,089 $ 2,593,734
========== ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 412,310 $ 476,527
Accrued liabilities................................ 59,953 81,087
Deferred revenue................................... -- 506,333
Current installments of obligations under capital
leases........................................... 201,952 214,801
Convertible promissory notes....................... -- 5,523,795
Line of credit..................................... 600,000 600,000
---------- ------------
Total current liabilities......................... 1,274,215 7,402,543
Obligations under capital leases, net of current
installments...................................... 298,248 171,024
---------- ------------
Total liabilities................................. 1,572,463 7,573,567
Commitments and contingencies
Redeemable preferred stock; aggregate liquidation
preference $13,559,467:
Series C, $.001 par value. Authorized 1,200,000
shares; no shares issued and outstanding......... -- --
Series B, $.001 par value. Authorized 6,000,000
shares; issued and outstanding 2,811,680 shares
on September 30, 1997 and 1998, respectively..... 4,649,756 4,994,182
Shareholders' deficit:
Convertible preferred stock; aggregate liquidation
preference $850,000:
Series A, $.001 par value. Authorized, issued and
outstanding 850,000 shares on September 30, 1997
and 1998, respectively.......................... 850 850
Common stock, $.001 par value. Authorized
15,000,000 shares; issued and outstanding
2,029,100 and 2,133,560 shares on September 30,
1997 and 1998, respectively...................... 2,029 2,134
Additional paid-in capital......................... 863,482 906,496
Accumulated deficit................................ (6,023,491) (10,883,495)
---------- ------------
Total shareholders' deficit....................... (5,157,130) (9,974,015)
---------- ------------
Total liabilities, redeemable preferred stock and
shareholders' deficit.......................... $1,065,089 $ 2,593,734
========== ============
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE>
SAPIENT HEALTH NETWORK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 (DATE OF
INCEPTION) YEARS ENDED SEPTEMBER
THROUGH 30,
SEPTEMBER 30, ------------------------
1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Market research....................... $ -- $ -- $ 160,750
Sponsorship........................... -- 75,418 190,000
Other revenue......................... -- 762 2,016
----------- ----------- -----------
Total revenue........................ -- 76,180 352,766
----------- ----------- -----------
Operating expenses:
Sales and marketing................... 171,134 562,085 543,449
Community/content development......... 308,160 1,126,024 1,142,165
Research and development.............. 260,147 1,467,348 1,041,168
General and administrative............ 410,529 1,413,332 1,802,290
----------- ----------- -----------
Total operating expenses............. 1,149,970 4,568,789 4,529,072
----------- ----------- -----------
Loss from operations................. (1,149,970) (4,492,609) (4,176,306)
Other income (expense):
Interest income....................... -- 68,887 8,708
Interest expense...................... 18,505 (86,868) (347,980)
----------- ----------- -----------
Net loss before provision for income
taxes.............................. (1,168,475) (4,510,590) (4,515,578)
Provision for income taxes............. -- -- --
----------- ----------- -----------
Net loss............................. (1,168,475) (4,510,590) (4,515,578)
Accretion of Series B preferred stock
dividends............................ -- (344,426) (344,426)
----------- ----------- -----------
Net loss attributed to common
shareholders....................... $(1,168,475) $(4,855,016) $(4,860,004)
=========== =========== ===========
Net loss per common share--basic and
diluted.............................. $ (0.58) $ (2.40) $ (2.35)
Shares used in computing net loss per
common share--basic and diluted...... 2,002,000 2,019,113 2,069,072
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
SAPIENT HEALTH NETWORK, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK
STOCK SERIES A COMMON STOCK ADDITIONAL SUBSCRIPTION TOTAL
-------------- ----------------- PAID-IN NOTE ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT DEFICIT
------- ------ --------- ------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, at November 21,
1995 (date of
inception)............ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Preferred stock--less
issuance costs....... 850,000 850 -- -- 806,647 -- -- 807,497
Common stock issued.... -- -- 2,002,000 2,002 -- 2,002 -- --
Consulting expense on
stock option grants.. -- -- -- -- 105,925 -- -- 105,925
Net loss............... -- -- -- -- -- -- (1,168,475) (1,168,475)
------- ----- --------- ------- --------- ------ ------------- ------------
Balance at September 30,
1996.................. 850,000 850 2,002,000 2,002 912,572 (2,002) (1,168,475) (255,053)
Exercise of stock
options.............. -- -- 27,100 27 2,683 -- -- 2,710
Consulting expense on
stock option grants.. -- -- -- -- 42,558 -- -- 42,558
Adjustment to
consulting expense on
stock options........ -- -- -- -- (94,331) -- -- (94,331)
Repayment of stock
subscription note
receivable........... -- -- -- -- -- 2,002 -- 2,002
Accretion of Series B
preferred stock
dividends............ -- -- -- -- -- -- (344,426) (344,426)
Net loss............... -- -- -- -- -- -- (4,510,590) (4,510,590)
------- ----- --------- ------- --------- ------ ------------- ------------
Balance at September 30,
1997.................. 850,000 850 2,029,100 2,029 863,482 -- (6,023,491) (5,157,130)
Exercise of stock
options.............. -- -- 104,460 105 14,032 -- -- 14,137
Issuance of stock
warrants............. -- -- -- -- 21,876 -- -- 21,876
Consulting expense on
stock option grants.. -- -- -- -- 7,106 -- -- 7,106
Accretion of Series B
preferred stock
dividends............ -- -- -- -- -- -- (344,426) (344,426)
Net loss............... -- -- -- -- -- -- (4,515,578) (4,515,578)
------- ----- --------- ------- --------- ------ ------------- ------------
Balance at September 30,
1998.................. 850,000 $ 850 2,133,560 $ 2,134 $ 906,496 $ -- $ (10,883,495) $ (9,974,015)
======= ===== ========= ======= ========= ====== ============= ============
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
SAPIENT HEALTH NETWORK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 (DATE OF YEARS ENDED SEPTEMBER 30,
INCEPTION) THROUGH --------------------------
SEPTEMBER 30, 1996 1997 1998
------------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(1,168,475) $ (4,510,590) $ (4,515,578)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................. 43,936 204,105 326,058
Loss on disposal of property
and equipment................ -- 1,659 --
Non-cash consulting expense
for stock option grants...... 105,925 (51,773) 7,106
Change in assets and
liabilities:
Accounts receivable.......... -- (2,113) (32,442)
Unbilled revenue............. -- -- (536,333)
Prepaid expenses and other
current assets.............. (31,166) 4,396 (24,960)
Deposits..................... (64,321) (3,713) (474)
Restricted investment........ -- (200,000) --
Accounts payable............. 209,283 203,027 64,217
Accrued liabilities.......... 22,537 37,416 21,134
Deferred revenue............. -- -- 506,333
----------- ------------ ------------
Net cash used in operating
activities.................... (882,281) (4,317,586) (4,184,939)
----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions of property and
equipment..................... (47,384) (169,958) (74,290)
Increase in other assets
related to patents............ -- (25,997) (5,089)
----------- ------------ ------------
Net cash used in investing
activities.................... (47,384) (195,955) (79,379)
----------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of stock subscription
note receivable............... -- 2,002 --
Borrowings under bank line of
credit........................ -- 600,000 --
Principal payments on capital
leases........................ (28,256) (128,406) (225,415)
Proceeds from preferred and
common stock offerings........ 807,497 2,710 14,137
Proceeds from redeemable
preferred stock offering...... 165,000 4,140,330 --
Borrowings under convertible
promissory notes.............. -- -- 5,523,795
Proceeds from issuance of
warrants...................... -- -- 21,876
Increase in other assets
related to financing costs.... -- -- (28,087)
----------- ------------ ------------
Net cash provided by financing
activities.................... 944,241 4,616,636 5,306,306
----------- ------------ ------------
Net increase in cash........... 14,576 103,095 1,041,988
Cash at beginning of year...... -- 14,576 117,671
----------- ------------ ------------
Cash at end of year............ $ 14,576 $ 117,671 $ 1,159,659
=========== ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during year for
interest...................... $ 18,505 $ 86,868 $ 114,907
=========== ============ ============
Non-cash investing and
financing activities:
Equipment acquired under
capital lease obligations.... $ 321,603 $ 335,259 $ 111,040
=========== ============ ============
Accretion of redemption
preference................... $ -- $ 344,426 $ 344,426
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Sapient Health Network, Inc. (the Company), an Oregon Corporation, was
founded in November 1995 and creates online disease specific patient
communities on the World Wide Web, through which it brings members
personalized, condition-specific information and interactive community
features. The Company provides members with an extensive reference library,
in-depth reports on current topics and daily news articles from Reuters
Medical News. Through message boards and live chat rooms, members can share
personal experiences and coping strategies and provide each other emotional
support. The Company currently hosts ten online communities for patients
interested in asthma, breast cancer, cardiovascular disease, depression,
diabetes, fibromyalagia (FMS) chronic fatigue immune dysfunction syndrome,
hepatitis C, prostate cancer, obesity, women's health and kidney failure.
For the period November 31, 1995 (date of inception) through September 30,
1996 and the year ended September 30, 1997, the Company was a development
stage enterprise.
Revenue Recognition
Revenue from market research contracts is recognized upon delivery and
acceptance of the product by the customer. The amount of revenue for specific
projects is determined by market pricing models or associated direct costs of
the delivered and accepted product.
Revenue from sponsorship contracts for Web development and related
activities is recognized in time milestones, usually prorated over the length
of the agreement. Revenue from additional specified projects within the
sponsorship contract is determined by precedent pricing models or associated
direct costs of the project, and recognized when delivered and accepted by the
customer.
Deferred revenue and unbilled revenue represent amounts to be recognized and
billed upon project completion or upon achievement of project milestones.
Contracts may have termination and refund provisions that require payment for
all work completed through date of termination notice. Contracts may have
nonrefundable fees due upon signing associated with upfront set up costs that
are not related to project milestones or product deliverables. These fees are
recognized upon signing.
All of the Company's revenues for the years ended September 30, 1997 and
1998 were from sales in the U.S.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated on the straight-line method over the estimated useful
life of the assets, generally three years. Property and equipment held under
capital leases and leasehold improvements are amortized based on the straight-
line method over the shorter of the lease term or estimated useful life of the
assets, generally three years.
Maintenance and repairs are charged to expense as incurred. Major repairs
and improvements are capitalized and depreciated.
Restricted Investment
The Company has a certificate of deposit held by a bank as collateral for a
$200,000 standby letter of credit for costs incurred by the landlord, for the
Company's office space remodeling.
F-45
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Other Assets
Other assets consist primarily of patents and legal costs to obtain
financing. Patents are amortized using the straight-line method over the
estimated future economic benefit, which is generally three years. Financing
costs are amortized over the life of the loan unless conversion is expected
within a twelve month period, in which case they are netted against the
proceeds upon conversion. Amortization expense for the period from
November 21, 1995 (date of inception) through September 30, 1996 and the years
ended September 30, 1997 and 1998 was $3,029, $8,036 and $10,949,
respectively. Accumulated amortization at September 30, 1997 and 1998 was
$11,065 and $22,014, respectively.
Research and Development Expenditures
The Company incurs research and development expenses relating to the
development of its product. All research and development costs are expensed as
incurred.
Capitalized Software
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. The establishment of
technological feasibility of the Company's products has occurred shortly
before general release and, accordingly, no costs have been capitalized.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities.
Estimates and assumptions are also used in the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established to reduce deferred tax assets to the amount
expected to be realized.
Stock-Based Compensation
The Company accounts for stock-based compensation using Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. This statement permits a company to choose either a fair-value
based method of accounting for its stock-based compensation arrangements or to
comply with the current Accounting Principles Board Opinion 25 (APB Opinion
25) intrinsic-value-based method adding pro-forma disclosures of net loss
computed as if the fair-value-based method had been applied in the financial
F-46
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
statements. The Company applies SFAS No. 123 by retaining the APB Opinion 25
method of accounting for stock-based compensation for employees with annual
pro-forma disclosures of net loss. Stock-based compensation for non-employees
is accounted for using the fair-value-based method.
Net Loss Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share ("SFAS No. 128"). SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary and fully diluted earnings per share, outstanding
nonvested shares are not included in the computations of basic and diluted
earnings per share until the time-based vesting restriction has lapsed. Basic
earnings per share also excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, capital leases, convertible promissory notes and the line of
credit. At September 30, 1997 and 1998, the fair value of the Company's
receivables, payables, line of credit, capital lease obligations and
convertible promissory notes approximated fair value.
Advertising
The Company expenses the costs of advertising when the costs are incurred.
Advertising expense was approximately $2,000, $229,000 and $519,000 for the
period from November 21, 1995 (date of inception) through September 30, 1996
and the years ended September 30, 1997 and 1998, respectively.
Reclassifications
Certain amounts for 1996 and 1997 have been reclassified to conform to the
presentation for 1998. Such reclassifications have no effect on previously
reported results of operations.
Effect of Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, which establishes requirements for
disclosure of comprehensive income. The objective of SFAS 130 is to report all
changes in equity that result from transactions and economic events other than
transactions with owners. Comprehensive income is the total of net income and
all other non-owner changes in equity. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of earlier financial
statements for comparative purposes is required. The Company does not expect
implementation to have a significant impact on its financial statements.
Also in June 1997, the FASB issued SFAS No. 131, Disclosure about Segments
of an Enterprise and Related Information. SFAS 131 requires public companies
to report certain information about their operating segments in a complete set
of financial statements to shareholders. It also requires reporting of certain
enterprise-wide information about the company's products and services, its
activities in different geographic areas and its reliance on major customers.
The basis for determining the company's operating segments is the manner in
which management operates the business. SFAS 131, is effective for fiscal
years beginning after December 15, 1997. The Company does not expect
implementation to have a significant impact on its financial statements.
F-47
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, Software Revenue Recognition,
which provides guidance on applying generally accepted accounting principles
in recognizing revenue of software transactions. The Company adopted SOP 97-2
on January 1, 1998. The impact to the Company's financial statements was not
material.
Related to the SOP 97-2, the AICPA issued SOP 98-4 Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue Recognition. SOP 98-4 defers
for the one year, the application of several paragraphs and examples in SOP
97-2 that limit the definition of vendor specific objective evidence of the
fair value of various elements in a multiple element arrangement. The impact
on the Company's financial statements is not expected to be material.
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up
Activities. The SOP requires that costs incurred during start-up activities,
including organizational costs, be expensed as incurred. SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998.
Restatement of previously issued financial statements is not permitted. The
Company does not expect implementation to have a significant impact on its
financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability at its fair value. The
standard also requires that changes in the derivatives' fair value be
recognized currently in the results of operations unless specific hedge
accounting criteria are met. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The Company does not expect SFAS 133 to have a material
impact on its financial statements.
(2) LIQUIDITY
To meet the cash flow needs of the Company in fiscal 1999, the Company will
need to issue additional equity securities, borrow additional funds, or obtain
other financing. The Company has no commitments for additional financing and
there can be no assurance that such financing will be available on
satisfactory terms, if at all. The accompanying financial statements have been
prepared on the basis that the Company will be able to meet its cash needs and
continue as a going concern. See note 15.
(3) PROPERTY AND EQUIPMENT
Property and equipment at September 30, consists of the following:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Computers and related equipment..................... $ 814,260 $ 998,368
Furniture and office equipment...................... 21,690 15,532
Leasehold improvements.............................. 36,595 43,975
--------- ----------
872,545 1,057,875
Less accumulated depreciation and amortization...... (236,976) (552,085)
--------- ----------
$ 635,569 $ 505,790
========= ==========
</TABLE>
Depreciation and amortization expense on property and equipment was $40,907,
$196,069 and $315,109 for the period from November 21, 1995 (date of
inception) through September 30, 1996 and the years ended September 30, 1997
and 1998, respectively.
F-48
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) CAPITAL LEASES
The Company is obligated for equipment under various capital leases that
expire at various dates through 2001. These leases are secured by the related
equipment. At September 30, 1997 and 1998, the gross amount of the equipment
acquired under capital leases was $656,862 and $774,386, respectively, and
related accumulated amortization was $187,466 and $472,564, respectively.
Amortization of assets held under capital leases is included with
depreciation and amortization expense in the accompanying financial
statements.
Future minimum capital lease payments are as follows:
<TABLE>
<S> <C>
YEAR ENDING SEPTEMBER 30:
1999........................................................ $ 241,978
2000........................................................ 142,396
2001........................................................ 39,077
---------
Total minimum lease payments................................ 423,451
Less amount representing interest........................... (37,626)
---------
Present value of net minimum capital lease payments........ 385,825
Less current installments of obligations under capital
leases.................................................... (214,801)
---------
Obligations under capital leases, net of current
installments............................................. $ 171,024
=========
</TABLE>
(5) LINE OF CREDIT
The Company utilizes a $600,000 revolving line of credit agreement with a
bank at an annual interest rate of prime plus 1% (9.5% at September 30, 1998).
Amounts outstanding under the line of credit were $600,000 at September 30,
1997 and 1998, respectively. The bank holds a security interest in the
Company's assets throughout the term of this loan, due October 1, 1998. The
line was renewed subsequent to year end, as discussed in note 14.
(6) CONVERTIBLE PROMISSORY NOTES
The Company issued the following convertible promissory notes in fiscal
1998:
. In October 1997, $1,020,000 at 10% interest per annum, principal and
interest converted to Series B Preferred Stock in October 1998. (See
note 14)
. In March 1998, $2,000,000 in senior debt at 8% interest per annum, with
the lender having the option to convert principal amount into equivalent
equity securities at due date in March 1999.
. In July 1998, $2,275,400 at 8% per annum, principal and interest to
convert to equivalent equity securities in January 1999.
The outstanding balance at September 30, 1998 includes accrued interest
payable on these notes.
(7) INCOME TAXES
Due to the Company's losses before income taxes in each period since
inception there has been no provision for federal and state income taxes for
the period from November 21, 1995 (date of inception) through September 30,
1996 and the years ended September 30, 1997 and 1998.
F-49
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES--(CONTINUED)
The reconciliation of the statutory federal income tax rates to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
THE PERIOD FROM YEARS ENDED
NOVEMBER 21, 1995 SEPTEMBER
(DATE OF 30,
INCEPTION) THROUGH -------------
SEPTEMBER 30, 1996 1997 1998
------------------ ----- -----
<S> <C> <C> <C>
Federal statutory rate................ (34.0)% (34.0)% (34.0)%
State income taxes, net of federal
benefit............................. (4.4) (4.4) (4.4)
Change in valuation allowance......... 38.5 39.3 39.2
Other, net............................ (0.1) (0.9) (0.8)
----- ----- -----
-- % -- % -- %
===== ===== =====
</TABLE>
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. The tax effects of
significant items comprising the Company's deferred tax assets as of September
30 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards............... $ 1,840,300 $ 3,653,900
Option compensation............................ 57,000 31,000
Amortization of startup and organizational
costs........................................ 278,300 210,000
Research and experimentation credits........... 56,000 87,800
Other.......................................... 15,800 13,900
----------- -----------
2,247,400 3,996,600
Valuation allowance............................ (2,222,800) (3,992,700)
----------- -----------
Net deferred tax assets....................... 24,600 3,900
DEFERRED TAX LIABILITIES:
Depreciation and amortization.................. (24,600) (3,900)
----------- -----------
Net deferred tax assets....................... $ -- $ --
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of September 30, 1997 and
1998, was $2,222,800 and $3,992,700, respectively. The net change in the total
valuation allowance for the period November 21, 1995 (date of inception)
through September 30, 1996 and the years ended September 30, 1997 and 1998,
was an increase of $450,000, $1,772,800 and $1,769,900, respectively.
At September 30, 1998, the Company has net operating loss carryforwards of
approximately $9,526,000 and research and experimentation credit carryforwards
of $87,800 to offset future federal taxable income and income taxes, if any,
through 2017. As defined in Internal Revenue Section 382, the utilization of a
portion of the net operating loss and credit carryforwards may be limited due
to a change in ownership caused by additional investors, occurring on November
1, 1996. The Company believes no additional ownership changes have occurred,
however a formal analysis has not been completed.
F-50
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) STOCK OPTION PLAN
Effective January 30, 1996, the Company adopted a Stock Option Plan (the
Plan) which provides for the granting of stock options to employees, directors
and consultants within the meaning of Section 442 of the Internal Revenue
Code, and non-statutory stock options. The right to exercise these options
vests from zero to forty-eight months. The Company has reserved 1,500,000
shares of common stock for issuance upon exercise of options granted under the
Plan.
As of September 30, 1998, 1,097,409 options remain outstanding pursuant to
the Plan. The per share weighted-average fair value of stock options granted
during the period from November 21, 1995 (date of inception) through September
30, 1996 and the years ended 1997 and 1998 were $.10, $.16 and $.27,
respectively, on the date of grant using the Black-Scholes pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
THE PERIOD
FROM
NOVEMBER 21,
1995 (DATE OF
INCEPTION) YEARS ENDED
THROUGH SEPTEMBER 30,
SEPTEMBER 30, ------------------
1996 1997 1998
------------- -------- --------
<S> <C> <C> <C>
Dividend yield............................. -- -- --
Expected volatility........................ 100% 100% 100%
Risk-free interest rate.................... 5.7% 6% 6.5%
Expected life.............................. 10 years 10 years 10 years
</TABLE>
The total value of options granted during the period September 21, 1995
(date of inception) through September 30, 1996 and for the years ended
September 30, 1997 and 1998 were $18,281, $36,691 and $35,681, respectively,
which would be amortized on a straight-line basis over the vesting period of
the options (typically four years).
The Company applies Accounting Principle Bulletin Opinion No. 25 in
accounting for stock options issued to employees and directors under the Plan,
accordingly, no compensation cost has been recognized for these stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards (SFAS) No. 123 the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THE PERIOD
FROM NOVEMBER
21, 1995
(DATE OF
INCEPTION) YEARS ENDED
THROUGH SEPTEMBER 30,
SEPTEMBER 30, ------------------------
1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported......................... $(1,168,475) $(4,510,590) $(4,515,578)
Pro forma........................... $(1,169,822) $(4,518,701) $(4,530,958)
</TABLE>
F-51
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) STOCK OPTION PLAN (CONTINUED)
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Options outstanding at January 30, 1996
(date of the Plan adoption)........................... -- $--
Granted................................................. 396,125 .10
Exercised............................................... -- --
Canceled................................................ -- --
--------- ----
Options outstanding at September 30, 1996............... 396,125 .10
Granted................................................. 652,239 .16
Exercised............................................... (27,100) .10
Canceled................................................ (68,246) .10
--------- ----
Options outstanding at September 30, 1997............... 953,018 .14
Granted................................................. 379,375 .27
Exercised............................................... (104,460) .14
Canceled................................................ (130,524) .12
--------- ----
Options outstanding at September 30, 1998............... 1,097,409 $.19
========= ====
</TABLE>
At September 30, 1998, the weighted-average exercise price and weighted-
average remaining contractual life of outstanding options was $.19 and nine
years, respectively.
At September 30, 1998, 603,282 outstanding options were currently
exercisable, and the weighted-average exercise price of these options was
$.14.
(9) REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred
stock. During fiscal 1998, the Company amended its articles of incorporation
to designate a new series of preferred stock, designated as Series C preferred
stock, and to amend certain terms of the rights, privileges and preferences of
its Series B preferred stock. Following such amendment, the Company had three
series of convertible preferred stock, designated as Series A, B and C
preferred stock. The Company's Series B and C preferred stock is redeemable as
described more fully below. The material rights, preferences, privileges and
restrictions for each series of preferred stock are summarized below:
Dividends
Holders of the Series B and C preferred stock shall be entitled to receive
cumulative dividends of eight percent (8%) of the original issue per share
price of each such series per share per annum prior and in preference to the
holders of any other stock of the Company. Such cumulative dividends shall
cease to accrue when the balance of such cumulative dividends, whether paid or
unpaid, equals, in the aggregate, two times the respective original issue
price of the Series B and C preferred stock. The holders of the Series B and C
preferred stock are also entitled to receive an amount equal per share to any
dividend declared and paid to holders of the Company's common stock. The
holders of the Series A preferred stock are entitled to receive an amount
equal per share to any dividend declared and paid to holders of the Company's
common stock.
F-52
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT--(CONTINUED)
Liquidation Preferences
Upon the occurrence of a liquidation event, such as a dissolution of the
Company or a merger or sale of assets, the holders of Series C preferred stock
shall be entitled to receive in preference to holders of Series A and B
preferred stock and common stock an amount equal to the proportion that the
Series C preferred stock represents to the fully diluted capital stock of the
Company, the holders of Series B preferred stock shall be entitled to receive
in preference to holders of Series A preferred stock and common stock an
amount equal to the original issue price of the Series B preferred stock, the
holders of Series A preferred stock shall be entitled to receive in preference
to holders of common stock an amount equal to up to the original issue price
of the Series A preferred stock, the holders of Series B preferred stock shall
be entitled to then receive in preference to the holders of common stock up to
an amount equal to two times the original issue price of the Series B
preferred stock, and thereafter, the holders of Series A, B and C preferred
stock shall share any remaining proceeds on a pro rata basis with the holders
of common stock based on the number of shares of common stock held by each,
assuming full conversion of the Series A, B and C preferred stock.
Conversion
Holders of the Series A, B and C preferred stock may convert all or part of
their shares at any time after the date of issuance into such number of common
stock as is determined by multiplying such number of shares by the series
conversion rate in effect at the time. Conversion is automatic upon the
closing of an IPO of the Company's common stock at a price of not less than
$6.16 per share and with aggregate gross proceeds of not less than $20,000,000
or by written consent or agreement of the holders of two-thirds of the
outstanding shares of Series A, B and C preferred stock voting together as a
single class.
Redemption
The Company shall redeem the Series B and C preferred stock at the option of
the holders of such preferred stock after September 30, 2001 and before
September 30, 2004, subject to reasonable financial stability considerations,
payable in eight equal quarterly installments. The holders of the Series B and
C preferred stock shall be entitled to a redemption price per share equal to
the original issuance price, plus accrued and unpaid dividends with respect to
such shares.
Common Stock
The Company is authorized to issue up to 15,000,000 shares of common stock.
The common stock shareholders have voting rights and, subject to any
preferential rights granted to any series of preferred shareholders, are
entitled to receive distributions legally payable to shareholders upon
liquidation of the Company.
Warrants
During fiscal 1997, the Company issued warrants to investors. Each warrant
permits the holder to purchase one share of the Company's common stock. At
September 30, 1998 warrants to purchase 67,788 shares and 34,016 shares at
exercise prices of $2.25 and $0.16, respectively were outstanding. Each of the
warrants are exerciseable within five years from the date of purchase.
During fiscal 1998, in connection with the convertible promissory note
financing, the Company issued 871,226 warrants to purchase Series B Preferred
Stock to investors. The warrants are exercisable at a price of $1.54 per share
within ten years from date of issuance.
F-53
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT--(CONTINUED)
The holders/subscribers of shares of stock and stock warrants are subject to
the restrictions set forth in Shareholder Agreements/Subscription Agreements.
The terms of these agreements primarily relate to the right of first refusal.
Before any common shareholder may sell or otherwise transfer any share of
common stock, such shares shall first be offered to the Company.
(10) RETIREMENT BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan (the Retirement
Plan). Employees who are at least 21 years old are eligible to participate in
the Retirement Plan beginning the month subsequent to employment. Participants
may defer up to 15% of eligible compensation. Currently, the Company does not
provide matching contributions for the Retirement Plan.
(11) COMMITMENTS AND CONTINGENCIES
Leases
The company leases office space under a non-cancelable operating leases
which expire at various times through May 2004.
Future minimum lease payments under the operating lease is as follows:
<TABLE>
<S> <C>
YEAR ENDING SEPTEMBER 30:
1999........................................................... $ 264,212
2000........................................................... 273,012
2001........................................................... 273,012
2002........................................................... 273,012
2003........................................................... 273,012
Thereafter..................................................... 182,008
----------
$1,538,268
==========
</TABLE>
Total rent expense under operating leases was $18,284, $93,011 and $230,182
for the period from November 21, 1995 (date of inception) through September
30, 1996 and for the years ended September 30, 1997 and 1998, respectively.
Litigation
From time to time the Company may be involved in various legal actions in
the normal course of business. Management is of the opinion that the outcome
of such actions will not have a material adverse effect on the Company's
financial condition.
(12) CUSTOMER INFORMATION
The Company had one customer that accounted for approximately 25% and 59% in
1997 and 1998, respectively, of the Company's revenues.
F-54
<PAGE>
SAPIENT HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(13) RISK OF TECHNOLOGICAL CHANGE
Contingencies and Factors that Could Affect Future Results
A substantial portion of the Company's revenues each year are generated from
the development of websites and market research performed over the Internet.
In the extremely competitive industry environment in which the Company
operates, such product generation, development and marketing processes are
uncertain and complex, requiring accurate prediction of demand as well as
successful management of various development risks inherent to the Internet.
In light of these dependencies, it is possible that failure to successfully
manage future changes in technology with respect to the Internet could have
long-term impact on the Company's growth and results of operations.
(14) SUBSEQUENT EVENTS
The convertible promissory notes issued October 1997 were converted on
October 9, 1998 to 732,895 shares of Series B Preferred Stock at $1.54 per
share.
The $600,000 bank line of credit, due October 1998, was subsequently
amended. The new Agreement reduced the line to $500,000 and extends maturity
through December 31, 1998. A warrant to purchase 16,234 shares of Series B
Preferred Stock was granted in consideration for this Amendment.
(15) UNAUDITED RECENT DEVELOPMENT
On January 4, 1999, the Company entered into a merger agreement with WebMD.
Pursuant to the merger agreement, among other things, all issued and
outstanding shares of the Company's common and preferred stock will be
converted into the right to receive shares of preferred series B stock of
WebMD,
The acquisition is expected to provide the Company with the additional
financial resources to continue operations. If the acquisition is not
completed, the Company would have to find alternative financing sources to
continue operations.
F-55
<PAGE>
[LOGO OF WEBMD, INC. APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with the Offering
described in the Registration Statement. All amounts are estimates except the
SEC Registration Fee and the NASD fees:
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 15,290
NASD fees........................................................ 6,000
Nasdaq fees...................................................... 95,000
Blue Sky Fees and Expenses....................................... 5,000
Printing and Engraving........................................... 200,000
Legal Fees and Expenses.......................................... 750,000
Accounting Fees and Expenses..................................... 500,000
Transfer Agent Fees.............................................. 10,000
Miscellaneous Expenses........................................... 16,710
----------
Total.......................................................... $1,598,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Business Corporation Code, as amended (the "Georgia Law"),
permits a corporation to eliminate or limit the personal liability of a
director to the corporation or its shareholders for monetary damages for
breach of duty of care or other duty as a director, provided that no provision
shall eliminate or limit the liability of a director for: (i) an
appropriation, in violation of his duties, of any business opportunity of the
corporation; (ii) acts or omissions which involve intentional misconduct or a
knowing violation of law; (iii) unlawful corporate distributions; or (iv) any
transaction from which the director received an improper personal benefit.
This provision relates only to breaches of duty by directors in their capacity
as directors (and not in any other corporate capacity, such as officers) and
limits liability only for breaches of fiduciary duties under Georgia Law (and
not for violation of other laws, such as the federal securities laws). The
Company's Amended and Restated Articles of Incorporation, as amended (the
"Articles of Incorporation"), exonerate the Company's directors from monetary
liability to the extent described above.
In addition to such rights as may be provided by law, the Company's Amended
and Restated Bylaws (the "Bylaws") provide broad indemnification rights to the
Company's directors and such officers, employees and agents as may be selected
by such directors, with respect to various civil and criminal liabilities and
losses which may be incurred by such director, officer, agent or employee
pursuant to any pending or threatened litigation or other proceedings, except
that such indemnification does not apply in the same situations described
above with respect to the exculpation from liability of the Company's
directors. The Company is also obligated to reimburse such directors and other
parties for expenses, including legal fees, court costs and expert witness
fees, incurred by such person in defending against any such liabilities and
losses, as long as such person in good faith believes that he or she acted in
accordance with the applicable standard of conduct with respect to the
underlying accusations giving rise to such liabilities or losses and agrees to
repay to the Company any advances made under the Bylaws. Any amendment or
other modification to the Bylaws which limits or otherwise adversely affects
the rights to indemnification currently provided therein shall apply only to
proceedings based upon actions and events occurring after such amendment and
delivery of notice thereof to the indemnified parties.
The Company has entered into separate indemnification agreements with each
of its directors and certain of its officers, whereby the Company agreed,
among other things, to provide for indemnification and advancement of expenses
in a manner and subject to terms and conditions similar to those set forth in
the Bylaws. These agreements may not be abrogated by action of the
shareholders. In addition, the Company
II-1
<PAGE>
holds an insurance policy covering directors and officers under which the
insurer agrees to pay, subject to certain exclusions, for any claim made
against the directors and officers of the Company for a wrongful act that they
may become legally obligated to pay or for which the Company is required to
indemnify the directors or officers.
The Company believes that the above protections are necessary in order to
attract and retain qualified persons as directors and officers.
Reference is hereby made to Section of the Underwriting Agreement, the
form of which is filed as Exhibit 1.1 hereto, in which the Underwriters agree
to indemnify the directors and officers of the Company and certain other
persons against certain civil liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission (the "Commission") such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The share numbers presented below are provided with respect to the shares of
Common Stock, Series B Common Stock, Series C Common Stock, Series D Common
Stock, Series E Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock and reflect the recapitalization on a share
for share basis into Common Stock which will occur upon the completion of the
offering.
In January 1997, the Company sold an aggregate of 3,450,000 shares of Common
Stock to four investors at a price of $0.002 per share as the initial
issuances of stock in the Company. Each of the investors was an accredited
investor.
In December 1996, the Company entered into a $500,000 convertible promissory
note with an accredited investor. In April 1997, the investor converted the
outstanding principal amount and promissory note and accrued interest thereon
into 509,305 shares of Common Stock at a price of $1.00 per share.
In March 1997, the Company issued 3,450,000 shares of Common Stock in
exchange for 3,450,000 shares of common stock of Endeavor to four investors
pursuant to an agreement of merger. Each of the investors were accredited.
From February 1997 to July 1998, the Company sold 2,797,500 shares of Common
Stock to 35 accredited investors at a price of $2.00 per share.
In August 1996, Endeavor borrowed $200,000 from an accredited investor. In
March 1998, the Company converted the debt into 100,000 shares of Common Stock
at a price of $2.00 per share.
In August 1997, the Company borrowed $4.0 million from Sirrom Investments,
Inc. ("Sirrom"). In connection with this loan, the Company issued Sirrom
warrants to purchase 557,490 shares of Common Stock at $0.01 per share.
In December 1997, the Company sold 1.1 million shares of Common Stock to
Premiere Technologies, Inc. ("Premiere Technologies") at a price of $2.00 per
share and issued a warrant to purchase an additional 1.0 million shares of
Common Stock at an exercise price of $2.00 per share. In April 1998, Premiere
Technologies exercised the outstanding warrant in full.
II-2
<PAGE>
From January 1997 to August 1998, the Company granted options to purchase
2,101,422 shares of Common Stock at an exercise price of $2.00 per share to
directors, executive officers, employees, independent sales representatives
and consultants and options to purchase 28,114 shares of Common Stock at an
exercise price of $4.00 per share to employees and independent sales
representatives. From November 1998 to December 1998, the Company granted
options to purchase 1,950,000 shares of Common Stock at an exercise price of
$15.00 per share to certain executive officers. From December 1998 to January
1999, the Company granted options to purchase 827,000 shares of Common Stock
at an exercise price of $20.00 per share to employees. As of September 16,
1998, options to purchase 120,000 shares at an exercise price of $2.00 had
been exercised.
In July 1998, the Company issued to Matria Healthcare, Inc. ("Matria") a
warrant to purchase 80,000 shares of Common Stock at an exercise price equal
to the price offered to the public hereby.
In August 1998, the Company sold 667,000 shares of Common Stock to HBO &
Company of Georgia ("HBOC") at a price of $15.00 per share. In connection with
the sale of stock to HBOC, the Company issued to HBOC a warrant to purchase
300,000 shares of Common Stock at $18.00 per share.
In September 1998, the Company sold 134,000 shares of Common Stock to Matria
at a price of $15.00 per share. In connection with the sale of stock to
Matria, the Company issued to Matria a warrant to purchase 60,000 shares of
Common Stock at $18.00 per share.
In October 1998, the Company issued 30,000 shares of restricted stock in
exchange for corporate communications services.
In December 1998, the Company issued 50,000 shares of Common Stock to
certifiedemail.com, Inc. in exchange for all of its assets. The exchange price
per share was equal to $20.00.
In January 1999, the Company issued 1,750,000 shares of Common Stock to SHN
in exchange for all of the outstanding stock, options and warrants and certain
convertible debt of Sapient Health Network, Inc. The exchange prices per share
was equal to $20.00.
In January 1999, the Company issued 625,000 shares of Common Stock in
exchange for all of the outstanding stock, options and warrants and certain
convertible debt of Direct Medical Knowledge, Inc. The exchange prices per
share was equal to $20.00.
In January 1999, the Company sold 1,698,750 shares of Common Stock to 21
holders at a price of $20.00 per share.
In January 1999, the Company issued warrants to purchase an aggregate of
900,000 shares of Common Stock at an exercise price of $20.00 per share.
In January 1999, the Company issued 180,000 shares of Common Stock in
exchange for life sciences content.
In January 1999, the Company issued 100,000 shares of Common Stock to
Nationwide Medical Services, Inc. in exchange for a 30% interest in such
Company.
Each issuance of securities described above was made in reliance on one or
more of the exemptions from registration provided by Sections 3(a)(11), 4(2)
and 4(6) of the Securities Act, Regulation D and Rule 701, as promulgated by
the Commission pursuant to the Securities Act. Recipients of securities in
these transactions represented their intention to acquire the securities for
investment purposes only and not with a view to or for the sale in connection
with any distribution thereof, and appropriate legends were affixed to the
share certificates issued in such transactions. All recipients of these
securities had adequate access, through their relationships with the Company,
to information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement between Matria Healthcare, Inc., Quality
Diagnostic Services, Inc., Telemedics, Inc. and the Company dated
July 21, 1998, but effective as of July 1, 1998.+**
2.2 Asset Purchase Agreement between certifiedemail.com, Inc., Gary B.
"Court" Coursey, Jr. and the Company dated December 31, 1998.+**
2.3 Agreement and Plan of Merger dated as of January 4, 1999 between
the Company, SHN Merger Corp. and Sapient Health Network, Inc.+
2.4 Agreement and Plan of Merger dated as of January 12, 1999 by and
among the Company, SHN Merger Corp., Direct Medical Knowledge,
Inc., the shareholders of Direct Medical Knowledge, Inc. and Kemp
Battle, the indemnitor representative.+
2.5 Amendment to Agreement and Plan of Merger dated as of January 15,
1999 by and among the Company, Direct Medical Knowledge, Inc.,
SHN Merger Corp., the shareholders of Direct Medical Knowledge,
Inc. and Kemp Battle, the indemnitor representative.+
2.6 Stock Purchase Agreement dated as of January 28, 1999 between the
Company and Nationwide Medical Services, Inc.+
Amended and Restated Articles of Incorporation dated August 12,
3.1 1998.**
3.2 Articles of Amendment to the Amended and Restated Articles of
Incorporation dated August 17, 1998.**
3.3 Articles of Amendment to the Amended and Restated Articles of
Incorporation dated August 24, 1998.**
3.4 Articles of Amendment to the Amended and Restated Articles of
Incorporation dated January 22, 1999.**
3.5 Articles of Amendment to the Amended and Restated Articles of
Incorporation dated January 26, 1999.**
3.6 Amended and Restated Bylaws.**
4.1 See Exhibits 3.1 through 3.6 for provisions of the Amended and
Restated Articles of Incorporation, as amended, and the Amended
and Restated Bylaws defining the rights of the holders of Common
Stock of the Company.**
4.2* Specimen Common Stock Certificate.
5.1* Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
9.1 Voting Agreement dated on or about January 14, 1999 between the
Company and certain shareholders.
10.1 Stock Purchase Warrant between Sirrom Capital Corporation and the
Company dated August 29, 1997 (as assigned to Sirrom Investments,
Inc.).**
10.2 Escrow Agreement dated as of January 28, 1999 by and among the
Company, Nationwide Medical Services, Inc. and SunTrust Bank,
Atlanta, as escrow agent.
10.3 Registration Rights Agreement between Premiere Technologies, Inc.
and the Company dated December 15, 1997.**
10.4 Sublease Agreement between Premiere Technologies, Inc. and the
Company dated December 15, 1997.**
10.5 Equipment Lease between Premiere Technologies, Inc. and the
Company dated December 15, 1997.**
10.6 Co-Marketing and Integration Agreement between Premiere
Communications, Inc. and the Company dated December 15, 1997.***
10.7 Amendment 2 to the Co-Marketing & Integration Agreement dated
February 17, 1999 between the Company and Premiere
Communications, Inc.***
10.8 Escrow Agreement between certifiedemail.com, Inc., SunTrust Bank,
Atlanta and the Company dated December 31, 1998.**
10.9 Stock Purchase Warrant between Matria Healthcare, Inc. and the
Company dated July 21, 1998.**
10.10 Noncompetition Agreement between Quality Diagnostic Services,
Inc., Telemedics, Inc., Matria Healthcare, Inc. and the Company
dated July 21, 1998, but effective as of July 1, 1998.**
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 Management Services Agreement between Matria Healthcare, Inc. and
the Company dated July 1, 1998.**
10.12 Licensed Premises Agreement between Matria Healthcare, Inc. and
the Company dated July 21, 1998.**
10.13 Escrow Agreement dated January 22, 1999 among the Company,
SunTrust Bank, Atlanta, as escrow agent, the shareholders of
Direct Medical Knowledge, Inc. and Kemp Battle, as indemnitor
representative.
10.14 Noncompetition Agreement between Jeffrey T. Arnold, Matria
Healthcare, Inc. and the Company dated July 21, 1998.**
10.15 Form of Noncompetition Agreement between certain employees of the
Company, Matria Healthcare, Inc. and the Company dated July 21,
1998. (Certain employees include Rick Anderson, Jeff M. Brown and
Stuart Gurr).**
10.16 Noncompetition Agreement between Blake Whitney, Matria Healthcare,
Inc. and the Company dated July 21, 1998.**
10.17 Investment Agreement between HBO & Company of Georgia and the
Company dated August 24, 1998 as amended by Amendment to
Investment Agreement dated October 23, 1998.**/***
10.18 Amendment to Investment Agreement dated as of October 23, 1998
between the Company and HBO & Company of Georgia.**/***
10.19 Warrant between HBO & Company of Georgia and the Company dated
August 24, 1998.**
10.20 Investment Agreement between Matria Healthcare, Inc. and the
Company dated September 1, 1998.**
10.21 Warrant between Matria Healthcare, Inc. and the Company dated
September 1, 1998.**
10.22 Procurement and Trafficking Agreement between DoubleClick Inc. and
the Company dated June 16, 1998.**/***
10.23 Strategic Alliance Agreement between ENVOY Corporation and the
Company dated June 15, 1998.**/***
10.24 First Amended and Restated Siteman Interactive and Support
Services Agreement (including Non-Exclusive License) between iXL,
Inc. and the Company dated June 17, 1998.**/***
10.25 iLearn Development and Interactive Services Agreement between iXL,
Inc. and the Company dated June 17, 1998.**/***
10.26 License Agreement between Network Computer, Inc. and the Company
dated May 29, 1998.**/***
10.27 Amendment No. 1 to the License Agreement between Network Computer,
Inc. and the Company dated as of November 11, 1998.**/***
10.28 Physician Service License and Service Agreement between Thomson
Healthcare Information Company, Inc. and the Company dated July
15, 1998.**/***
10.29 Virtual Internet Provider (VIP) Agreement between UUNET
Technologies, Inc. and the Company dated September 11,
1998.**/***
10.30 Lease Agreement between Quality Diagnostic Cardiac Services, Inc.
and Pavilion Partners, L.P. dated September 16, 1996.**
10.31 Sublease Agreement between Quality Diagnostic Services, Inc. and
CardGuard USA, Inc. dated March 30, 1998.**
Employment Agreement between Jeffrey T. Arnold and the Company
10.32 dated September 30, 1998.**
10.33 Employment Agreement between W. Michael Heekin and the Company
dated July 11, 1997.**
Employment Agreement between K. Robert Draughon and the Company
10.34 dated February 1, 1998.**
10.35 Memorandum of Understanding between William P. Payne, Premiere
Technologies, Inc. and the Company dated July 6, 1998.**
10.36 Amended and Restated 1997 Stock Incentive Plan.**
10.37 Escrow Agreement dated January 25, 1999 by and among the Company,
SunTrust Bank, Atlanta, as escrow agent, and Philippe Chambon, as
the shareholder representative of the shareholders of Sapient
Health Network, Inc.
10.38 WebMD, Inc. Director Stock Option Plan.**
10.39 Form of Director's and Officer's Indemnification Agreement.**
10.40 Co-Marketing Agreement between E*TRADE Group, Inc. and the Company
dated October 20, 1998.**/***
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.41 License and Service Agreement between Delmar Publishers and the
Company dated December 22, 1998.**/***
10.42 Memorandum of Understanding between CNN Interactive, a division of
Cable News Network, Inc., and the Company dated December 16,
1998.**/***
10.43 Strategic Distribution Alliance Agreement between HBO & Company of
Georgia and the Company dated October 23, 1998.**/***
10.44 Addendum to Strategic Distribution Alliance Agreement dated
November 3, 1998 between the Company and HBO & Company of
Georgia.**/***
10.45 Internet Customization and Access Services Agreement between
CompuServe Interactive Services, Inc. and the Company dated
December 18, 1998.**/***
10.46 Letter Agreement dated as of January 20, 1999 between the Company
and McKesson HBOC, Inc.***
10.47 Restated Shareholders Agreement between certain shareholders and
the Company dated October 18, 1996.**
10.48 First Amendment to Restated Shareholders Agreement between certain
shareholders and the Company dated December 15, 1997.**
10.49 Second Amendment to Restated Shareholders Agreement between
certain shareholders and the Company dated August 24, 1998.**
10.50 Third Amendment to Restated Shareholders Agreement between certain
shareholders and the Company dated September 1, 1998.**
10.51 Fourth Amendment to Restated Shareholders Agreement between
certain shareholders and the Company dated January 21, 1999.**
10.52 Shareholders Agreement between certain shareholders and the
Company dated August 24, 1998.**
10.53 First Amendment dated January 28, 1999 to Shareholders Agreement
dated as of August 24, 1998 between the Company and certain
shareholders.
10.54 Letter Agreement and Related Documents dated December 31, 1998
between the Company and HBO & Company of Georgia.***
10.55 Data License and Product Remarketer Agreement dated December 31,
1998 by and between MediRisk, Inc. and the Company.***
10.56 Content License Agreement dated as of December 31, 1998 between
InteliHealth, Inc. and the Company.***
10.57 Letter Agreement dated as of January 15, 1999 between the Company
and Transcriptions, Ltd.***
10.58 Registration Rights Agreement (the "1999 Registration Rights
Agreement") dated as of January 13, 1999 among the Company and
KEP VI, LLC, Hall Family Investments, L.P. and Holcombe T. Green,
Jr.
10.59 First Amendment dated as of January 22, 1999 between the Company
and Croft & Bender, LLC. to the 1999 Registration Rights
Agreement.
10.60 Second Amendment dated as of January 25, 1999 between the Company
and KEP VI, LLC, Hall Family Investments, L.P. and Holcombe T.
Green, Jr. to the 1999 Registration Rights Agreement.
10.61 Third Amendment dated as of January 27, 1999 between the Company
and certain principals of Gleacher NatWest Inc. and Tenet
Healthcare Corporation to the 1999 Registration Rights Agreement.
10.62 Fourth Amendment dated as of January 28, 1999 between the Company
and Trigon Healthcare, Inc. to the 1999 Registration Rights
Agreement.
10.63 Investment Agreement dated as of January 28, 1999 between the
Company and Premier Purchasing Partners, L.P.
10.64 Amendment dated January 27, 1999 to the Investment Agreement dated
August 24, 1998 between the Company and HBO & Company of Georgia.
10.65 Investment Warrant between Premier Purchasing Partners, L.P. and
the Company dated January 28, 1999.
10.66 Performance-based Warrant between Premier Purchasing Partners,
L.P. and the Company dated January 28, 1999.
10.67 Letter Agreement dated January 27, 1999 between the Company and
Gleacher NatWest Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.68 Warrant between Gleacher NatWest Inc. and the Company dated
January 27, 1999.
10.69 Letter Agreement dated January 28, 1999 between E. I. du Pont de
Nemours and Company and the Company.***
10.70 Stock Purchase Agreement dated January 28, 1999 between the
Company and E. I. du Pont de Nemours and Company.
10.71 Warrant between Nationwide Medical Services, Inc. and the Company
dated January 28, 1999.
10.72 License Agreement dated February 16, 1999 between American Health
Consultants, Inc. and the Company.***
21.1 Subsidiaries of the Company.**
23.1* Consent of Nelson Mullins Riley & Scarborough, L.L.P.
23.2 Consent of Ernst & Young LLP.**
23.3 Consent of KPMG Peat Marwick LLP.**
23.4 Consent of PricewaterhouseCoopers LLP.**
23.5 Consent of Berg & Company.**
24.1 Power of Attorney (included on signature pages hereto).**
27.1 Financial Data Schedule.**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
*** Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 406 under the Securities Act. In
accordance with Rule 406, these confidential portions have been omitted
from this exhibit and filed separately with the Commission.
+ The Company agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the Securities and Exchange Commission upon
request, as provided in Item 601(b)(2) of Regulation S-K.
(b) Financial Statement Schedules
Valuation and Qualifying Accounts Schedule
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriter, at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to
Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on this 23rd day of February, 1999.
WEBMD, INC.
/s/ Jeffrey T. Arnold
By __________________________________
JEFFREY T. ARNOLD CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities listed and on the dates indicated.
<TABLE>
<S> <C>
SIGNATURES TITLE
DATE
/s/ Jeffrey T. Arnold Chairman of the February 23,
- ------------------------------------- Board and Chief 1999
JEFFREY T. ARNOLD Executive Officer
(Principal
Executive Officer)
/s/ K. Robert Draughon Chief Financial February 23,
- ------------------------------------- Officer (Principal 1999
K. ROBERT DRAUGHON Financial and
Accounting Officer)
* Vice Chairman of the February 23,
- ------------------------------------- Board 1999
WILLIAM P. PAYNE
</TABLE>
II-8
<PAGE>
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
* President, Chief February 23,
- ------------------------------------- Operating Officer 1999
JAY P. GILBERTSON and Director
* Executive Vice February 23,
- ------------------------------------- President, General 1999
W. MICHAEL HEEKIN Counsel, Secretary
and Director
* Director February 23,
- ------------------------------------- 1999
ALBERT J. BERGONZI
* Director February 23,
- ------------------------------------- 1999
LUCIUS E. BURCH, III
* Director February 23,
- ------------------------------------- 1999
U. BERTRAM ELLIS, JR.
* Director February 23,
- ------------------------------------- 1999
J. REX FUQUA
* Director February 23,
- ------------------------------------- 1999
S. TAYLOR GLOVER
* Director February 23,
- ------------------------------------- 1999
BOLAND T. JONES
* Director February 23,
- ------------------------------------- 1999
JOUKO J. RISSANEN
* Director February 23,
- ------------------------------------- 1999
GLENN W. STURM
/s/ Jeffrey T. Arnold
*By: ______________________________________
JEFFREY T. ARNOLD
</TABLE>
ATTORNEY-IN-FACT PURSUANT TO
POWER OF ATTORNEY GRANTED IN
REGISTRATION STATEMENT (NO. 333-
71359) AS FILED ON JANUARY 28,
1999
II-9
<PAGE>
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of January 4, 1999, by and among WEBMD, INC. ("WebMD"), a Georgia
corporation having its principal office located in Atlanta, Georgia; SHN MERGER
CORP. ("Merger Corp."), a Georgia corporation having its principal office
located in Atlanta, Georgia; and SAPIENT HEALTH NETWORK, INC. ("Sapient"), an
Oregon corporation having its principal office located in Portland, Oregon.
PREAMBLE
--------
The Boards of Directors of WebMD, Merger Corp., a wholly owned subsidiary
of WebMD, and Sapient are of the opinion that the transactions described herein
are in the best interests of the parties and their respective shareholders.
This Agreement provides for the acquisition of Sapient by WebMD pursuant to the
merger of Sapient with and into Merger Corp. At the Effective Time of such
merger, the outstanding shares of the capital stock of Sapient shall be
converted into the right to receive shares of Series B Preferred Stock of WebMD
(except as provided herein). As a result, shareholders of Sapient shall become
shareholders of WebMD and Merger Corp. shall conduct the business and operations
of Sapient as a wholly owned subsidiary of WebMD. The transactions described in
this Agreement are subject to the approval of the shareholders of Sapient and
the satisfaction of certain other conditions described in this Agreement. It is
the intention of the parties to this Agreement that the Merger shall qualify as
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, Sapient shall be merged with and into Merger Corp. in accordance
with the applicable provisions of the ORS and the GBCC (the "Merger"). Merger
Corp. shall be the Surviving Corporation resulting from the Merger and shall
continue the operations of Sapient as a wholly owned Subsidiary of WebMD and
shall continue to be governed by the Laws of the State of Georgia. The Merger
shall be consummated pursuant to the terms of this Agreement, which has been
approved and adopted by the respective Boards of Directors of WebMD, Merger
Corp. and Sapient.
1.2 Time and Place of Closing. The closing (the "Closing") will take
-------------------------
place at 10:00 A.M. on a date to be specified by the parties (the "Closing
Date"), which (subject to the satisfaction or waiver of the conditions set forth
in Sections 9.2 and 9.3) shall be no later than the second business day after
the satisfaction of the conditions set forth in Section 9.1. The place of
Closing shall be at the offices of Alston & Bird, One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia 30309-3424, or such other place as may be
mutually agreed upon by the Parties.
1.3 Effective Time. Subject to the provisions of this Agreement, the
--------------
parties shall file Articles of Merger executed in accordance with the relevant
provisions of the ORS and the GBCC and shall make all other filings or
recordings required under the ORS as soon as practicable on or after the Closing
Date. The Merger and other transactions contemplated by this Agreement shall
become effective on the date and at the time the Articles of Merger reflecting
the Merger become effective with the Secretary of State of the State of Oregon
and the Secretary of the State of Georgia (the "Effective Time"). At the
Effective Time, all the property, rights, privileges, powers and franchises of
Sapient shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Sapient shall become the debts, liabilities and duties of the
Surviving Corporation.
<PAGE>
ARTICLE 2
TERMS OF MERGER
---------------
2.1 Charter. The Articles of Incorporation of Merger Corp. in effect
-------
immediately prior to the Effective Time shall be amended and restated, effective
at the Effective Time, in a manner satisfactory to WebMD. The Articles of
Incorporation of Merger Corp., as so amended and restated, shall be the Articles
of Incorporation of the Surviving Corporation until otherwise amended or
repealed.
2.2 Bylaws. The Bylaws of Merger Corp. in effect immediately prior to
------
the Effective Time shall be amended and restated, effective at the Effective
Time, in a manner satisfactory to WebMD. The Bylaws of Merger Corp., as so
amended and restated, shall be the Bylaws of the Surviving Corporation until
otherwise amended or repealed.
2.3 Directors and Officers. The directors of Merger Corp. in office
----------------------
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of Merger Corp. in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
2.4 Tax-Free Reorganization. The parties intend to adopt this Agreement
-----------------------
as a tax-free plan of reorganization under Section 368(a) of the Internal
Revenue Code.
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of the Parties or the shareholders of any of the Parties, the shares of the
constituent corporations of the Merger shall be converted, subject to Section
3.2, into an aggregate of 1,750,000 shares of WebMD Series B Preferred Stock
(assuming exercise of all outstanding Sapient Equity Rights prior to the
Effective Time, except for Convertible Notes to be paid in cash at the Effective
Time in accordance with Section 9.2(n) hereof) as follows:
(a) Each share of Merger Corp. Common Stock issued and
outstanding at the Effective Time shall not be affected by the Merger and shall
remain outstanding.
(b) Each share of Sapient Common Stock (excluding treasury shares
and excluding shares held by shareholders who perfect their statutory
dissenters' rights as provided in Section 3.4 of this Agreement) issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
converted into and exchanged, subject to Section 4.3 hereof, for the right to
receive that portion of a share of WebMD Series B Preferred Stock equal to
1.78375 divided by the price per share of WebMD Series B Preferred Stock (as
calculated and adjusted in accordance with Section 3.2) (the "Series B Price")
(the "Common Stock Exchange Ratio").
(c) Each share of Sapient Series A Preferred Stock (excluding
treasury shares and excluding shares held by shareholders who perfect their
statutory dissenters' rights as provided in Section 3.4 of this Agreement)
issued and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged, subject to Section 4.3 hereof, for the
right to receive that portion of a share of WebMD Series B Preferred Stock equal
to 2.36120 divided by the Series B Price (the "Series A Preferred Stock Exchange
Ratio").
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<PAGE>
(d) Each share of Sapient Series B Preferred Stock (excluding
treasury shares and excluding shares held by shareholders who perfect their
statutory dissenters' rights as provided in Section 3.4 of this Agreement)
issued and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged, subject to Section 4.3 hereof, for the
right to receive that portion of a share of WebMD Series B Preferred Stock equal
to 4.62 divided by the Series B Price (the "Series B Preferred Stock Exchange
Ratio").
(e) Each share of Sapient Series C Preferred Stock (excluding
treasury shares and excluding shares held by shareholders who perfect their
statutory dissenters' rights as provided in Section 3.4 of this Agreement)
issued and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged, subject to Section 4.3 hereof, for the
right to receive that portion of a share of WebMD Series B Preferred Stock equal
to 5.26179 divided by the Series B Price (the "Series C Preferred Stock Exchange
Ratio").
3.2 Anti-Dilution Provisions. In the event Sapient or WebMD changes the
------------------------
number of shares of Sapient Capital Stock or WebMD Series B Preferred Stock,
respectively, issued and outstanding prior to the Effective Time as a result of
a stock split, stock dividend, combination of shares or similar recapitalization
with respect to such stock (an "Anti-Dilution Event") and the record date
therefor (in the case of a stock dividend) or the effective date thereof (in the
case of a stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the applicable Exchange
Ratios shall be proportionately adjusted to insure that holders of Sapient
Capital Stock shall receive WebMD Series B Preferred Stock having the same value
as they would have received prior to the Anti-Dilution Event. In addition, for
the purposes of Section 3.1, the Series B Price shall be equal to $20.00;
provided, however, if prior to the earlier of the Effective Time or the
completion of a transaction or series of transactions involving the offering of
any equity securities (or securities exercisable or convertible into equity
securities) for cash in which WebMD raises proceeds of at least $4,000,000 at a
price per share equal to $20.00 (appropriately adjusted for an Anti-Dilution
Event), WebMD offers and sells any equity securities (or securities exercisable
or convertible into equity securities of WebMD) in a transaction or series of
transactions at a purchase price per share less than $20.00 per share
(appropriately adjusted for an Anti-Dilution Event) (a "Dilutive Financing")
then the price per share of WebMD Series B Price shall be equal to the higher of
$15.00 or such per share sales price. For purposes of the preceding sentence,
no adjustment of the Series B Price shall be made as a result of the offer, sale
and issuance of the following: (i) any shares of WebMD capital stock upon the
conversion of any shares of the WebMD Series B Preferred Stock; (ii) securities
of WebMD offered to the public pursuant to an effective registration statement
under the 1933 Act; (iii) any of WebMD's securities pursuant to the acquisition
by WebMD 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 WebMD owns over 50% of the voting power of such corporation; (iv) any
shares of WebMD capital stock issued at any time following the date hereof
pursuant to options, warrants or other rights granted either before or after the
date hereof to purchase such securities, less the number of any such options,
warrants or rights that are repurchased by WebMD, are canceled or expire, in
each case in favor of employees, officers, directors or consultants to WebMD or
any of its subsidiaries, pursuant to a stock option plan or agreement approved
by the Board of Directors of WebMD, provided, however, that such stock options
thereunder, if granted after the date hereof are granted at a conversion or
exercise price that the 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 and (v) any shares of WebMD capital stock issued pursuant
to the exchange, conversion or exercise of any WebMD security or other right
currently outstanding or in effect. In the event the Series B Price is to be
adjusted hereunder, the determination of the Series B Price shall be mutually
agreed upon by WebMD and Sapient; provided, however, that if WebMD and Sapient
cannot agree on the Series B Price within 2 business days of the Dilutive
Financing, Sapient and WebMD shall select a mutually agreeable nationally
recognized investment bank or accounting firm to determine the Series B Price in
accordance herewith.
3.3 Shares Held by Sapient or WebMD. Each share of Sapient Capital Stock
-------------------------------
held in treasury by Sapient, shall be canceled and retired at the Effective Time
and no consideration shall be issued in exchange therefor.
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<PAGE>
3.4 Dissenting Shareholders. Any holder of shares of Sapient Capital
-----------------------
Stock who perfects its dissenters' rights in accordance with and as contemplated
by Section 60.551, et. seq., of the ORS shall not be converted into WebMD Series
B Preferred Stock but instead shall be entitled to receive such consideration as
determined pursuant to such provision of the ORS; provided, that no such payment
shall be made to any dissenting shareholder unless and until such dissenting
shareholder has complied with the applicable provisions of the ORS and
surrendered to Sapient or the Surviving Corporation the certificate or
certificates representing the shares for which payment is being made. In the
event that a dissenting shareholder of Sapient fails to perfect, or effectively
withdraws or loses, its right to appraisal and of payment for its shares, WebMD
shall issue and deliver the number of shares of WebMD Series B Preferred Stock
to which such holder of shares of Sapient Capital Stock would otherwise be
entitled under this Article 3 (without interest) upon surrender by such holder
of the certificate or certificates representing such shares held by such holder
(subject to the escrow provisions of Section 4.3 hereof).
3.5 Fractional Shares. No certificates representing fractional shares of
-----------------
WebMD Series B Preferred Stock will be issued as a result of the Merger. Each
holder of shares of Sapient Capital Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of WebMD
Series B Preferred Stock shall receive, in lieu thereof, cash (rounded to the
nearest whole cent and without interest) in an amount equal to such fractional
part of a share of WebMD Series B Preferred Stock multiplied by the Series B
Price. No such holder will be entitled to dividends, voting rights, or any
other rights as a shareholder in respect of any fractional shares.
3.6 Conversion of Sapient Options.
-----------------------------
(a) At the Effective Time, each option granted by Sapient to purchase
shares of Sapient Common Stock, which is outstanding immediately prior thereto
(an "Option" or, collectively, the "Options"), granted by the Sapient under the
Sapient Stock Plan or otherwise, whether or not exercisable, shall be converted
into and become rights with respect to WebMD Series B Preferred Stock (or WebMD
Common Stock upon certain events set forth in the designation governing the
Series B Preferred Stock), and WebMD shall assume each Option, in accordance
with the terms of the Sapient Stock Option Plan and stock option agreement by
which it is evidenced, except that from and after the Effective Time, (i) WebMD
and its Compensation Committee shall be substituted for Sapient and the
Committee of Sapient's Board of Directors (including, if applicable, the entire
Board of Directors of Sapient) administering the Sapient Stock Plans, (ii) each
Option assumed by WebMD may be exercised solely for shares of WebMD Series B
Preferred Stock (or WebMD Common Stock upon certain events set forth in the
designation governing the Series B Preferred Stock), (iii) the number of shares
of WebMD Series B Preferred Stock subject to such Option shall be equal to the
number of whole shares (rounded down to the nearest whole share) of Sapient
Common Stock subject to such Option immediately prior to the Effective Time
multiplied by the Common Stock Exchange Ratio, and (iv) the per share exercise
price under each such Option shall be adjusted by dividing the per share
exercise price under each such Option by the Common Stock Exchange Ratio and
rounding up to the nearest whole cent. Notwithstanding the provisions of
clauses (iii) and (iv) of the first sentence of this Section 3.5(a), each Option
which is an "incentive stock option" shall be adjusted as required by Section
424 of the Code, and the regulations promulgated thereunder, so as not to
constitute a modification, extension or renewal of such Option, within the
meaning of Section 424(h) of the Code.
(b) Prior to the Effective Time, Sapient shall use its reasonable best
efforts to obtain all necessary consents or releases from holders of Options
under any of the Sapient Stock Plans or otherwise and take all such other lawful
action as may be necessary to give effect to the transactions contemplated by
this Section.
(c) As soon as practicable after the Effective Time, WebMD shall deliver
to the holders of Options appropriate notices setting forth such holders' rights
pursuant to the Sapient Stock Plans and the agreements evidencing the grants of
such Options shall continue in effect on the same terms and conditions (subject
to adjustments required by this Section 3.6 after giving effect to the Merger
and the provisions set forth above). If necessary, WebMD shall comply with the
terms of the Sapient Stock Plans and ensure, to the extent lawful and
practicable, and subject to the provisions of, the Sapient Stock Plans, that
Options
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<PAGE>
which qualified as incentive stock options prior to the Effective Time of the
Merger continue to qualify as incentive stock options after the Effective Time
of the Merger.
(d) WebMD shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of WebMD Series B Preferred Stock (or
WebMD Common Stock upon certain events set forth in the designation governing
the Series B Preferred Stock) for delivery upon the exercise of Options.
(e) Following the Effective Time, if WebMD completes an initial public
offering, then at such time as WebMD shall file a registration statement on Form
S-8 for the option plans of WebMD, WebMD shall also file a registration
statement on Form S-8 to register the shares of WebMD Common Stock subject to
the Options under the Sapient Stock Plans and shall use its reasonable efforts
to maintain the effectiveness of such registration statements for so long as
such options remain outstanding.
3.7 Sapient Warrants.
----------------
(a) At the Effective Time, WebMD shall assume the obligations of Sapient
under the Sapient common stock purchase warrants outstanding at the Effective
Time and thereafter, upon exercise, the warrantholder shall receive the number
of shares of WebMD Series B Preferred Stock (or WebMD Common Stock upon certain
events set forth in the designation governing the Series B Preferred Stock)
equal to the product of (i) the Common Stock Exchange Ratio and (ii) the number
of shares of Sapient Common Stock for which such warrant could have been
exercised immediately prior to the Merger. The per share exercise price under
each such Sapient Warrant shall be adjusted by dividing the per share exercise
price under each such Warrant by the Common Stock Exchange Ratio and rounding up
to the nearest whole cent.
(b) As soon as practicable after the Effective Time of the Merger, WebMD
shall deliver to the holders of the Sapient warrants appropriate notices setting
forth such holders' rights pursuant to the applicable warrant agreements with
respect thereto to the extent required by the terms of the warrant agreements
with respect thereto.
(c) WebMD shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of WebMD Series B Preferred Stock for
delivery upon exercise of the Sapient warrants.
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures. Promptly (and in no event more than five (5)
-------------------
calendar days) after the Effective Time, WebMD and the Surviving Corporation
shall cause the exchange agent selected by WebMD (the "Exchange Agent") to mail
to the former holders of Sapient Capital Stock appropriate transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates theretofore representing shares of Sapient Capital Stock
shall pass, only upon proper delivery of such certificates to the Exchange
Agent). After the Effective Time, each former holder of shares of Sapient
Capital Stock (other than shares to be canceled pursuant to Section 3.3 of this
Agreement or as to which statutory dissenters' rights have been perfected as
provided in Section 3.4 of this Agreement) issued and outstanding at the
Effective Time shall surrender the certificate or certificates representing such
shares to the Exchange Agent and shall promptly upon surrender thereof receive
in exchange therefor the consideration provided in Section 3.1 of this
Agreement. To the extent required by Section 3.5 of this Agreement, each former
holder of shares of Sapient Capital Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
WebMD Series B Preferred Stock to which such holder may be otherwise entitled
(without interest). WebMD shall not be obligated to deliver the consideration
to which any former holder of Sapient Capital Stock is entitled as a result of
the Merger until such holder surrenders his certificate or certificates
representing the shares of Sapient Capital Stock for exchange as provided in
this Section 4.1 or such holder provides an appropriate affidavit regarding loss
of such certificate and an indemnification for loss in favor of WebMD in such
sum as it may reasonably request. The certificate or
-5-
<PAGE>
certificates of Sapient Capital Stock so surrendered shall be duly endorsed as
the Exchange Agent may require. Any other provision of this Agreement
notwithstanding, neither WebMD, the Surviving Corporation nor the Exchange Agent
shall be liable to a holder of Sapient Capital Stock for any amounts paid or
property properly delivered in good faith to a public official pursuant to any
applicable abandoned property Law.
4.2 Rights of Former Sapient Shareholders. At the Effective Time, the
-------------------------------------
stock transfer books of Sapient shall be closed and no transfer of Sapient
Capital Stock by any such former holder shall thereafter be made or recognized.
Until surrendered for exchange in accordance with the provisions of Section 4.1
of this Agreement, each certificate theretofore representing shares of Sapient
Capital Stock (other than shares to be canceled pursuant to Sections 3.3 and 3.4
of this Agreement) shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Sections 3.1
and 3.5 of this Agreement in exchange therefor. To the extent permitted by Law,
former shareholders of record of Sapient shall be entitled to vote or give their
consent after the Effective Time at any meeting or action by written consent of
WebMD shareholders the number of whole shares of WebMD Series B Preferred Stock
into which their respective shares of Sapient Capital Stock are converted,
regardless of whether such holders have exchanged their certificates
representing Sapient Capital Stock for certificates representing WebMD Series B
Preferred Stock in accordance with the provisions of this Agreement. If a
dividend or other distribution is declared by WebMD on the WebMD Series B
Preferred Stock, the record date for which is at or after the Effective Time,
the declaration shall include dividends or other distributions on all shares
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of WebMD Series B Preferred Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Sapient Capital Stock issued and outstanding
at the Effective Time until such holder surrenders such certificate for exchange
as provided in Section 4.1 of this Agreement. However, upon surrender of such
certificate, both the WebMD Series B Preferred Stock certificate (together with
all such undelivered dividends or other distributions without interest) and any
undelivered cash payments to be paid for fractional share interests (without
interest) shall be promptly delivered and paid with respect to each share
represented by such certificate.
4.3 Escrow Shares. At the Effective Time, WebMD shall issue an aggregate
-------------
number of shares of WebMD Series B Preferred Stock equal to 10% of the total
number of shares of WebMD Series B Preferred Stock issuable pursuant to Section
3.1 hereof as adjusted pursuant to Section 3.2 (the "Escrow Shares") to be held
in escrow pursuant to Article 12 and the terms of an Escrow Agreement mutually
--------
acceptable to the Parties and substantially in the form of Article 12 hereto.
- ----------------------------------------------------------------------------
In the event of any discrepancy between the terms of the Escrow Agreement and
Article 12, Article 12 of this Agreement shall control. The portion of the
Escrow Shares issued and contributed on behalf of each holder of Sapient Capital
Stock shall be in proportion to the aggregate number of Shares of WebMD Series B
Preferred Stock which such holder would otherwise be entitled to receive under
Section 3 by virtue of ownership of Sapient Capital Stock.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SAPIENT
-----------------------------------------
Sapient hereby represents and warrants to WebMD and Merger Corp. as
follows:
5.1 Organization, Standing, and Power. Sapient is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the state of
its incorporation, and has the corporate power and authority to carry on its
business as it has been and is now being conducted and to own, lease and operate
its properties. Except as set forth on Schedule 5.1, Sapient is duly qualified
or licensed to transact business as a foreign corporation and is in good
standing in all jurisdictions where the character of its properties or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, in the aggregate, a Material Adverse
Effect on Sapient. Copies of the articles or certificate of incorporation and
all amendments thereto of Sapient and the bylaws, as amended, of Sapient and
copies of the corporate
-6-
<PAGE>
minutes (or resolutions adopted by the shareholders or Board of Directors) of
Sapient, which have been made available to WebMD for review, are true and
complete, in all Material respects, as in effect on the date of this Agreement,
and accurately reflect all proceedings of the shareholders and Board of
Directors (and all committees thereof) of Sapient. The stock record books of
Sapient, which have been made available to WebMD for review, contain true and
complete records of the stock ownership of Sapient and all prior transfers of
the shares of its capital stock.
5.2 Authorization of Agreement; No Breach. The execution, delivery and
-------------------------------------
performance of this Agreement has been duly authorized by all necessary
corporate action of Sapient, other than the meeting (or written consent) of the
shareholders of Sapient to approve this Agreement to be held pursuant to Section
8.1. This Agreement constitutes, and all agreements and other instruments and
documents to be executed and delivered by Sapient pursuant to this Agreement
will constitute, legal, valid and binding obligations of Sapient enforceable
against Sapient in accordance with their respective terms, except to the extent
such enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief or other equitable
remedies. The execution, delivery and performance of this Agreement and the
agreements and other documents and instruments to be executed and delivered by
Sapient pursuant to this Agreement and the consummation of the transactions
contemplated hereby and thereby will not, subject to obtaining the consents
identified herein, (i) violate or result in a breach of or Default under the
articles of incorporation or bylaws of Sapient or any other Material instrument
or agreement to which Sapient is a party or is bound; (ii) to the knowledge of
Sapient, violate any Law, administrative decision or award of any court,
arbitrator, mediator, tribunal, administrative agency or governmental body
applicable to or binding upon Sapient or upon its property or business; (iii)
except as set forth on Schedule 5.2 or 5.16 conflict with or constitute a
------------ ----
Default under any Material Contract to which Sapient is a party or by which
Sapient is bound; or (iv) create a Material Lien upon the assets or business of
Sapient.
5.3 Capital Stock. The authorized capital stock of Sapient consists of
-------------
(i) 15,000,000 shares of Sapient Common Stock, of which 2,193,241 shares are
issued and outstanding as of the date of this Agreement and none of which are
issued and held as treasury shares, (ii) 850,000 shares of Sapient Series A
Preferred Stock, 850,000 of which are issued and outstanding as of the date of
this Agreement and none of which are issued and held as treasury shares, (iii)
6,000,000 shares of Sapient Series B Preferred Stock, 3,544,576 of which are
issued and outstanding as of the date of this Agreement and none of which are
issued and held as treasury shares and (iv) 1,200,000 shares of Sapient Series C
Preferred Stock, none of which are issued and outstanding as of the date of this
Agreement and none or which are issued and held as treasury shares. All of such
shares are duly and validly issued and outstanding, are fully paid and non-
assessable, and were issued pursuant to a valid exemption from registration
under the 1933 Act and all applicable state securities laws. Except as set
forth on Schedule 5.3, there are no outstanding warrants, options, rights
------------
(including outstanding rights to demand registration or to sell in connection
with a registration by Sapient under the 1933 Act), calls or other commitments
of any nature relating to the Sapient Capital Stock to which Sapient is a party,
and there are no outstanding securities of Sapient convertible into or
exchangeable for shares of Sapient Capital Stock or any other capital stock
("Sapient Equity Rights"). Sapient has no knowledge of any voting agreements or
voting trusts between or among any Person or Persons relating to Sapient or the
Sapient Capital Stock. Except as set forth on Schedule 5.3 and as provided in
------------
the Sapient Stock Plans, Sapient is not obligated to issue or repurchase any
shares of its capital stock for any purpose, and to the knowledge of Sapient no
person or entity has entered into any Contract or option or any right or
privilege (whether preemptive or contractual) capable of becoming a Contract or
option for the purchase, subscription or issuance of any unissued shares, or
other securities of Sapient.
5.4 Sapient Subsidiaries. Sapient does not own, directly or indirectly,
--------------------
any capital stock or other equity or ownership or proprietary interest in any
corporation, partnership, or other entity.
5.5 Financial Statements.
--------------------
(a) Schedule 5.5 contains true and correct copies of the (i)
------------
audited balance sheets of Sapient as of September 30, 1998 and 1997, and the
audited statements of income and audited
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<PAGE>
statements of cash flows for the years ended September 30, 1998, 1997 and 1996
and (ii) unaudited balance sheet of Sapient as of November 30, 1998 and
unaudited statement of income and statement of cash flow for the two months
ended November 30, 1998 (collectively, (i) and (ii), the "Financial
Statements").
(b) The Financial Statements (i) are in accordance with the
books and records of Sapient, which books and records have been maintained in
accordance with reasonable business practices; (ii) present fairly the financial
condition, assets and liabilities of Sapient, as of the respective dates
indicated and the results of operations and cash flows for the respective
periods indicated; (iii) have been prepared in accordance with GAAP consistently
applied throughout the periods involved, except for the omission of notes to
interim unaudited consolidated statements, and except that interim unaudited
consolidated statements are subject to normal year end adjustments of the type
specifically listed in Schedule 5.5 which will not, individually or in the
------------
aggregate, be Material; and (iv) reflect adequate reserves for all known
Material Liabilities and reasonably anticipated losses required to be recorded
under GAAP.
5.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
5.6 and the November 30, 1998 Financial Statements, as of the date hereof,
- ---
Sapient does not have any Undisclosed Liabilities, except for unpaid liabilities
and obligations incurred since November 30, 1998, in the ordinary course of
business and not involving Funded Debt and which are not, in the aggregate,
Material.
5.7 Absence of Changes. Except as disclosed on Schedule 5.7, since
------------------- ------------
November 30, 1998 there has not been any transaction or occurrence in which
Sapient has:
(a) issued or delivered or agreed to issue or deliver any capital
stock or other securities (whether stock, bonds, debentures or other corporate
securities) or granted or agreed to grant any options or rights to purchase any
securities or borrowed or agreed to borrow any funded debt;
(b) incurred or become subject to, or agreed to incur or become
subject to, any Material Liability other than in the ordinary course of
business;
(c) discharged or satisfied any Lien or paid any Material
Liability other than (i) current liabilities shown on the balance sheet as of
November 30, 1998 included in the Financial Statements, (ii) current liabilities
incurred since that date in the ordinary course of business, or (iii) Funded
Debt shown on such balance sheet or incurred since November 30, 1998;
(d) declared, set aside or made, or agreed to declare, set aside
or make any payments or dividends or any distribution with respect to Sapient
Capital Stock or purchased, redeemed or otherwise acquired, directly or
indirectly, or agreed to purchase, redeem or acquire, any shares of capital
stock or other securities;
(e) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any Lien, except for any liens regarding
Material current real and personal property taxes not yet due and payable;
(f) sold, assigned or transferred (or agreed so to do) any of its
Material tangible assets, or canceled or agreed to cancel any Material debts or
claims, except, in each case, in the ordinary course of business;
(g) except pursuant to license agreements entered into in the
ordinary course of business consistent with past practice and which do not
involve consideration in excess of $50,000, sold, assigned or transferred any
patents, trademarks, trade names, copyrights or other intangible assets;
(h) suffered any Material damage, destruction or loss, whether or
not covered by insurance, which materially and adversely affected the properties
or business thereof, or suffered any extraordinary losses or waived any rights
of substantial value, whether or not in the ordinary course of business;
-8-
<PAGE>
(i) increased the rate of compensation payable or to become
payable by it to any of its officers, directors, employees or agents over the
rate being paid to them at November 30, 1998, or agreed so to do, except general
hourly rate increases and normal merit increases for employees other than
officers;
(j) terminated or Materially amended any Material Contract,
license or other instrument to which it is a party or suffered any loss or
termination or threatened loss or termination, of any existing business
arrangement, the termination or loss of which would materially and adversely
affect Sapient;
(k) through negotiation or otherwise, made any commitment or
incurred any Liability, whether or not enforceable, to any labor organization;
(l) except for any year-end compensation bonuses to be paid
consistent with past practice, if any, made or agreed to make any accrual or
arrangement for or payment of any bonus or special compensation of any kind to
any officer, director, employee or agent;
(m) directly or indirectly paid or entered into a Contract to pay
any severance or termination pay to any officer, director, employee or agent;
(n) changed any of the accounting principles followed by it or
the methods of applying such principles;
(o) reclassified its shares of capital stock into a different
number of shares;
(p) made or approved the making of any capital expenditure
exceeding the amount of $50,000 in any instance;
(q) except in the ordinary course of business, loaned funds to or
increased the aggregate amount of existing loans to any Person;
(r) experienced any development, quality assurance or network
operations problems that has had, or is reasonably likely to have, a Material
Adverse Effect on Sapient;
(s) suffered or experienced any other event, change or occurrence
(other than events or conditions affecting the economy generally) which has had,
or is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Sapient.
5.8 Indebtedness. Schedule 5.8 lists all Funded Debt of Sapient as of the
------------ ------------
date hereof, setting forth the principal amounts outstanding, per annum interest
rates and maturity dates for all such indebtedness. All of the indebtedness
(including Funded Debt) of Sapient as of the respective dates of the Financial
Statements and as of the date of this Agreement is accurately reflected in the
Financial Statements, and with respect to any Funded Debt, Sapient is not in
Material breach or Default under any of the terms or conditions set forth in the
loan documents or any other document or instrument related thereto. Except as
disclosed on Schedule 5.8, all of the Funded Debt of Sapient is prepayable at
-------------
any time without penalty or premium at the option of the obligor. Except as
disclosed on Schedule 5.8, (i) the transactions contemplated in this Agreement
------------
will not result in any penalty or incurrence of any additional obligation or
change of any terms with respect to any such indebtedness, and (ii) Sapient does
not have any indebtedness to any employee, officer, director or 5% or greater
shareholder of Sapient.
5.9 Tax Matters.
-----------
(a) Sapient has filed all federal and state income tax returns
for all periods prior to the date hereof which were required to be filed, and,
except as described on Schedule 5.9, no returns so filed have been examined by
------------
the IRS or any state agency with respect to any such period. Except as listed on
Schedule 5.9, Sapient has not received notice of any Tax claims being asserted
- ------------
or any proposed
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<PAGE>
assessment by any taxing authority and no Tax returns thereof have been
examined by the IRS or the appropriate state agencies for any fiscal year or
period ended prior to the date hereof, and Sapient is not presently under, nor
has any such entity received notice of any contemplated, investigation or audit
by the IRS or any state agency concerning any fiscal year or period ended prior
to the date hereof. Except as listed on Schedule 5.9, Sapient has not executed
------------
any extension or waivers of any statute of limitations on the assessment or
collection of any tax due that is currently in effect.
(b) As of the date hereof, Sapient has filed all Tax returns
required to be filed at this date, taking into account any extensions of the
filing deadlines which have been validly granted to any such entity and which
are disclosed on Schedule 5.9, and except to the extent that a reserve for Taxes
------------
(including penalties and interest in respect thereof) is reflected on the
balance sheet of Sapient dated as of November 30, 1998 included as part of the
Financial Statements, (i) such returns are true and correct in all Material
respects and properly reflect the Tax Liabilities of Sapient for the periods,
property or events covered thereby, and (ii) each such entity has paid all Taxes
(including penalties and interest in respect thereof, if any) that have become
or are due with respect to any period through the date hereof whether shown on
such returns or not.
(c) Adequate provision has been made in the Financial Statements
in accordance with GAAP as of November 30, 1998, for all Tax Liabilities not
required to be paid prior to such date and for all current and deferred Taxes.
(d) Sapient and each of its predecessors to which any such entity
has succeeded, has withheld or collected from each payment made to each of their
employees the amount of all Taxes required to be withheld or collected therefrom
and has paid the same to the proper tax depositories or collecting authorities.
(e) All ad valorem property taxes for fiscal years ending on or
prior to September 30, 1998 imposed on Sapient or its predecessors have been
paid in full or adequately reserved in the Financial Statements in accordance
with GAAP, as appropriate.
(f) Neither Sapient nor to the knowledge of Sapient, its
predecessors to which it has succeeded, has ever made an election under Section
341(f) of the Internal Revenue Code and no such entity is a United States real
property holding corporation as defined in Section 897 of the Internal Revenue
Code.
5.10 Real Property.
-------------
(a) Sapient does not own any real property. True and correct
copies of all real property leases of Sapient have been provided or made
available to WebMD. Each of such leases is in full force and effect on the date
hereof, except as the validity of such leases may be affected by actions, events
or conditions involving only the other party thereto, none of which actions,
events or conditions have occurred or exist to the knowledge of Sapient. No
Material Default under any of the terms or conditions set forth in any of the
foregoing leases or any other documents or instruments related thereto has
occurred or been asserted by any party. Except as disclosed on Schedule 5.10,
-------------
the continuation, validity and effectiveness of the terms and conditions of such
leases will not be materially adversely affected by the transactions
contemplated by this Agreement.
(b) To the knowledge of Sapient, all improvements on the real
estate leased to or used by Sapient conform to all applicable state and local
laws, zoning and building ordinances and health and safety ordinances, and the
property is zoned for the various purposes for which the real estate and
improvements thereon are presently being used.
(c) Each of the leased premises is in satisfactory condition and
repair consistent with the uses to which they are being put.
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<PAGE>
(d) To their knowledge, no proceedings for the taking of any of
such leased real property by eminent domain by any governmental authority are
pending or, to the knowledge of Sapient, threatened.
5.11 Personal Property.
-----------------
(a) True and correct copies of all leases for personal property
(except miscellaneous leases of office machinery, medical equipment, fixtures or
any leases having future minimum lease payments of less than $25,000) used or
employed by Sapient have been provided or made available to WebMD. Each of such
leases is in full force and effect on the date hereof, except as the validity of
such leases may be affected by actions, events or conditions affecting the other
party thereto, none of which actions, events or conditions exists of has
occurred to the knowledge of Sapient. No Material Default under any of the terms
or conditions set forth in any of the foregoing leases or any document or
instrument related thereto has occurred or been asserted by any party. Except as
disclosed on Schedule 5.11, the continuation, validity and effectiveness of
-------------
such leases will not be materially adversely affected by the transactions
contemplated by this Agreement. Except as disclosed on Schedule 5.11, Sapient
-------------
does not lease any personal property as lessor.
(b) All Material items of personal property and leasehold
improvements owned or leased by Sapient are shown on or reflected in the
unaudited balance sheet of Sapient as of November 30, 1998, included in the
Financial Statements, are in satisfactory operating condition and in a state of
reasonable maintenance and repair, consistent with the uses to which they are
being put, and all such personal property, and leasehold improvements are
considered adequate and usable for the continued operation of the business of
Sapient, as the same is presently being conducted and are physically located
either at one of the principal places of business of Sapient or at Sapient's
principal business office.
5.12 Intellectual Property.
---------------------
(a) Schedule 5.12 contains a true and complete list of all
-------------
patents, trademarks, tradenames, service marks, service names, trade secret
protected computer software and copyright registrations, and applications
therefor owned by or exclusively licensed to Sapient on the date hereof,
including all Internet domain names registered with any third party. Sapient
owns, or is a valid licensee of all Intellectual Property used in Sapient's
business as currently conducted. Neither Sapient or, to the knowledge of
Sapient, its predecessors has misused the Intellectual Property of others, and
none of the Intellectual Property as used in the business conducted by any such
entity infringes upon or otherwise violates the Intellectual Property of others,
nor to Sapient's knowledge with respect to predecessors, has any person asserted
a claim of such infringement or violation of Intellectual Property against any
such entity. Sapient is not obligated to pay any royalties to any person or
entity with respect to any Intellectual Property in excess of $5,000.00 per
year. Sapient owns or has the valid right to use all of the Intellectual
Property rights which it is presently using, or intends to use in connection
with the performance of any existing Material contract, proposal or letter of
intent to which it is a party. Except as set forth on Schedule 5.12, Sapient has
-------------
not licensed or sublicensed its rights in any Intellectual Property, except non-
exclusive licenses in the ordinary course of business, forms of which license
agreements and a list of which licensees, Sapient has delivered or made
available to WebMD.
(b) To the knowledge of Sapient, except as described on
Schedule 5.12, no officer, director or employee of Sapient has entered into
- -------------
any Contract other than on behalf of Sapient and with Sapient's authorization,
which requires such officer, director or employee to assign any interest in any
Intellectual Property or which restricts or prohibits such officer, director or
employee from engaging in activities competitive with Sapient.
(c) The Intellectual Property owned or licensed by Sapient is
sufficient to continue to operate the business as conducted on the date hereof.
(d) Sapient is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for each application
and registration listed on Schedule 5.12
-------------
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<PAGE>
other than that which is licensed to Sapient. There is no pending written threat
received by Sapient of, or to the knowledge of Sapient, any verbal threat of
opposition, interference or cancellation proceeding before any court or
registration authority in any jurisdiction against the applications or
registrations listed on Schedule 5.12, or, to the knowledge of Sapient, against
-------------
any Intellectual Property exclusively licensed to Sapient.
(e) Except as set forth on Schedule 5.12, there are no
-------------
settlements, forbearances to sue, consents, judgments, or orders of which
Sapient is a party or of which it is aware and which (i) restrict Sapient's
rights to use any Intellectual Property owned by or licensed to Sapient, (ii)
restrict Sapient's business in order to accommodate a third party's intellectual
rights or (iii) permit third parties to use any Intellectual Property owned or
controlled by Sapient.
(f) Except as set forth on Schedule 5.12, the consummation of
-------------
the transactions contemplated hereby will not result in the Material loss or
impairment of Sapient's right to own or use any of the Intellectual Property,
nor will require the consent of any government authority or third party in
respect of such Intellectual Property.
5.13 Accounts Receivable. The accounts receivable of Sapient as of
-------------------
November 30, 1998, as reflected in the Financial Statements (net of reserves
reflected in such Financial Statements), to the extent uncollected on the date
hereof, and the accounts receivable reflected on the books of Sapient on the
date hereof, are validly existing and represent monies due for goods sold and
delivered or services performed, and the value of such accounts receivable as
shown in the Financial Statements are, in the aggregate, net of adequate
reserves for doubtful and uncollectible accounts as determined in accordance
with GAAP. Except as set forth in Schedule 5.13, there are no refunds,
-------------
discounts or other adjustments payable with respect to any such accounts
receivable, and there are no defenses, rights of set-off, assignments,
restrictions, encumbrances, or conditions enforceable by third parties on or
affecting any of the foregoing.
5.14 The Proprietary Software.
------------------------
(a) The proprietary computer software of Sapient included in the
Intellectual Property of Sapient (the "Sapient Software") performs substantially
in accordance with the documentation and other written material generally
provided by Sapient for use in connection with the Sapient Software, is in
machine-readable form, and contains all current revisions of such software, and
includes all computer programs, materials, tapes, object and source codes and
other written materials related to the Sapient Software. Sapient has delivered
or made available to WebMD complete and correct copies of all user and technical
documentation related to the Sapient Software.
(b) Neither Sapient nor, to the best knowledge of Sapient, any
employee or agent thereof has developed or assisted in the enhancement of the
Sapient Software except for enhancements included in the Sapient Software as
delivered to WebMD pursuant hereto.
(c) To Sapient's knowledge, no employee of Sapient is, or is now
expected to be, in default under any term of any employment contract, agreement
or arrangement relating to the Sapient Software or noncompetition arrangement,
or any other Contract or any restrictive covenant relating to the Sapient
Software or its development or exploitation. The Sapient Software was developed
entirely by the employees of Sapient during the time they were employees only of
Sapient or by consultants who assigned in writing all of their rights in the
Sapient Software to Sapient.
(d) All right, title and interest in and to the Sapient Software is
owned by Sapient, free and clear of all liens, claims, charges or encumbrances,
are fully transferable to the Purchaser, and no party other than Sapient has any
interest in the Sapient Software, including without limitation, any security
interest, license, contingent interest or otherwise. The preceding sentence and
the last sentence of this paragraph (d) shall not include licenses to the
Sapient Software made in the ordinary course of business, forms of which license
agreements and a list of which licensees, Sapient has delivered or made
available to WebMD. Sapient's development or sale of the Sapient Software did
and does not violate any rights of any other person or entity and Sapient has
not received any communication alleging such a violation. Sapient
-12-
<PAGE>
does not have any obligation to compensate any Person for the development, use,
sale or exploitation of the Sapient Software. Sapient has not granted to any
other person or entity any license, option or other right to develop, use, sell
or exploit in any manner the Sapient Software, whether requiring the payment of
royalties or not.
(e) Except as set forth on Schedule 5.14, Sapient has kept secret
-------------
and has not disclosed the source code for the Sapient Software to any person or
entity other than certain employees of Sapient. Sapient has taken legally
appropriate measures to protect the confidential and proprietary nature of the
Sapient Software. Except as set forth on Schedule 5.14, there have been no
--------------
patents applied for and no copyrights registered by Sapient or to Sapient's
knowledge for any part of the Sapient Software. To the knowledge of Sapient,
there are no trademark rights of any person or entity other than Sapient in the
name "Sapient Health Network".
(f) Except as set forth on Schedule 5.14, all copies of the Sapient
-------------
Software embodied in physical form and in Sapient's control are being delivered
to WebMD at or prior to the Closing.
(g) Except as set forth on Schedule 5.14 and except in the ordinary
-------------
course of business, Sapient has not given any warranties to any third parties
with respect to the products or services offered by it. With respect to any such
warranties given in the ordinary course of business, Sapient has either
delivered or made available to WebMD copies of all such agreements granting any
such warranty.
(h) The Sapient Software shall recognize and process properly
formatted date data with respect to dates before, during and after the year
2000.
5.15 Insurance. All of the properties and business of Sapient of an
---------
insurable nature and of a character usually insured by companies of similar size
and in similar businesses are insured in such amounts and against such losses,
casualties or risks as is usual in such companies and for such properties and
business. A complete and accurate list of all insurance policies held by
Sapient and now in force (including, without limitation, property damage, public
liability, worker's compensation, fidelity bonds, errors and omissions, theft,
forgery and other coverage) is attached hereto as Schedule 5.15, and, true and
-------------
correct copies of all such policies, have been provided or made available to
WebMD. All such policies are in full force and effect and the premiums due
thereon have been timely paid. Sapient is not now in Default regarding the
provisions of any such policy, nor have they failed to give any notice or
present any Material claim thereunder in due and timely fashion. The
consummation of the transactions contemplated by this Agreement will not
constitute a Default under, or otherwise affect the coverage under any such
insurance policies.
5.16 Compliance with Laws.
--------------------
(a) Sapient has in effect all Permits necessary for it to own,
lease or operate its Assets and to carry on its business as now conducted,
except for those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Sapient. Sapient
is not in violation of any Laws, Orders or Permits applicable to its business or
employees conducting its business, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. No notice or warning from any Regulatory Authority with respect to any
failure or alleged failure of Sapient to comply with any Law has been received
by Sapient, nor, to the knowledge of Sapient, is any such notice or warning
proposed or threatened.
(b) Except as set forth on Schedule 5.16, no consent or approval
-------------
of, prior filing with or notice to, or other action by, any Regulatory Authority
or any other third party is required in connection with the execution and
delivery of this Agreement or any agreement or other instrument to be executed
and delivered pursuant to this Agreement by Sapient or the consummation of the
transactions provided for herein or therein except for such consents and
approvals that have been obtained and filings,
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<PAGE>
notices and other actions that have been taken or made., the filing of the
Articles of Merger with the State of Oregon and such consents and approvals as
may be required under state securities laws.
(c) To the knowledge of Sapient, there are no Material
capital expenditures that Sapient anticipates will be required to be made in
connection with the business of Sapient as now conducted in order to comply with
any existing Laws or other governmental requirements applicable to the business
of Sapient as now conducted including, without limitation, requirements relating
to occupational health and safety. "Capital Expenditures" shall have the same
meaning as it has in the Financial Statements if and to the extent that the
treatment thereof is in accordance with GAAP.
(d) Neither Sapient nor, to the knowledge of Sapient, any
officer, director, employee, agent or other representative thereof acting or
purporting to act on behalf of any such entity or any business enterprise with
which Sapient has been associated or affiliated, has, directly or indirectly,
made or authorized any payment, contribution or gift of money, property, or
services, in violation of applicable law (i) as a kickback or bribe to any
person, or (ii) to any political organization or the holder of, or any aspirant
to, any elective or appointive office of any nation, state, political
subdivision thereof, or other governmental body or instrumentality.
5.17 Environmental Matters.
---------------------
(a) Except as set forth on Schedule 5.17, there are no
--------------
claims, actions, suits, proceedings or investigations related to Environmental
Matters with respect to the ownership, use, condition or operation of any of the
assets held for use or sale by Sapient or any of its predecessors in any court
or before or by any federal, state or other governmental agency or private
arbitration tribunal (hereinafter collectively referred to as "Environmental
Litigation"). Except as set forth on Schedule 5.17, there are no existing
-------------
violations of federal, state or local Laws related to Environmental Matters by
Sapient with respect to the ownership, use, condition, lease or operation of
real property formerly held for use or sale by any of its predecessors other
than violations which would not, either individually or in the aggregate, have a
Material Adverse Effect on Sapient. Neither Sapient nor, to the knowledge of
Sapient, any of its predecessors has used any assets or premises thereof for the
handling, treatment, storage, or disposal of any Hazardous Substances except in
compliance with all applicable environmental Laws. Except as set forth on
Schedule 5.17, no written notice, or other communication from any court or
- --------------
governmental agency, official or instrumentality, of any alleged violation of
any Law related to Environmental Matters has been communicated to management of
any such entity or, to the knowledge of Sapient, filed with respect to the use,
ownership, condition, operation, or disposal of any of the assets of Sapient or
any property formerly held for use or sale by any such entity or, to the
knowledge of Sapient, any of its predecessors. To the knowledge of Sapient, no
basis exists for the allegation of any such violations.
(b) Except as set forth on Schedule 5.17, to the knowledge
-------------
of Sapient, no building or other improvement or any premises owned, leased,
operated or managed by Sapient contains any asbestos-containing materials.
(c) Copies of any environmental audits or environmental
surveys of any real estate owned or leased by Sapient are attached to Schedule
--------
5.17.
- ----
5.18 Litigation and Claims. There are no outstanding Court Orders or
---------------------
administrative decisions to which Sapient is subject, and, except as disclosed
on Schedule 5.18, there is no Litigation pending or, to Sapient's knowledge,
-------------
threatened against or relating to Sapient or its Assets or businesses, and there
is no specific event which has occurred for which any such action or any state
of facts or occurrence of any event which, to the knowledge of Sapient, might
reasonably be expected to give rise to the foregoing. Except as disclosed on
Schedule 5.18, Sapient has not been advised by any attorney representing any
- -------------
such entity that there are any "loss contingencies" (as defined in Statement of
Financing Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975 ("FASB 5")), which would be required by FASB 5 to
be disclosed or accrued in the consolidated financial statements of Sapient and
which are not so disclosed or accrued.
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<PAGE>
5.19 Contracts and Commitments.
-------------------------
(a) Schedule 5.19 lists the following Contracts to which
-------------
Sapient is a party or by which any such entity benefits, and which involve
payment by or the receipt of payment by Sapient of any amounts or value in
excess of $50,000, all of which have been made available to WebMD for review:
(i) any Contract for the employment of any officer,
director, employee or consultant that is not terminable at will;
(ii) any Contract for the purchase, sale, production,
supply, maintenance or support, whether on a continuing basis or otherwise,
of goods or services of any type except those made in the ordinary course
of business;
(iii) any license or other strategic agreement other
than (A) access to or use of standard object code product pursuant to a
customary non-exclusive end-user, object code, internal-use software
license and support-maintenance agreements entered into in the ordinary
course of business or (B) access provided to the Company's websites in the
ordinary course of business;
(iv) any sales or vendor Contract or sub-contract;
(v) any Contract not made in the ordinary course of
business, including but not limited to any covenants not to compete;
(vi) any agreements pursuant to which any of the
Company's web sites or pages therein are linked with other web sites or
pages therein; agreements with web site hosts or internet access providers;
agreements regarding data center hosting or security; agreements relating
to advertising or sponsorships; agreements providing for the use, display
or distribution of third party content, information or data or the
provision of services through Sapient's web sites; agreements regarding the
establishment or maintenance of networks, telecommunication links, virtual
private networks or other similar non-public networks; and
(vii) any Contracts upon which the business, rights or
assets, or condition, financial or otherwise, of Sapient depends or is or
would be Materially affected.
(b) Except as set forth on Schedule 5.19 or as to Contracts
-------------
that are cancelable at will or upon 30 days' notice or less, (i) each of the
Contracts described in this Section 5.19 is in full force and effect on the date
hereof, except as the validity of such Contracts may be affected by actions,
events or conditions involving only the other party thereto, none of which
actions, events or conditions have occurred or exist to the knowledge of
Sapient, (ii) no material Default under any of the terms or conditions set forth
in any of the Contracts to which Sapient is a party or any document or
instrument related thereto has occurred or been asserted by any party, and (iii)
the continuation, validity and effectiveness of such Contracts, and all other
Material terms thereof, will not be materially and adversely affected by the
transactions contemplated by this Agreement.
(c) Copies of all forms of registration agreements and other
forms or policies governing the use of (i) Sapient's web sites or the
information contained therein or (ii) the information obtained by Sapient from
third parties through its web sites.
5.20 Powers of Attorney. Except as disclosed on Schedule 5.20, Sapient
------------------ -------------
has not given or granted any power of attorney, whether limited or general, to
any Person that is continuing in effect.
5.21 Benefit Plans.
-------------
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<PAGE>
(a) Schedule 5.21.1 lists (i) every pension, retirement,
---------------
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, any other written or
unwritten employee program, arrangement, agreement or understanding, whether
arrived at through collective bargaining or otherwise; (ii) any medical, vision,
dental or other health plan, any life insurance plan; or (iii) any other
employee benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan," as that term is defined in Section 3(3) of ERISA,
currently or expected to be adopted, maintained by, sponsored in whole or in
part by, or contributed to by Sapient or any entity aggregated therewith under
Internal Revenue Code Sections 414(b) or 414(c) for the benefit of employees,
former employees, retirees, directors, independent contractors, spouses or
dependents of any of the foregoing or any other beneficiaries and under which
such employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate (collectively,
the "Benefit Plans"). Any Benefit Plan that is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, or an "employee welfare
benefit plan" as that term is defined in Section 3(1) of ERISA, is referred to
herein as an "ERISA Plan." On or after September 26, 1980, neither Sapient or
any entity aggregated therewith under Internal Revenue Code Section 414(b) or
414(c) have had an "obligation to contribute" (as defined in ERISA Section 4212)
to a "multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A))
("Multiemployer Plan"). Sapient has not incurred, nor is reasonably expected to
incur prior to the Closing Date, any liability under Title I or Title IV of
ERISA or under Internal Revenue Code Section 412 other than routine funding
obligations and routine claims for benefits. All Liabilities arising out of or
related to Benefit Plans and ERISA Plans of Sapient and of its ERISA Affiliates
are reflected in the Financial Statements in accordance with GAAP.
(b) True, correct and complete copies of all written Benefit
Plans, as currently in effect (or as otherwise requested by WebMD), listed on
Schedule 5.21.1 and all trust agreements or other funding arrangements,
- --------------
including insurance contracts, all amendments thereto and, where applicable,
with respect to any such plans or plan amendments, the most recent determination
letters issued by the IRS, all advisory opinions issued by the United States
Department of Labor after December 31, 1974, the annual reports or returns,
audited or unaudited financial statements, actuarial valuations, and summary
annual reports for the most recent three plan years, the most recent summary
plan descriptions and any Material modifications thereto have been provided or
made available to WebMD.
(c) Except as listed on Schedule 5.21.2, all the Benefit Plans
---------------
and the related trusts subject to ERISA comply with and have been administered
in all Material respects in compliance with, the provisions of ERISA, all
provisions of the Internal Revenue Code relating to qualification and tax
exemption under Internal Revenue Code Section 401(a) and 501(a) or otherwise
applicable to secure intended tax consequences, and all other applicable laws,
rules and regulations and collective bargaining agreements in all Material
respects. Except as listed on Schedule 5.21.2, all governmental approvals for
---------------
the Benefit Plans have been obtained, including, but not limited to, timely
determination letters on the qualification of the ERISA Plans and tax exemption
of related trusts, as applicable under the Internal Revenue Code, and all such
governmental approvals continue in full force and effect. Neither Sapient nor
any administrator or fiduciary of any such Benefit Plan (or agent of any of the
foregoing) has engaged in any transaction or acted or failed to act in any
manner which could subject any such entity to any direct or indirect liability
(by indemnity or otherwise) for a breach of any fiduciary, co-fiduciary or other
duty under ERISA. No oral or written representation or communication with
respect to any aspect of the Benefit Plans has been made to employees of Sapient
or any of its predecessors prior to or on the Closing Date that is not in
accordance with the written or otherwise preexisting terms and provisions of
such Benefit Plans in effect immediately prior to the Closing Date. There are no
unresolved claims or disputes under the terms of, or in connection with, the
Benefit Plans and no action, legal or otherwise, has been commenced with respect
to any claim other than processing of claims in the ordinary course of business.
(d) All annual reports or returns, audited or unaudited
financial statements, actuarial valuations, summary annual reports and summary
plan descriptions issued with respect to the Benefit Plans are correct and
accurate in all Material respects.
(e) Since December 31, 1974, no "party in interest" (as defined
in Section 3(14) of ERISA) or "disqualified person" (as defined in Section
4975(e)(2) of the Internal Revenue Code) of any
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<PAGE>
ERISA Plan has engaged in any "prohibited transaction" (within the meaning of
Section 4975(c) of the Internal Revenue Code or Section 406 of ERISA) that is
not exempt under Section 4975(d) of the Internal Revenue Code or Section 408(a)
or (b) of ERISA.
(f) No Liability exists and no event that could result in a
Liability has occurred with respect to any Benefit Plan that individually or in
the aggregate could have a Material Adverse Effect on Sapient.
(g) Sapient has not maintained, nor currently maintains, a
Benefit Plan providing welfare benefits (as defined in ERISA Section 3(1)) to
employees after retirement or other separation of service except to the extent
required under Part 6 of Title I of ERISA and Internal Revenue Code Section
4980B(f).
(h) Except as set forth on Schedule 5.21.3, the consummation of
---------------
the transactions contemplated by this Agreement will not entitle any current or
former employee of Sapient or any of its predecessors whose employment is not
terminated as a result of such transactions, to severance pay, unemployment
compensation or any similar payment, and will not accelerate the time of payment
or vesting, or increase the amount, of compensation due any such employee or
former employee.
(i) All Benefit Plans subject to Section 4980B of the Internal
Revenue Code or Part 6 of Title I of ERISA, or both, have been maintained in
compliance in all Material respects with the requirements of such laws and any
regulations (proposed or otherwise) issued thereunder.
5.22 Remuneration. Schedule 5.22 contains a complete and accurate
------------ -------------
schedule of the direct compensation (including wages, salaries and actual or
anticipated bonuses), plus a description of other annual benefits not made
available to the other employees generally, to be paid in the current fiscal
year to (i) all of the officers and directors of Sapient; and (ii) all of the
employees of Sapient who received or will be receiving in excess of $50,000
(excluding commission and bonus compensation) during such year. No unpaid
salary, other than for the immediately preceding pay period and other than
pursuant to the existing deferred compensation plans of Sapient is now payable
to any of such officers, directors or employees.
5.23 Union and Employment Agreements. Except as set forth on Schedule
------------------------------- --------
5.23, Sapient is not a party to any union agreement, nor does it have any
- ----
written or oral agreement that is not terminable by it at will with any of its
officers, directors, employees, consultants, agents, or any other person
performing services therefor, relating to their employment by or performance of
services for any such entity or their compensation therefor. To the knowledge
of Sapient, no union attempts to organize the employees of Sapient have been
made, nor are any such attempts now threatened so far as is known to Sapient.
Except as set forth on Schedule 5.23, to the knowledge of Sapient, none of its
-------------
officers will terminate his or her employment currently or at any time within
sixty (60) days of the Closing Date.
5.24 Interested Transactions.
-----------------------
(a) Except as set forth on Schedule 5.24 and except for or in
-------------
connection with reasonable expenses or advancement of expenses incurred in the
ordinary course of business for relocation of employees, Sapient is not
currently a party to any Contract, loan or other transaction with any of the
following persons, or in which any of the following persons have any direct or
indirect interest (other than as a shareholder or employee of Sapient):
(i) Any director, officer, employee of Sapient or any of
the five percent (5%) or greater shareholders of Sapient;
(ii) Any of the spouses, parents, siblings, children,
aunts, uncles, nieces, nephews, in-laws and grandparents of any of the
persons described in clause (i); or
(iii) Any corporation, trust, partnership or other entity in
which any of the persons described in clauses (i) or (ii) has a beneficial
interest (other than in a corporation
-17-
<PAGE>
whose shares are publicly traded and in which such persons own beneficially
in the aggregate no more than 5% of the equity interest).
(b) Except as set forth on Schedule 5.24, none of the
-------------
shareholders of Sapient is an employee, consultant, partner, principal, director
or shareholder of any business entity which is engaged in a business which
competes with or is similar to the business of Sapient.
5.25 Brokers and Finders. No broker, agent, finder or consultant or other
-------------------
person has been retained by or on behalf of Sapient (other than Hambrecht &
Quist ("H&Q") and legal or accounting advisors), or is entitled to be paid based
upon any agreements or understandings made by Sapient in connection with the
transactions contemplated hereby. Except for fees due to H&Q, neither WebMD nor
Sapient shall have any Liability for any broker's fee, finder's fee,
consultant's fee or similar third party remuneration by reason of any action of
Sapient.
5.26 Statements True and Correct. No certificate, schedule, or other
---------------------------
exhibit furnished or to be furnished by Sapient to WebMD pursuant to the terms
of this contains or will contain any untrue statement of Material fact or will
omit to state a Material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of the
information furnished in writing by Sapient or, to Sapient's knowledge, any
Affiliate thereof for inclusion in the Information Statement to be mailed to
Sapient's Shareholders in connection with the Shareholder's meeting will, at the
time such documents are first mailed to the Shareholders of Sapient or at the
time of the Shareholder's meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
5.27 Tax Matters. Neither Sapient nor, to the knowledge of Sapient, any
-----------
Affiliate thereof has taken any action or has any knowledge of any fact or
circumstance that is reasonably likely to prevent the transactions contemplated
hereby, including the Merger, from qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
5.28 State Takeover Laws. Sapient has taken all necessary action to
--------------------
exempt the transactions contemplated by this Agreement from any applicable state
takeover Law.
5.29 Schedules. All Schedules attached hereto are true, correct and
---------
complete as of the date of this Agreement. Matters disclosed on each Schedule
shall be deemed disclosed for purposes of the matters to be disclosed on such
Schedule and shall be deemed to be disclosed for purposes of other Schedules,
provided that such disclosure is specifically responsive and complete with
respect to such other Schedules, unless expressly provided to the contrary
therein.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF WEBMD
---------------------------------------
WebMD and Merger Corp. hereby represent and warrant to Sapient as follows:
6.1 Organization, Standing, and Power. Each of WebMD and its Subsidiaries
---------------------------------
is a corporation duly organized, validly existing, and in good standing under
the Laws of the state of its incorporation, and has the power and authority to
carry on its business as it has been and is now being conducted and to own,
lease and operate its Assets. Except as set forth on Schedule 6.1, each of WebMD
------------
and its Subsidiaries is duly qualified or licensed to transact business as a
foreign corporation and is in good standing in all jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on WebMD or such Subsidiary. Copies
of the articles or certificate of incorporation and all amendments thereto of
WebMD and its Subsidiaries and the bylaws, as amended, of WebMD and its
Subsidiaries and copies of the corporate minutes (or resolutions adopted by the
shareholders or Board of Directors) of WebMD and its Subsidiaries, which have
been made available to Sapient for review, are true and complete, in all
Material
-18-
<PAGE>
respects, as in effect on the date of this Agreement, and accurately reflect all
proceedings of the shareholders and Board of Directors (and all committees
thereof) of WebMD and its Subsidiaries. The stock record books of WebMD and its
Subsidiaries, which have been made available to Sapient for review, contain true
and complete records of the stock ownership of WebMD and all prior transfers of
the shares of its capital stock.
6.2 Authorization of Agreement; No Breach. The execution, delivery and
-------------------------------------
performance of this Agreement has been duly authorized by all necessary
corporate action of WebMD. This Agreement constitutes, and all agreements and
other instruments and documents to be executed and delivered by WebMD pursuant
to this Agreement will constitute, legal, valid and binding obligations of WebMD
enforceable against WebMD in accordance with their respective terms, except to
the extent such enforceability is subject to (i) laws of general application
relating to bankruptcy, insolvency, moratorium and the relief of debtors and
(ii) the availability of specific performance, injunctive relief or other
equitable remedies. Except as set forth on Schedule 6.2, the execution,
delivery and performance of this Agreement and the agreements and other
documents and instruments to be executed and delivered by WebMD pursuant to this
Agreement and the consummation of the transactions contemplated hereby and
thereby will not, subject to obtaining the consents identified herein, (i)
violate or result in a breach of or Default under the articles or certificate of
incorporation or bylaws of WebMD or any of its Subsidiaries or any other
Material instrument or agreement to which WebMD or any of its Subsidiaries is a
party or is bound; (ii) to the knowledge of WebMD and its Subsidiaries, violate
any Law, administrative decision or award of any court, arbitrator, mediator,
tribunal, administrative agency or governmental body applicable to or binding
upon WebMD or its Subsidiaries or upon their respective securities, property or
business; (iii) conflict with or constitute a Default under any Material
Contract to which WebMD or any of its Subsidiaries is a party or by which WebMD
or any of its Subsidiaries is bound; or (iv) create a Material Lien upon the
securities, property or business of WebMD or any of its Subsidiaries.
6.3 Capital Stock. As of the date hereof, the authorized capital stock of
-------------
WebMD consists of (a) 75,000,000 shares designated Common Stock (without
designation as to series), of which 3,000,000 shares are issued and outstanding
as of the date hereof and none of which are issued and held as treasury shares,
(b) 3,000,000 shares are designated Common Stock Series B, of which 1,400,000
are issued and outstanding as of the date hereof and none of which are issued
and held as treasury shares, (c) 1,500,000 shares are designated Common Stock
Series C, of which 1,500,000 are issued and outstanding as of the date hereof
and none of which are issued and held as treasury shares, (d) 15,000,000 shares
are designated Common Stock Series D, of which 4,486,805 are issued and
outstanding as of the date hereof and none of which are issued and held as
treasury shares, (e) 2,500,000 are designated Common Stock Series E, of which
2,100,000 are issued and outstanding as of the date hereof and none of which are
issued and held as treasury shares; and (f) 10,000,000 shares designated as
Preferred Stock, of which 1,600,000 are designated Series A Preferred Stock, of
which 801,000 shares of Series A Preferred Stock are issued and outstanding as
of the date hereof and none of which are issued and held as treasury shares.
Except as set forth in Schedule 6.3, all of such shares are duly and validly
issued and outstanding, and are fully paid and non-assessable and were issued
pursuant to an exemption from registration under the 1933 Act and all
applicable state securities laws. Except as set forth on Schedule 6.3 and as
------------
contemplated by this Agreement, there are no outstanding warrants, options,
rights (including outstanding rights to demand registration or to sell in
connection with a registration by WebMD under the Securities Act of 1933, as
amended), calls or other commitments of any nature relating to the WebMD Common
Stock or any other capital stock of WebMD to which WebMD is a party, and there
are no outstanding securities of WebMD convertible into or exchangeable for
shares of WebMD Common Stock or any other capital stock of WebMD. WebMD and its
Subsidiaries have no knowledge of any voting agreements or voting trusts between
or among any Person or Persons relating to WebMD, the WebMD Common Stock or any
of its Subsidiaries. Except as set forth on Schedule 6.3, WebMD is not
------------
obligated to issue or repurchase any shares of its capital stock for any
purpose, and, to the knowledge of WebMD, no person or entity has entered into
any Contract or option or any right or privilege (whether preemptive or
contractual) capable of becoming a Contract or option for the purchase,
subscription or issuance of any unissued shares, or other securities of WebMD.
Prior to the Effective Time, WebMD will authorize and file a designation
authorizing at least 1,750,000 and up to 3,400,000 shares of Series B Preferred
Stock in accordance with Section 8.3 hereto. The shares of Series B Preferred
Stock to be issued in accordance with the terms and
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<PAGE>
provisions of this Agreement will, when so issued, be duly authorized, validly
issued, fully paid and non-assessable.
6.4 WebMD Subsidiaries. Schedule 6.4 attached hereto is a true and
------------------ -------------
correct list of each Subsidiary of WebMD. All of the outstanding shares of
capital stock of each such Subsidiary are duly and validly issued and
outstanding, are fully paid and non-assessable, and were issued pursuant to a
valid exemption from registration under the Securities Act of 1933, as amended,
and all applicable state securities laws, and are owned of record and
beneficially by WebMD, free and clear of any and all Liens. No shares of
capital stock of any Subsidiary are reserved for issuance and there are no
outstanding options, warrants, rights, subscriptions, claims of any character,
Contracts, obligations, convertible or exchangeable securities or other
commitments, contingent or otherwise, relating to the capital stock of any
Subsidiary, pursuant to which any Subsidiary is or may become obligated to issue
or exchange any share of capital stock. Neither WebMD nor any Subsidiary owns,
directly or indirectly, any capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, or other entity.
6.5 Financial Statements.
--------------------
(a) Schedule 6.5 contains true and correct copies of the (i)
------------
audited consolidated balance sheets of WebMD as of December 31, 1997 and 1996,
and the audited consolidated statements of income and audited consolidated
statements of cash flows for the years ended December 31, 1997, 1996 and 1995
and (ii) the unaudited balance sheet of WebMD as of September 30, 1998 and the
unaudited consolidated statements of income and unaudited statements of cash
flows for the nine months ended September 30, 1998 and 1997 (the "Financial
Statements").
(b) The Financial Statements (i) are in accordance with the
books and records of WebMD and its Subsidiaries, which books and records have
been maintained in accordance with reasonable business practices; (ii) present
fairly the consolidated financial condition, assets and liabilities of WebMD and
its Subsidiaries, taken as a whole, as of the respective dates indicated and the
results of operations and cash flows for the respective periods indicated; (iii)
have been prepared in accordance with GAAP consistently applied throughout the
periods involved, except for the omission of notes to interim unaudited
consolidated statements; and (iv) reflect adequate reserves for all known
Material Liabilities and reasonably anticipated losses required to be recorded
under GAAP. The Financial Statements contain no untrue statements of any
Material fact nor omit to state any Material fact required to be stated to make
the Financial Statements not misleading, except that there are no notes to the
interim unaudited consolidated statements.
6.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
6.6 and on the September 30, 1998 Financial Statements, as of the date hereof
- ---
neither WebMD nor any of its Subsidiaries has any Undisclosed Liabilities,
except for unpaid liabilities and obligations incurred since September 30, 1998,
in the ordinary course of business and not involving Funded Debt and which are
not, in the aggregate, Material.
6.7 Absence of Certain Changes or Events. Since September 30, 1998,
------------------------------------
except as disclosed on Schedule 6.7, there have been no events, changes or
------------
occurrences (other than events or conditions affecting the economy generally)
which have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on WebMD.
6.8 Tax Matters.
------------
(a) WebMD and its Subsidiaries have filed all federal and state
income tax returns for all periods prior to the date hereof which were required
to be filed, and, except as described on Schedule 6.8, no returns so filed have
------------
been examined by the IRS or any state agency with respect to any such period.
Except as listed on Schedule 6.8, WebMD has not received notice of any Tax
------------
being asserted or any proposed assessment by any taxing authority and no Tax
returns thereof have been examined by the IRS or the appropriate state agencies
for any fiscal year or period ended prior to the date hereof, and WebMD is not
presently under, nor has any such entity received notice of any contemplated,
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<PAGE>
investigation or audit by the IRS or any state agency concerning any fiscal year
or period ended prior to the date hereof. Except as listed on Schedule 6.8,
------------
WebMD has not executed any extension or waivers of any statute of limitations on
the assessment or collection of any tax due that is currently in effect.
(b) As of the date hereof, WebMD and each of its Subsidiaries
have filed all Tax returns required to be filed at this date, taking into
account any extensions of the filing deadlines which have been validly granted
to any such entity and which are listed on Schedule 6.8, and such returns are
------------
true and correct in all Material respects and properly reflect the Tax
Liabilities of WebMD and each of its Subsidiaries for the periods, property or
events covered thereby, and each such entity has paid all Taxes (including
penalties and interest in respect thereof, if any) that have become or are due
with respect to any period through the date hereof whether shown on such returns
or not.
(c) Adequate provision has been made in the Financial Statements
in accordance with GAAP as of September 30, 1998, for all Tax Liabilities not
required to be paid prior to such date and for all current and deferred Taxes.
(d) WebMD and each of its Subsidiaries, and each of their
respective predecessors to which any such entity has succeeded, has withheld or
collected from each payment made to each of their employees the amount of all
Taxes required to be withheld or collected therefrom and has paid the same to
the proper tax depositories or collecting authorities.
(e) All ad valorem property taxes for fiscal years prior to 1998
imposed on WebMD, or any of its Subsidiaries or their respective predecessors
have been paid in full or adequately reserved in the consolidated financial
statements contained in the WebMD Documents, as appropriate.
(f) Neither WebMD nor any of its Subsidiaries, nor to the
knowledge of WebMD or its Subsidiaries, their respective predecessors to which
any such entity has succeeded, has ever made an election under Section 341(f) of
the Internal Revenue Code and no such entity is a United States real property
holding corporation as defined in Section 897 of the Internal Revenue Code.
6.9 Intellectual Property.
---------------------
(a) Schedule 6.9 contains a true and complete list of all
------------
patents, trademarks, tradenames, service marks, service names, trade secret
protected computer software and copyright registrations, and applications
therefor owned by or exclusively licensed to WebMD on the date hereof, including
all Internet domain names registered with any third party. WebMD owns, or is a
valid licensee of all Intellectual Property used in WebMD's business as
currently conducted. Neither WebMD or, to the knowledge of WebMD, its
predecessors has misused the Intellectual Property of others, and none of the
Intellectual Property as used in the business conducted by any such entity
infringes upon or otherwise violates the Intellectual Property of others, nor to
WebMD's knowledge with respect to predecessors, has any person asserted a claim
of such infringement or violation of Intellectual Property against any such
entity. WebMD is not obligated to pay any royalties to any person or entity with
respect to any Intellectual Property in excess of $5,000.00 per year. WebMD owns
or has the valid right to use all of the Intellectual Property rights which it
is presently using, or intends to use in connection with the performance of any
existing Material contract, proposal or letter of intent to which it is a party.
Except as set forth on Schedule 6.9, WebMD has not licensed or sublicensed its
------------
rights in any Intellectual Property, except non-exclusive licenses in the
ordinary course of business, forms of which license agreements and a list of
which licensees, WebMD has delivered or made available to Sapient.
(b) To the knowledge of WebMD, except as described on Schedule
--------
6.9, no officer, director or employee of WebMD has entered into any Contract
- ---
other than on behalf of WebMD and with WebMD's authorization, which requires
such officer, director or employee to assign any interest in any Intellectual
Property or which restricts or prohibits such officer, director or employee from
engaging in activities competitive with WebMD.
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<PAGE>
(c) The Intellectual Property owned or licensed by WebMD is
sufficient to continue to operate the business as conducted on the date hereof.
(d) WebMD is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for each application
and registration listed on Schedule 6.9. There is no pending, or to the
------------
knowledge of WebMD, threatened received by WebMD of, or to the knowledge of
WebMD, any verbal threat of opposition, interference or cancellation proceeding
before any court or registration authority in any jurisdiction against the
registrations listed on Schedule 6.9, or, to the knowledge of WebMD, against any
------------
Intellectual Property exclusively licensed to WebMD.
(e) Except as set forth on Schedule 6.9, there are no
------------
settlements, forbearances to sue, consents, judgments, or orders of which WebMD
is a party or of which it is aware and which (i) restrict WebMD's rights to use
any Intellectual Property owned by or licensed to WebMD, (ii) restrict WebMD's
business in order to accommodate a third party's intellectual rights or (iii)
permit third parties to use any Intellectual Property owned or controlled by
WebMD.
(f) Except as set forth on Schedule 6.9, the consummation of the
------------
transactions contemplated hereby will not result in the Material loss or
impairment of WebMD's right to own or use any of the Intellectual Property, nor
will require the consent of any government authority or third party in respect
of such Intellectual Property.
6.10 Insurance. All of the properties and business of WebMD and its
----------
Subsidiaries of an insurable nature and of a character usually insured by
companies of similar size and in similar businesses are insured in such amounts
and against such losses, casualties or risks as is usual in such companies and
for such properties and business. All such insurance policies are in full force
and effect and the premiums due thereon have been timely paid. Neither WebMD
nor any of its Subsidiaries is now in Default regarding the provisions of any
such policy, nor have they failed to give any notice or present any Material
claim thereunder in due and timely fashion. The consummation of the
transactions contemplated by this Agreement will not constitute a Default under,
or otherwise affect the coverage under any such insurance policies.
6.11 Compliance with Laws.
---------------------
(a) Each of WebMD and its Subsidiaries has in effect all Permits
necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits disclosed on Schedule 6.11
-------------
or those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on WebMD or its
Subsidiaries, taken as a whole. Except as disclosed on Schedule 6.11, neither
-------------
WebMD nor any of its Subsidiaries is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect. No notice or warning from any Regulatory
Authority with respect to any failure or alleged failure of WebMD or any of its
Subsidiaries to comply with any Law has been issued or given, nor is any such
notice or warning proposed or threatened.
(b) Except as set forth on Schedule 6.11, no consent or approval
-------------
of, prior filing with or notice to, or other action by, any Regulatory Authority
or any other third party is required in connection with the execution and
delivery of this Agreement or any assignment, agreement or other instrument to
be executed and delivered pursuant to this Agreement by WebMD or the
consummation of the transactions provided for herein or therein except for such
consents and approvals that have been obtained and filings, notices and other
actions that have been taken or made.
(c) Neither WebMD or any of its Subsidiaries, nor, to the
knowledge of WebMD, any officer, director, employee, agent or other
representative thereof acting or purporting to act on behalf of any such entity
or any business enterprise with which WebMD has been associated or affiliated,
has, directly or indirectly, made or authorized any payment, contribution or
gift of money, property, or services, in violation of applicable law (i) as a
kickback or bribe to any person, or (ii) to any
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<PAGE>
political organization or the holder of, or any aspirant to, any elective or
appointive office of any nation, state, political subdivision thereof, or other
governmental body or instrumentality.
6.12 Legal Proceedings. There are no outstanding Court Orders or
-----------------
administrative decisions to which WebMD or any of its Subsidiaries is subject,
and, except as disclosed on Schedule 6.12, there is no Litigation pending or,
-------------
to WebMD's knowledge, threatened against or relating to WebMD or any of its
Subsidiaries or their respective assets or businesses. Except as disclosed on
Schedule 6.12, neither WebMD nor any of its Subsidiaries have been advised by
- -------------
any attorney representing any such entity that there are any "loss
contingencies" as defined in FASB 5, which would be required by FASB 5 to be
disclosed or accrued in the consolidated financial statements of WebMD and which
are not so disclosed or accrued.
6.13 Brokers and Finders. No broker, agent, finder or consultant or other
-------------------
person has been retained by or on behalf of WebMD (other than legal or
accounting advisors), or is entitled to be paid based upon any agreements or
understandings made by WebMD in connection with the transactions contemplated
hereby. Neither Sapient nor WebMD shall have any Liability for any broker's
fee, finder's fee, consultant's fee or similar third party remuneration by
reason of any action of WebMD.
6.14 Statements True and Correct. No certificate, schedule or other
---------------------------
exhibit furnished or to be furnished by WebMD or any Affiliate thereof to
Sapient pursuant to the terms of this Agreement contains or will contain any
untrue statement of Material fact or will omit to state a Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information furnished in
writing by WebMD or, to WebMD's knowledge, any Affiliate thereof for inclusion
in the Information Statement to be mailed to Sapient's Shareholders in
connection with the Shareholder's meeting will, at the time such documents are
first mailed to the Shareholders of Sapient or at the time of the Shareholder's
meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading
6.15 Authority of Merger Corp. Merger Corp is a corporation duly
------------------------
organized, validly existing and in good standing under the Laws of the State of
Georgia as a wholly owned Subsidiary of WebMD. The authorized capital stock of
Merger Corp. consists of 1,000 shares of Merger Corp. Common Stock, of which 100
shares are validly issued and outstanding, fully paid and nonassessable and is
owned by WebMD free and clear of any Lien. Merger Corp. has the corporate power
and authority necessary to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Merger Corp. This Agreement represents a legal, valid, and binding
obligation of Merger Corp., enforceable against Merger Corp. in accordance with
its terms.
6.16 Tax Matters. Neither WebMD nor, to the knowledge of WebMD, any
-----------
Affiliate has taken any action or has any knowledge of any fact or circumstance
that is reasonably likely to prevent the transactions contemplated hereby,
including the Merger, from qualifying as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
6.17 Schedules. All Schedules attached hereto are true, correct and
---------
complete as of the date of this Agreement. Matters disclosed on each Schedule
shall be deemed disclosed for purposes of the matters to be disclosed on such
Schedule and shall be deemed to be disclosed for purposes of other Schedules,
provided that such disclosure is specifically responsive and complete with
respect to such other Schedules, unless expressly provided to the contrary
therein.
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<PAGE>
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
7.1 Conduct of Sapient Business. Except as set forth on Schedule 7.1,
--------------------------- ------------
prior to the Closing Date, except with the prior written consent of WebMD, which
consent shall not, in the case of matters referred to in subparagraphs (a) and
(h), be unreasonably withheld, and except as necessary to effect the
transactions contemplated in this Agreement, Sapient shall:
(a) conduct its business in substantially the same manner as
presently being conducted and refrain from entering into any transaction or
Contract other than in the ordinary course of business (or, even if in the
ordinary course of business, not in excess of $50,000), and not make any
Material change in its methods of management, marketing, accounting, or
operations;
(b) consult with WebMD prior to undertaking any Material new
business opportunity outside the ordinary course of business and not undertake
such new business opportunity without the prior written consent of WebMD, which
consent will not be unreasonably withheld;
(c) confer on a regular basis with one or more designated
representatives of WebMD to report Material operational matters and to report
the general status of ongoing business operations;
(d) notify WebMD of any unexpected Material change in the normal
course of business or in the operation of its properties, and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings or
submissions involving any Material property, and Sapient agrees to keep WebMD
fully informed of such events and permit WebMD's representatives prompt access
to all materials prepared in connection therewith, except for any materials that
are protected by the attorney-client privilege, provided that in such event
WebMD is advised of all material facts concerning such privileged materials;
(e) except as set forth on Schedule 7.1, not enter into any new
------------
employment Contract except in the ordinary course of business, or except in the
ordinary course of business and consistent with past practice, any commitment to
employees (including any commitment to pay retirement or other benefits);
(f) not increase the compensation (including fringe benefits)
payable or to become payable to any officer, director, employee, agent or
independent contractor of Sapient, except general hourly rate increases and
normal merit increases for employees other than officers made in the ordinary
course of business and consistent with past practice;
(g) except in the ordinary course of business, not (i) create or
incur any indebtedness, (ii) enter into or terminate any lease of real estate,
or (iii) release or create any Liens of any nature whatsoever;
(h) except in the ordinary course of business and, even if in
the ordinary course of business, then not in an amount to exceed $50,000 in the
aggregate, make or commit to make any capital expenditure, or enter into any
lease of capital equipment as lessee or lessor;
(i) not sell any Material asset or make any Material commitment
relating to its assets other than in the ordinary course of business;
(j) not amend the Articles of Incorporation, Bylaws or other
governing instruments of Sapient, or
(k) not make any changes in its accounting methods or practices,
except for changes in its tax accounting methods or practices that may be
necessitated by changes in applicable tax laws;
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<PAGE>
(l) except for this Agreement, or pursuant to the exercise of
stock options, Sapient Warrants or convertible promissory notes listed on
Schedule 5.3 hereto and outstanding as of the date hereof, in accordance with
- ------------
their current terms, and except for shares of Sapient Common Stock which may be
issued upon the conversion of Sapient Series A Preferred Stock, Sapient Series B
Preferred Stock Series C Preferred Stock, issue, sell, pledge, encumber,
authorize the issuance of, enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Sapient Capital Stock, or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock, or pay
or declare or agree to pay or declare any dividend with respect to any Sapient
Capital Stock;
(m) not make any loan to any Person or increase the aggregate
amount of any loan currently outstanding to any Person, except for usual and
customary advances to employees made in the ordinary course of business; and
(n) not make any agreement or commitment which will result in or
cause to occur a violation of any of the items contained in paragraphs (a)
through (m).
7.2 Adverse Changes in Condition. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it, or (ii) would cause or constitute a
breach of any of its representations, warranties, or covenants contained herein,
and to use its reasonable efforts to prevent or promptly to remedy the same.
ARTICLE 8
ADDITIONAL AGREEMENTS
---------------------
8.1 Shareholder Approval. Sapient shall call a Shareholders' Meeting, to
--------------------
be held as soon as practicable for the purpose of voting upon the Merger,
including the Escrow Agreement and the election of the Representative as
representative of the shareholders for purposes of the Escrow Agreement, and
such other related matters as it deems appropriate. In connection with the
Shareholders' Meeting, (i) WebMD and Sapient shall prepare an Information
Statement and mail such Information Statement to Sapient's Shareholders a
reasonable period prior to such Shareholders' Meeting, and (ii) the Parties
shall furnish to each other all information concerning them that the other may
reasonably request in connection with such Information Statement. Unless this
Agreement is terminated in accordance with its terms, the Boards of Directors of
Sapient shall recommend to its shareholders the approval of this Agreement, and
unless this Agreement is terminated in accordance with its terms, the Board of
Directors and officers of Sapient shall use their reasonable efforts to obtain
such shareholders' approval.
8.2 Applications. WebMD shall promptly prepare and file, and Sapient shall
------------
cooperate in the preparation and, where appropriate, filing of, applications
with any Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement.
8.3 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, Sapient and Merger Corp. shall execute and file
the Articles of Merger with the Secretary of State of the State of Oregon in
connection with the Closing. Prior to the Effective Time, WebMD shall file
with the Secretary of State of the State of Georgia articles of amendment to its
Articles of Incorporation designating the Series B Preferred Stock and setting
forth the relative rights, privileges and preferences with respect thereto (the
"Designation"). In the event that WebMD raises proceeds of at least $4,000,000
without a Dilutive Financing in accordance with Section 3.2, the Designation
shall be substantially in the form of, and with terms no less favorable than,
Exhibit 8.3(a) attached hereto; otherwise the Designation shall be substantially
- --------------
in the form of, and with terms no less favorable than, Exhibit 8.3(b) attached
--------------
hereto. The Designation shall authorize at least 1,750,000 and up to 3,400,000
shares of Series B Preferred Stock. Between the date hereof and the Closing
Date, without the prior consent of Sapient, which consent shall not
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<PAGE>
be unreasonably withheld, WebMD shall not file designations for a series or
class of capital stock which has preferences senior to the Series B Preferred
Stock.
8.4 Agreement as to Efforts to Consummate. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including using its reasonable best efforts to lift or rescind
any Order adversely affecting its legal ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 9 of this Agreement; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use,
and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.5 Investigation and Confidentiality.
---------------------------------
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all Material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information furnished to it
by the other Party concerning its and its Subsidiaries' businesses, operations,
and financial positions and shall not use or disclose such information for any
purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Time, each
Party shall promptly return or certify the destruction of all documents and
copies thereof, and all work papers containing confidential information received
from the other Party.
8.6 Press Releases. Prior to the Effective Time, Sapient and WebMD shall
--------------
consult with each other as to the form and substance of any press release or
other public disclosure related to this Agreement or any other transaction
contemplated hereby and neither Party shall issue any press release or make any
other public disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld); provided, that nothing in this Section 8.6
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.7 No Shopping. Except with respect to this Agreement and the
-----------
transactions contemplated hereby, neither Sapient nor any of its Affiliates, nor
any Representatives thereof shall directly or indirectly solicit or respond
(except as permitted by the next sentence) to any Acquisition Proposal by any
Person. Except to the extent necessary to comply with the fiduciary duties of
Sapient's Board of Directors as advised by counsel, none of Sapient or any
Affiliate or Representative thereof shall furnish any non-public information,
negotiate with respect to, or enter into any Contract with respect to, any
Acquisition Proposal, but Sapient may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its fiduciary obligations as advised
by counsel. Sapient shall promptly notify WebMD orally and in writing in the
event that it receives any inquiry or proposal relating to any such transaction.
Upon execution of this Agreement Sapient shall (i) immediately cease and cause
to be terminated any activities, discussions or negotiations ongoing as of the
date hereof with any Persons with respect to any of the foregoing, and (ii)
direct and use its reasonable best efforts to cause all of its Representatives
not to engage in any of the foregoing.
8.8 Tax Treatment. Each of the Parties undertakes and agrees to use its
-------------
reasonable efforts to cause the Merger, and to take no action which would cause
the Merger not, to qualify for treatment as a
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<PAGE>
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes.
8.9 Employee Benefits. Following the Effective Time, WebMD shall provide
-----------------
to officers and employees of Sapient employee benefits under employee benefit
plans on terms and conditions which are substantially similar to those currently
provided by WebMD and its Subsidiaries to their similarly situated officers and
employees and all WebMD employee benefit plans and programs shall give Sapient
employees full credit for their prior employment by Sapient, to the extent that
such credit shall not disqualify WebMD's plans and programs. In the case of
medical and health insurance coverage, subject to the terms of its existing
insurance plans, WebMD shall continue to insure Sapient officers and employees
under Sapient's existing insurance plans or use its reasonable commercial
efforts to provide generally comparable medical and health insurance with no
limitations, restrictions or reductions in benefits related to preexisting
conditions, waiting periods, deductibles, copayments, stop-loss provisions and
similar features.
8.10 Voting Agreement. Simultaneously with the execution and delivery of
-----------------
this Agreement, each of the Persons listed on Schedule 8.10 has executed and
-------------
delivered a Voting Agreement in the form of Exhibit 8.10 hereto pursuant to
------------
which such Person has agreed, among other things, to vote all shares of Sapient
Capital Stock held of record by such Person in favor of the Merger at the
Sapient Shareholder Meeting.
8.11 Accredited Investor Questionnaire and Shareholder Representation
----------------------------------------------------------------
Agreement. Sapient shall use its reasonable efforts to cause each Shareholder to
- ----------
promptly execute and deliver to WebMD an Accredited Investor Questionnaire and
Shareholder Representation Agreement in the form of Exhibits 8.11(a) and
----------------
8.11(b), respectively, hereto.
--
8.12 Registration of Shares.
----------------------
(a) Subject to the conditions set forth in this Section 8.12, the
Shareholders may make one (1) demand on WebMD to register in each registration
at least 200,000 shares of WebMD Common Stock ("Shares") obtained upon
conversion of the Series B Preferred Stock issued to the Shareholders pursuant
hereto; provided, however that (i) the Shareholders may not initiate a demand on
WebMD to register any Shares until after the date that is six (6) months
following the effective date of the registration statement relating to an
Initial Public Offering (as defined below) and (ii) if another holder who is not
a Shareholder has exercised a demand right to register shares of WebMD Common
Stock, WebMD shall not be obligated to file or cause to be declared effective a
registration statement until ninety (90) days after the effective date of a
registration statement filed pursuant to the demand of another holder who has
exercised its demand rights. The term "Initial Public Offering" means the offer
and sale of shares of WebMD Common Stock in a transaction underwritten by an
investment banking firm following the completion of which (i) such equity
securities will be listed for trading on any national securities exchange or
(ii) there will be at least two market makers who are making a market in such
equity securities through the Nasdaq National Market System. Upon the receipt of
a written request from the shareholders to effect a registration pursuant to
this Section 8.12(a) (the "Written Request"), then WebMD shall file a
registration statement with the SEC to effect such registration within 25 days
of the receipt of the Written Request. Notwithstanding the foregoing provisions
of this Section 8.12, the obligation of WebMD to file a registration statement
and to keep a registration statment effective hereunder shall be suspended for a
period not to exceed forty five (45) days and no more than once (i) if the
filing of such registration statement would, in the opinion of the Board of
Directors of WebMD, arrived at in good faith, adversely affect WebMD, a material
financing project or a material proposal or pending acquisition, merger or other
corporate reorganization to which WebMD is then, or is then expected, to become
a party or (ii) if WebMD furnishes to the Shareholders a letter signed by the
Chief Executive Officer or the President of WebMD stating that WebMD intends to
file a registration statement in connection with a bona fide firm commitment
underwritten registration for securities to be offered for its own account (the
"Intended Registration"); provided, however, if WebMD does not file with the SEC
its Intended Registration within 70 days of the Written Request, WebMD shall
file the registration statement requested in the Written Request within 5 days
of the termination of such 70 day period . Upon receipt of notice to file a
registration statement pursuant to this Section 8.12(a), WebMD shall promptly
give written notice of the proposed offering to all other Shareholders so they
have an
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<PAGE>
opportunity to consider joining in such notice, which they may do at their
election within ten (10) days after receipt of the notice of proposed
registration by WebMD. In the case of such registration effected by WebMD, WebMD
shall keep each participating Shareholder advised in writing as to the
initiation of the registration and as to the completion thereof. At its expense,
the Company shall use its best efforts to: (i) keep such registration effective
for a period of ninety (90) days or until the Shareholders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; and (ii) furnish such number of prospectuses and other documents
incident thereto as a Shareholder from time to time may reasonably request. The
sale of the Shares pursuant to this Section 8.12(a) shall be made by means of a
firm commitment underwriting through underwriters who are reasonably acceptable
to WebMD and a majority of interests of Shareholders proposing to distribute
shares through such underwriting. All Shareholders proposing to distribute
Shares through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters. WebMD may include Shares
for its own account in any registration hereunder if, but only if, the
underwriters have not limited the number of Shares of the Shareholders to be
underwritten.
(b) Following the Initial Public Offering, if WebMD proposes to register
any of its securities under the 1933 Act for sale by it for cash (otherwise than
in connection with the registration of securities issuable pursuant to an
employee stock option, stock purchase or similar plan or pursuant to a merger,
exchange offer or a transaction of the type specified in Rule 145(a) of the 1933
Act), WebMD shall give the Shareholders notice of such proposed registration at
least 15 days prior to the filing of a registration statement. At the written
request of a Shareholder delivered to WebMD within 10 days after delivery of the
notice from WebMD, WebMD shall use its best efforts to effect the registration
("Piggyback Registration") under the 1933 Act of the shares of WebMD Common
Stock held upon conversion of the Series B Preferred Stock issued to such
Shareholder pursuant hereto; provided that WebMD may, without the consent of the
Shareholders, withdraw such registration statement prior to its becoming
effective if WebMD has abandoned its proposal to register its securities.
(c) In an Initial Public Offering by WebMD, WebMD shall give the
Shareholders notice of such proposed registration, and at the written request of
a Shareholder delivered to WebMD within 10 days after delivery of the notice
from WebMD, WebMD shall use its best efforts to have the underwriters include in
the over-allotment option of the Initial Public Offering an aggregate of 200,000
shares of WebMD Common Stock issued to the Shareholders upon conversion of the
WebMD Series B Preferred Stock pursuant hereto and to sell such shares if the
over-allotment option is exercised in full by the underwriters for the Initial
Public Offering. The provisions of this Section 8.12(c) are based upon a total
over-allotment option of 450,000 shares and shall be subject to (i) the right of
the managing underwriters to reduce the size of the Initial Public Offering and
to proportionately reduce the size of the total over-allotment option, in which
case the number of shares to be sold by the Shareholders in the over-allotment
option shall be proportionately reduced, (ii) the right of the managing
underwriters to exercise the over-allotment option in part, in which case the
shares to be sold in the over-allotment option shall be reduced pro-rata among
the Shareholders and the other sellers of WebMD Common Stock in the over-
allotment option and (iii) the right of the managing underwriters not to
exercise the over-allotment option.
(d) In the event of the offer and sale of shares of WebMD Common Stock
held by Shareholders under the 1933 Act, WebMD shall, and hereby does, indemnify
and hold harmless each Shareholder, its directors, officers and partners and
each other Person, if any, who controls such Shareholder within the meaning of
Section 15 of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which the Shareholder or any such director or officer or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such shares were registered
under the 1933 Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and WebMD shall reimburse
the Shareholder, and each such director, officer, partner and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim,
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<PAGE>
damage, liability, action or proceeding; provided that WebMD shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to WebMD through an
instrument duly executed by or on behalf of such Shareholder specifically
stating that it is for use in the preparation thereof. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of WebMD, or any such director, officer, partner or controlling person
and shall survive the transfer of such shares by the Shareholder.
(e) WebMD may require, as a condition to including any shares of WebMD
Common Stock to be offered by a Shareholder in any registration statement filed
pursuant to this Section 8.12, that WebMD shall have received an agreement from
such Shareholder to be bound by the terms of this Section 8.12, including an
undertaking reasonably satisfactory to it from such Shareholder, to indemnify
and hold WebMD, its directors and officers and each other Person, if any, who
controls WebMD within the meaning of Section 15 of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which WebMD or any
such director or officer or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
in or omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contain therein,
or any amendment or supplement thereto, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information about such Shareholder as a shareholder of WebMD furnished
to WebMD through an instrument duly executed by such Shareholder specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that such indemnity agreement found in this
Section 8.12(e) shall in no event exceed the gross proceeds from the offering
received by such Shareholder. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of WebMD or any
such director, officer or controlling person and shall survive the transfer by
any Shareholder of such shares.
(f) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 8.12 (d) or (e) (including any governmental action), such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under Section
8.12 (d) or (e), except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist or the indemnified party may have defenses not available to
the indemnifying party in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. Neither an indemnified nor an indemnifying party shall be liable
for any settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(g) The indemnification required by Section 8.12 (d) and (e) shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
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<PAGE>
(h) If the indemnification provided for in this Section 8.12 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense as is appropriate to
reflect the relative benefits received by the indemnified party on the one hand,
and the indemnifying party on the other from the offering of the WebMD Common
Stock, as well as other relevant equitable considerations.
(i) Notwithstanding anything to the contrary contained herein, no
Shareholder shall have rights to a registration under Section 8.12(a) or (b)
after the time that such Shareholder could sell his shares of WebMD Common Stock
pursuant to Rule 144(k) under the 1933 Act or any successor rules thereto.
(j) WebMD shall pay, all expenses in connection with any registration,
including, without limitation, all registration, filing and NASD fees, all fees
and expenses of complying with securities or blue sky laws, the fees and
disbursements of one counsel for the Shareholders and the fees and disbursements
of counsel for WebMD and of its independent accountants; provided that, in any
registration, each party shall pay for its own underwriting discounts and
commissions and transfer taxes.
(k) The Shareholders may not assign their rights under this Section 8.12
to anyone without the prior written consent of WebMD, and any attempted transfer
in violation of this Section 8.12(k) shall be null and void; provided, however,
the Shareholders may assign their rights under this Section 8.12 without such
prior written consent to a transferee or assignee that is a subsidiary, parent,
partner, limited partner, retired partner or shareholder of a Shareholder.
(l) Notwithstanding any other provision of this Section 8.12, in an
underwritten offering, if the underwriters advise WebMD in writing that in their
opinion the number of securities requested to be included in the registration
exceeds the number which can be sold in the offering:
(i) in the event of a demand registration pursuant to Section 8.12(a)
hereof, then the number of Shares that may be included in the registration and
underwriting shall be allocated first to the Shareholders on a pro rata basis
according to the number of Shares requested to be included by the Shareholders
pursuant to Section 8.12(a); second to WebMD; and third to other holders who
have requested to sell in the registration; or
(ii) in the event of a piggyback registration pursuant to Section
8.12(b) that is initiated by WebMD, then the number of Shares that may be
included in the registration and underwriting shall be allocated first to WebMD
and then to all selling shareholders, including the Shareholders, who have
requested to sell in the registration on a pro rata basis according to the
number of shares requested to be included; provided, however, that in no event
shall the total amount of shares of securities included in the offering by HBO &
Company of Georgia, Sirrom Capital Corporation and Matria Healthcare, Inc.
pursuant to a piggyback registration be less than the number of securities
included in the offering by any other single selling shareholder pursuant to
piggyback registration rights unless all shares of securities of HBO & Company
of Georgia, Sirrom Capital Corporation and Matria Healthcare, Inc. are included
in such offering, unless such shareholders of WebMD waive such limitation or
such shareholders of WebMD choose not to sell any shares in such registration.
(m) If requested by WebMD or an underwriter of securities of WebMD within
one year after the Effective Date, the Holders shall not sell or otherwise
transfer or dispose of any shares of WebMD Capital Stock, other than shares sold
by the Shareholders pursuant to an effective registration statement, during a
period of the earlier of (i) ninety (90) days following the effective date of a
registration statement of WebMD filed under the 1933 Act or (ii) the period
ending on the day such Shareholder could sell his shares of WebMD Common Stock
pursuant to Rule 144 under the 1933 Act or any successor rule thereto. Such
agreement shall be in writing in form satisfactory to WebMD and such
underwriter. WebMD may impose stop-transfer instructions with respect to the
shares (or securities) subject to the foregoing restriction until the end of
said period.
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8.13 Indemnification of Sapient Officers and Directors; Insurance.
------------------------------------------------------------
(a) For a period of six (6) years following the Effective Time, WebMD and
the Surviving Corporation jointly and severally shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Agreement, or who becomes prior to the Effective Time, an officer, director
or employee of Sapient in respect of acts or omissions occurring on or prior to
the Effective Time to the extent provided under Sapient's Articles of
Incorporation, Bylaws and indemnification agreements in effect on the date
hereof; provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law. WebMD agrees to maintain the
current insurance policy held by Sapient insuring Sapient's directors and
officers against claims for errors and omissions for a period of three years
following the Effective Time provided that the annual premium for such policy
during the period does not exceed 135% of the amount of the most recent annual
premium.
(b) If WebMD or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates or merges into any other person or entity
and shall not be the continuing or surviving person of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person or entity, then and in each such case, the obligations set forth
in this Section 8.13 shall be binding upon such successors and assigns of WebMD
or the Surviving Corporation.
8.14 Blue Sky Laws. WebMD shall take such reasonable steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the WebMD Common Stock in connection
with the Merger. Sapient shall use its reasonable efforts to assist WebMD as
may be necessary to with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of WebMD Series B Preferred
Stock in connection with the Merger, including, if requested by WebMD after
consultation with counsel, the appointment of a Purchaser Representative for
non-accredited investors who are not sophisticated investors under Rule 501-506
of Regulation D under the 1933 Act.
8.15 Non-solicitation of Employees. Until the Effective Time or, in the
-----------------------------
event this Agreement is terminated without completion of the Merger, for a
period of one year from the date hereof, neither WebMD or Sapient will solicit
for employment any current employee of the other or any subsidiary of the other
unless such employee has been terminated previously by his or her employer.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
9.1 Conditions to Obligations of Each Party. The respective obligations
---------------------------------------
of each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 12.6 of
this Agreement:
(a) Shareholder Approval. The shareholders of Sapient shall have
--------------------
approved this Agreement, and the consummation of the transactions contemplated
hereby, including the Merger and the appointment of the "Representative," as
such term is defined in the Escrow Agreement, as and to the extent required by
Law and by the provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and
--------------------
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Merger shall have been obtained or made and shall be in
full force and effect
(c) Consents and Approvals. Except as set forth on Schedule
---------------------- --------
9.1, each Party shall have obtained any and all Consents required for
- ---
consummation of the Merger (other than those referred to in Section 9.1(b) of
this Agreement) or for the preventing of any Default under any Contract or
Permit of such Party.
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(d) Legal Proceedings. No court or governmental or regulatory
-----------------
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(e) Tax Opinion. Each of WebMD and Sapient shall have received
-----------
the opinion of Alston & Bird LLP to the effect that the Merger will constitute a
tax-free reorganization within the meaning of 368(a) of the Internal Revenue
Code, which opinion shall be in form and substance reasonably satisfactory to
WebMD and Sapient. Such opinion shall not address the tax consequences to
shareholders of Sapient who acquired shares of Sapient Capital Stock upon
conversion of convertible notes prior to the Effective Time. In rendering such
opinion, Alston & Bird LLP shall be entitled rely upon representations of WebMD
and Sapient reasonably satisfactory in form and substance to such counsel. The
parties to this Agreement agree to make reasonable representations as required
by Alston & Bird LLP for the purpose of rendering such opinion.
9.2 Conditions to Obligations of WebMD. The obligations of WebMD to
----------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by WebMD pursuant to Section 13.6(a) of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Sapient set forth or referred t o in this Agreement shall be true
and correct in all Material respects (except that those representations and
warranties which are qualified as to materiality shall be true and correct in
all respects) as of the date of this Agreement and as of the Effective Time with
the same effect as though all such representations and warranties had been made
on and as of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such date);
provided, however, for purposes of this Section 9.2 solely as to whether the
condition to closing set forth herein has been met, a representation or warranty
shall be deemed true and correct in all Material respects notwithstanding a
breach thereof if such breach does not cause or would not reasonably be expected
to cause a Material Adverse Effect on Sapient or WebMD.
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of Sapient to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(c) Certificates. Sapient shall have delivered to WebMD (i) a
------------
certificate dated as of the Effective Time and signed on its behalf by its
President and its Senior Vice President, to the effect that the conditions of
its obligations set forth in Section 9.2(a) and 9.2(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly adopted by
Sapient's Board of Directors and shareholders evidencing the taking of all
corporate action necessary to authorize the execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as WebMD and its counsel shall request.
(d) Opinion of Counsel. WebMD shall have received an opinion
------------------
(a) of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and Stoel
Rives, counsel to Sapient, dated as of the Closing, in the form set forth in
Exhibits 9.2(d)(i) and 9.2 (d)(ii), respectively, and (b) of either of Gunderson
- -------------------------------------------------------------------
Dettmer Stough Villeneuve Franklin & Hachigian, LLP or Stoel Rives, in the form
reasonably satisfactory to WebMD, as to the matters set forth in Exhibit
9.2(d)(iii).
(e) Delivery of Documents. Sapient shall have delivered all of
---------------------
its books and records to WebMD including, but not limited to, (i) all corporate
and other records of Sapient and each Subsidiary and their respective
predecessors, including the minute books, stock books, stock transfer registers,
books of account, leases and Contracts, deeds and title documents, and Financial
Statements; and (ii) such other documents or certificates as shall be reasonably
requested by WebMD.
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(f) Resignation of Sapient Directors. On or prior to the Closing
--------------------------------
Date, Sapient shall have delivered to WebMD evidence satisfactory to WebMD of
the resignation of the directors of Sapient effective as of the Closing Date.
(g) Employment Agreements. Employment Agreements in the form attached
---------------------
hereto as Exhibits 9.2(g) shall have been executed by the employees named in
Schedule 9.2(g) and delivered to WebMD.
(h) Option Agreements. Option Agreements in the form attached hereto
-----------------
as Exhibits 9.2(h) shall have been executed by the employees named in Schedule
9.2(h) and delivered to WebMD.
(i) Escrow Agreement. The Escrow Agreement shall have been executed
----------------
and delivered by the Shareholder Representative and a national bank as escrow
agent.
(j) No Material Adverse Change. There shall not have been any
--------------------------
Material adverse change in the business, assets, Liabilities, financial
condition, or results of operations of Sapient, between the date hereof and the
Closing Date, and Sapient shall have delivered to WebMD a certificate, dated as
of the Closing Date, signed by its President and Senior Vice President
certifying to such effect.
(k) Accredited Investor Questionnaire and Shareholder Representation Agreements.
---------------------------------------------------------------------------
Each Shareholder of Sapient who has not provided to WebMD an Accredited Investor
Questionnaire in the form previously provided to Sapient certifying that such
Shareholder is an "Accredited Investor" as defined in Rule 501(a) under the 1933
Act shall have either (i) appointed a "Purchaser Representative" as set forth
under Rule 501(h) and 506(b)(2)(ii) under the 1933 Act, or (ii) delivered to
WebMD a Shareholder Representation Agreement certifying as to the sophistication
of the investor and other reasonably related matters set forth therein. As of
the Effective Time, Sapient shall not have more than thirty one (31)
shareholders who are non-accredited investors under Rule 501(a) and (e) under
the 1933 Act (in the event of non-receipt of an Accredited Investor
Questionnaire, such holder shall be deemed to be a non-accredited investor).
(l) Dissenting Shareholders. Holders of less than five percent (5.0%)
-----------------------
of the Sapient Capital Stock shall have elected to seek their statutory
dissenters' rights as provided in Section 3.4 of this Agreement.
(m) Conversion of Notes. On or prior to the Effective Time, (i)
-------------------
holders of a majority in interest of the $2,300,000 principal amount of
Convertible Notes dated July 31, 1998 shall have irrevocably waived their right
to convert such Convertible Notes and shall have amended such series of
Convertible Notes to provide for the cash payment of the principal and accrued
interest thereon at the Effective Time; and (ii) all other Convertible Notes
shall have been converted into shares of Sapient Capital Stock in accordance
with their terms (other than terms as to time of conversion).
9.3 Conditions to Obligations of Sapient. The obligations of Sapient to
------------------------------------
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Sapient pursuant to Section 12.6(b) of this Agreement:
(a) Representations and Warranties. The representations and
------------------------------
warranties of WebMD set forth or referred to in this Agreement shall be true and
correct in all Material respects (except that those representations and
warranties which are qualified as to materiality shall be true and correct in
all respects) as of the date of this Agreement and as of the Effective Time with
the same effect as though all such representations and warranties had been made
on and as of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such date);
provided, however, for purposes of this Section 9.3 solely as to whether the
condition to closing set forth herein has been met, a representation or warranty
shall be deemed true and correct in all Material respects notwithstanding a
breach thereof if such breach does not cause or would not reasonably be expected
to cause a Material Adverse Effect on WebMD.
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<PAGE>
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of WebMD to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with.
(c) Certificates. WebMD shall have delivered to Sapient (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by WebMD's Board of Directors and Merger Corp.'s Board of Directors and
sole shareholder evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such reasonable
detail as Sapient and its counsel shall request.
(d) Opinion of Counsel. Sapient shall have received an opinion
------------------
of Alston & Bird LLP, counsel to WebMD, dated as of the Effective Time, in form
reasonably acceptable to Sapient, as to the matters set forth in Exhibit 9.3(d).
--------------
(e) Articles of Amendment. At or prior to the Effective Time,
---------------------
WebMD shall have filed with the Secretary of State of the State of Georgia
articles of amendment to its Articles of Incorporation designating the Series B
Preferred Stock and setting forth the relative rights, privileges and
preferences with respect thereto, all in accordance with Section 8.3 hereof, and
WebMD shall have delivered to Sapient a certified copy of such filed amendment.
(f) Employment Agreements. Employment Agreements in the form of
---------------------
Exhibit 9.2(g) attached hereto shall have been executed by WebMD and delivered
to the employees named in Schedule 9.2(g).
(g) Option Agreements. Option Agreements in the form of Exhibit
-----------------
9.2(h) shall have been executed by WebMD and delivered to the employees named in
Schedule 9.2(h).
(h) Escrow Agreement. The Escrow Agreement shall have been
----------------
executed and delivered by WebMD and a national bank as escrow agent.
(i) No Material Adverse Change. There shall not have been any
--------------------------
Material adverse change in the business, assets, Liabilities, financial
condition, or results of operations of WebMD and its Subsidiaries, taken as a
whole, between the date hereof and the Closing Date, and WebMD shall have
delivered to Sapient a certificate, dated as of the Closing Date, signed by its
chief executive officer and chief financial officer certifying to such effect.
ARTICLE 10
TERMINATION
-----------
10.1 Termination. Notwithstanding any other provision of this Agreement,
-----------
and notwithstanding the approval of this Agreement by the shareholders of
Sapient, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time:
(a) By mutual consent of the Board of Directors of WebMD and the
Board of Directors of Sapient; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a breach by the other Party of any representation or warranty contained in
this Agreement which cannot be or has not been cured within 10 days after the
giving of written notice to
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<PAGE>
the breaching Party of such breach and which breach is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on the
breaching Party; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
of a Material breach by the other Party of any covenant or agreement contained
in this Agreement which cannot be or has not been cured within 15 days after the
giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
(i) any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby shall have been denied by
final nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
shareholders of Sapient fail to vote their approval of this Agreement and the
transactions contemplated at the Shareholders' Meeting where the transactions
were presented to such shareholders for approval and voted upon; or
(e) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by January 31, 1999, if the failure
to consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party if the Board of
Directors of Sapient shall fail to call a shareholders' meeting or solicit
consents for the purpose of approving the Merger at least 10 days prior to the
date set forth in Section 10.1(e) (provided that the failure to call such
meeting is not the result of a breach by WebMD of any representation, warranty,
covenant or agreement that would entitle Sapient's Board to terminate this
Agreement pursuant to Section 10.1 (b) or (c) above) or shall have affirmed,
recommended or authorized entering into any other Acquisition Proposal or other
transaction involving a merger, share exchange, consolidation or transfer of
substantially all of the Assets of Sapient; or
(g) By WebMD, if the Board of Directors of Sapient shall
withdraw, modify or change its approval or recommendation to the Sapient
Shareholders of this Agreement or the Merger and related transactions in a
manner adverse to WebMD (provided that the withdrawal, modification, change of
approval or recommendation is not the result of a breach by WebMD of any
representation, warranty, covenant or agreement that would entitle Sapient's
Board to terminate this Agreement pursuant to Section 10.1 (b) or (c) above).
10.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 10.2 and Article 11 and Section 8.5(b) and 8.15 of this
Agreement shall survive any such termination and abandonment, and (ii) a
termination pursuant to Sections 10.1(b) or 10.1(c) of this Agreement shall not
relieve a breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Definitions.
-----------
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
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<PAGE>
"Acquisition Proposal" with respect to a Party shall mean any tender offer
or exchange offer or any proposal for a merger, acquisition of all of the stock
or assets of, or other business combination involving such Party or any of its
Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the assets of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"Articles of Merger" shall mean the Articles or Plan of Merger, as
applicable, to be executed by Merger Corp. and Sapient and filed with the
Secretary of State of the State of Oregon and the Secretary of State of the
State of Georgia relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
commitment, contract, indenture, instrument, lease, obligation, plan,
restriction, understanding or undertaking of any kind or character, or other
document to which any Person is a party or that is binding on any Person or its
capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default under any
Contract, Order or Permit, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the giving
of notice would give rise to a right to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata) and which are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the environment,
including the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws
relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE>
"Exhibits" shall mean the Exhibits so marked, copies of which are attached
to this Agreement. Such Exhibits are hereby incorporated by reference herein
and made a part hereof, and may be referred to in this Agreement and any other
related instrument or document without being attached hereto.
"Exchange Ratios" shall mean the Common Stock Exchange Ratio, the Series A
Preferred Stock Exchange Ratio, the Series B Preferred Stock Exchange Ratio and
the Series C Preferred Stock Exchange Ratio.
"Funded Debt" shall mean any outstanding indebtedness (including leases
required to be capitalized under GAAP) of such party or its Subsidiaries, except
Funded Debt between such parties, representing borrowing, but excluding trade
payables.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
Material, hazardous waste, regulated substance or toxic substance (as those
terms are defined by any applicable Environmental Laws) and (ii) any chemicals,
pollutants, contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement, removal or
encapsulation pursuant to the requirements of Regulatory Authorities and any
polychlorinated biphenyls).
"Intellectual Property" shall mean the copyrights, patents, trademarks,
service marks, service names, tradenames, applications therefor, technology
rights and licenses, computer software (including, without limitation, any
source or object codes therefor or documentation relating thereto), trade
secrets, franchises, know-how, inventions and intellectual property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including those promulgated, interpreted or enforced by
any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable and (ii) Liens which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on a Party.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including Contracts related to it), or the transactions
contemplated by this Agreement.
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<PAGE>
"Material" for purposes of this Agreement shall be determined in light of
the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine materiality in
that instance.
"Material Adverse Effect" on a Party shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (ii) the ability of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that Material Adverse Effect shall not be deemed to
include the impact of (v) the entry by such Party into strategic alliance or
license agreements viewed by management of such Party as in the best interests
of such Party at such time, (w) changes in Laws of general applicability or
interpretations thereof by courts or governmental authorities, (x) changes in
generally accepted accounting principles, (y) the Merger and compliance with the
provisions of this Agreement on the operating performance of the Parties and (z)
continuing net losses by such Party since the date of the most recent Financial
Statements of such Party not in excess of those set forth in the projections of
such Party disclosed to the other party in writing prior to the date hereof.
"Merger Corp. Common Stock" shall mean the $0.01 par value common stock of
Merger Corp.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Note Conversion Event" shall mean the conversion of the Senior Convertible
Note dated March 24, 1998 by and between Sapient and Synetic, Inc. into
1,069,519 shares of Series C Preferred Stock of Sapient.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"ORS" shall mean the Oregon Revised Statutes.
"Party" shall mean either Sapient, Merger Corp. or WebMD, and "Parties"
shall mean all of Sapient, Merger Corp. and WebMD.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets or
business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Regulatory Authorities" shall mean, collectively, all federal and state
regulatory and blue sky agencies having jurisdiction over the Parties and their
respective Subsidiaries, including the NASD, and the SEC.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative of a Person.
"Sapient Capital Stock" shall mean the Sapient Common Stock and the Sapient
Preferred Stock.
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<PAGE>
"Sapient Common Stock" shall mean the Sapient common stock, $0.001 par
value per share.
"Sapient Preferred Stock" shall mean the Sapient Series A Preferred
Stock, $0.001 par value per share, the Sapient Series B Preferred Stock, $0.001
par value per share and the Sapient Series C Preferred Stock, $0.001 par value
per share.
"Sapient Stock Plan" shall mean the existing stock option plan of
Sapient designated as follows: 1996 Stock Incentive Plan, as amended.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940,
as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"Shareholder Meeting" shall mean the meeting of the Shareholders of
Sapient to be held pursuant to Section 8.1 of this Agreement, including any
adjournment or adjournments thereof.
"Shareholders" shall mean the holders of Sapient Capital Stock.
"Subsidiaries" shall mean all those corporations, partnerships,
associations, or other entities of which the entity in question owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent; provided, there
shall not be included any such entity acquired through foreclosure or any such
entity the equity securities of which are owned or controlled in a fiduciary
capacity.
"Surviving Corporation" shall mean Sapient as the surviving
corporation resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise, occupancy, and other taxes or governmental
assessments, charges, fares, or impositions, including interest, penalties, and
additions imposed thereon or with respect thereto.
"Undisclosed Liabilities" shall mean any liability or obligation of a
Party to this Agreement, whether accrued, liquidated, unliquidated, absolute,
contingent, matured, unmatured or otherwise that is not fully reflected or
reserved against in their respective financial statements or fully disclosed in
a Schedule.
"WebMD Series B Preferred Stock" shall mean the no par value Series B
Convertible Preferred Stock of WebMD to be issued in the Merger.
(b) In addition to the terms defined in Section 11.1 (a) above, the terms
set forth below shall have the meanings ascribed thereto in the referenced
sections:
Benefit Plans - Section 5.21
Capital Expenditures - Section 5.16(c)
Closing - Section 1.2
Closing Date - Section 1.2
Common Stock Exchange Ratio - Section 3.1(b)
Effective Time - Section 1.3
Environmental Litigation - Section 5.7
ERISA Plan - Section 5.21
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Escrow Agreement - Section 4.3
Escrow Shares - Section 4.3
Exchange Agent - Section 4.1
FASB 5 - Section 5.18
Financial Statements - Section 5.5
Merger - Section 1.1
Multiemployer Plan - Section 5.21(a)
Options - Section 3.5
Sapient Equity Rights - Section 5.3
Series A Preferred Stock Exchange Ratio - Section 3.1(c)
Series B Preferred Stock Exchange Ratio - Section 3.1(d)
Series C Preferred Stock Exchange Ratio - Section 3.1(e)
(c) Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation."
11.2 Expenses.
--------
(a) Each Party shall bear and pay all direct costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial or other
consultants, investment bankers, accountants, and counsel. Notwithstanding the
foregoing, WebMD agrees and acknowledges that all reasonable costs and expenses
incurred by Sapient in connection with this Agreement and the transactions
contemplated hereby shall be assumed and paid by WebMD upon consummation of the
Merger; provided, however, that the aggregate amount of all such costs and
expenses shall not exceed $1,500,000, and any expenses in excess thereof shall
be an Indemnifiable Loss under Section 12 hereof.
(b) Notwithstanding the foregoing Section 11.2(a),
(i) if this Agreement is terminated by WebMD pursuant to
Section 10.1(d)(ii); or
(iii) if this Agreement is terminated pursuant to Section
10.1(f) or 10.1(g),
and within one (1) year after the effective date of such termination
Sapient is the subject of a Third Party Acquisition Event with any Person (other
than a Party hereto), then at the time of consummation of such Third Party
Acquisition Event, Sapient shall promptly pay to WebMD the sum of: (i)
$1,750,000, which amount represents the Parties' best estimate of the value of
management time, overhead and other unallocated costs of WebMD incurred by or on
behalf of WebMD in connection with the transactions contemplated by this
Agreement which cannot be calculated with certainty, plus (ii) all out of pocket
costs and expenses of WebMD, including costs of counsel, investment bankers,
actuaries and accountants, up to but not exceeding an additional $1,000,000. As
used herein, the term "Third Party Acquisition Event" shall mean either of the
following: (i) Sapient shall enter into an agreement with respect to or be the
subject of an Acquisition Proposal, or (ii) any Person (other than a party
hereto) shall have acquired beneficial ownership (as such term is defined in
Rule 13d-3 under the 1934 Act) or the right to acquire beneficial ownership of,
or a new group has been formed which beneficially owns or has the right to
acquire beneficial ownership of, Sapient Capital Stock representing 50% or more
of the combined voting power of Sapient.
11.3 Brokers and Finders. Except for Hambrecht & Quist as to Sapient,
-------------------
each of the Parties represents and warrants that neither it nor any of its
officers, directors, employees, or Affiliates has employed any broker or finder
or incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon his or its representing or being retained by or
allegedly representing or being retained by Sapient or WebMD, each of Sapient
and WebMD, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
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11.4 Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement; provided that notwithstanding
the foregoing, the Shareholders of Sapient shall be third party beneficiaries of
Section 8.12 of this Agreement.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by each of the Parties upon the approval
of the Boards of Directors of each of the Parties, whether before or after
shareholder approval of this Agreement has been obtained; provided, that after
any such approval by the holders of Sapient Common Stock, there shall be made no
amendment that pursuant to the ORS requires further approval by such
shareholders without the further approval of such shareholders.
11.6 Waivers.
-------
(a) Prior to or at the Effective Time, WebMD, acting
through its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the performance of any
term of this Agreement by Sapient, to waive or extend the time for the
compliance or fulfillment by Sapient of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of WebMD under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such waiver shall be
effective unless in writing signed by a duly authorized officer of WebMD.
(b) Prior to or at the Effective Time, Sapient, acting
through its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the performance of any
term of this Agreement by WebMD, to waive or extend the time for the compliance
or fulfillment by WebMD of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
Sapient under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of Sapient.
(c) The failure of any Party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
Sapient: Sapient Health Network, Inc.
720 S.W. Washington Street, Suite 400
Portland, Oregon 97205
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Telecopy Number: (503) 299-9917
Attention: Mr. James Kean
Copy to Counsel: Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Telecopy Number: (650) 321-2800
Attention: Scott C. Dettmer, Esq.
WebMD: WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, Georgia 30326
Telecopy Number: (404) 479-7603
Attention: Mr. Michael Heekin
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Telecopy Number: (404) 881-4777
Attention: J. Vaughan Curtis, Esq.
11.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 Captions. The captions contained in this Agreement are for
--------
reference purposes only and are not part of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that irreparable
------------------------
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.14 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
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ARTICLE XII
ESCROW; SHAREHOLDER REPRESENTATIVE
12.1 Escrow Arrangements.
-------------------
(a) Escrow Fund. At the Effective Time each Shareholder will be deemed to
-----------
have received and consented to the deposit with the Escrow Agent (as defined
below) of the Escrow Shares pursuant to the Escrow Agreement, without any act
required on the part of the shareholder. As soon as practicable after the
Effective Time, the Escrow Shares, without any act required on the part of any
shareholder, will be deposited with an escrow agent acceptable to Parent and
the Representative (as defined below) as Escrow Agent (the "Escrow Agent"), such
------------
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
-----------
terms set forth herein. The portion of the Escrow Amount contributed on behalf
of each Shareholder shall be in proportion to the aggregate WebMD Series B
Preferred Stock which such holder would otherwise be entitled to receive under
Section 3.1, which respective percentage interest ( the "Percentage Interest")
will be determined as of the Effective Time and set forth on an exhibit to the
Escrow Agreement. The Escrow shall be contributed entirely out of the shares of
WebMD Series B Preferred Stock issuable upon the Merger in respect of Sapient
Capital Stock. From and after the Effective Time, the Escrow Fund shall be
available to compensate and indemnify WebMD and Merger Corp. and their
respective officers, directors, employees, representatives, agents, shareholders
controlling persons and affiliates (each an "Indemnitee") against and for any
Loss suffered or incurred by an Indemnitee, as and when due, which arises out of
or results from a breach of any of the representations, warranties, covenants
or agreements of Sapient set forth in this Agreement or in any certificate or
schedule delivered by Sapient pursuant to this Agreement. An Indemnitee may not
receive any shares from the Escrow Fund unless and until a Loss Notice or Loss
Notices (as defined below) identifying Indemnifiable Losses, the aggregate
amount of which exceed $50,000, have been delivered to the Escrow Agent pursuant
to the terms hereof; in such case, an Indemnitee may recover from the Escrow
Fund its Losses in excess of $50,000 in accordance with the terms and provisions
of this Article 12.
12.2 Definitions. As used in this Article 12, the following terms shall
-----------
have the following meanings:
(i) "Disputed Loss Notice" shall mean a Loss Notice that is disputed
--------------------
by the Representative by delivery of a Protest Notice.
(ii) "Escrow Shares" shall mean a number of shares equal to ten
-------------
percent (10%) of the aggregate number of shares of WebMD Series B Preferred
Stock issuable pursuant to Section 3.1 hereto which shall be issued and placed
in Escrow (plus any additional shares as may be issued upon any stock split,
stock dividend or recapitalization effected by WebMD after the Effective Time,
and any WebMD Common Stock issued upon conversion of the Series B Preferred
Stock held in the Escrow Fund).
(iii) "Indemnifiable Loss" shall mean any Loss for which an
------------------
Indemnitee may be compensated and indemnified pursuant to Sections 12.1 and
12.8(c) hereof. The amount of recovery for any Indemnifiable Loss shall be
reduced by any insurance proceeds received as a result of any such Indemnifiable
Loss.
(iv) "Loss" shall mean any direct or indirect demand, claim,
----
obligation, assessment, loss, liability, damage, cost or expense, including
without limitation, penalties, fines, or interest on any amount payable to a
third party as a result of the foregoing, and any legal or other expense
reasonably incurred in connection with investigating or defending any claim or
action, whether or not resulting in any liability.
(v) "Loss Notice" shall mean a written notice, as prescribed in
-----------
Section 12.3 hereof, provided by an Indemnitee to the Escrow Agent and the
Representative (i) stating the Indemnitee has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue an Indemnifiable Loss
or potential Indemnifiable Loss, (ii) setting forth in reasonable detail the
individual items comprising such Indemnifiable Loss, the date each such item was
paid or properly accrued, or the basis for such anticipated
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liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related, and (iii) to the extent the amount of
the Indemnifiable Loss or potential Indemnifiable Loss is reasonably calculable,
an estimate of the number of Escrow Shares to be delivered to an Indemnitee with
respect to such Indemnifiable Loss or potential Indemnifiable Loss.
(vi) "Representative" shall mean Phillipe Chambon or his or her
--------------
successor appointed in accordance with Section 12.9 of this Agreement.
(vii) "Representative Expenses" shall mean expenses, including
-----------------------
reasonable attorneys fees and other expenses, of the Representative, in an
amount up to $10,000, incurred in connection with his obligations under
this Agreement.
(viii) "Protest Notice" shall mean a written notice, as prescribed in
--------------
Section 12.4 hereof, provided by the Representative to an Indemnitee if he
disputes any Loss Notice received from an Indemnitee.
(ix) "Value Per Share" shall mean the Series B Price for purposes
---------------
of this Article 12.
12.3 Notice of Claim. If an Indemnitee incurs an Indemnifiable Loss, or
---------------
should an Indemnitee negotiate a proposed settlement in satisfaction of a
potential Indemnifiable Loss, it shall promptly provide a Loss Notice to the
Representative and the Escrow Agent. If the Representative disputes the amount
sought under any such Loss Notice or otherwise disputes the right of the
Indemnitee to be indemnified hereunder, he shall provide the Indemnitee and the
Escrow Agent a Protest Notice within thirty (30) days of the date any such Loss
Notice is received by the Representative. If no Protest Notice is received by
the Indemnitee and the Escrow Agent within thirty (30) days from the date on
which any Loss Notice is received by the Representative, or if a Protest Notice
is received and the dispute is resolved in favor of the Indemnitee after
following the procedures set forth below, then the Escrow Agent shall cause to
be delivered to WebMD and WebMD shall promptly cancel and retire that number of
Escrow Shares as shall equal the number of Escrow Shares (rounded to the next
highest whole number) that, when multiplied by the Value Per Share, equals the
amount of Indemnifiable Loss sought by or awarded to the Indemnitee. If the
Indemnitee and the Escrow Agent receive a Protest Notice within such 30-day
period, the Escrow Agent shall not deliver any Escrow Shares until receipt by it
of written instructions (i) signed by the Representative and a duly authorized
officer of the Indemnitee; or (ii) signed by an arbitration panel that has
considered and resolved such dispute as provided in Section 12.4 below, which
sets forth (i) the number of Escrow Shares, and/or (ii) the amount of cash, if
any, to be delivered to the Indemnitee in accordance with this paragraph. After
delivery of any Escrow Shares to the Indemnitee in accordance with this
paragraph, the Escrow Agent shall be reissued a certificate in respect of any
remaining Escrow Shares.
12.4 Procedure With Respect to Disputed Indemnifiable Loss. A Disputed
-----------------------------------------------------
Loss Notice may be resolved by the agreement of the Representative and the
Indemnitee, in which case written notice of such agreement shall be promptly
provided to the Escrow Agent, together with a statement of the agreed upon
amount to be reimbursed to the Indemnitee. If the Representative and the
Indemnitee are unable to resolve a Disputed Loss Notice within sixty (60) days
of delivery of the Protest Notice to the Escrow Agent, then such Disputed Loss
Notice shall be submitted to arbitration in accordance with the then-current
commercial arbitration rules of the American Arbitration Association ("AAA").
If a Disputed Loss Notice is to be arbitrated, the Representative shall select
one arbitrator, the Indemnitee shall select one arbitrator, and the two
arbitrators so chosen shall select a third. Any decision of the arbitration
panel shall require the vote of at least two (2) of such arbitrators and shall
be deemed conclusive and each party shall be deemed to have waived any rights to
appeal therefrom. In any arbitration pursuant to this Section 12.4, an
Indemnitee shall be deemed to be the prevailing party if the arbitrators award
the Indemnitee at less fifty percent (50%) of the amount in dispute, plus any
amounts not in dispute; otherwise, the Sapient Shareholders shall be deemed to
be the prevailing party. The non-prevailing party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative costs of the
arbitration (including the administrative fee of AAA), and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration. If resolution of a Disputed Loss Notice is
not made within ninety (90) days of the date of the Protest Notice as provided
in this Section 12.4, then the Escrow Agent may, in its sole
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discretion, either (i) continue to hold the Escrow Shares undisbursed until such
time as the disputing parties agree in writing as to a proper disposition of
such Escrow Shares, or (ii) if such agreement is not forthcoming, the Escrow
Agent shall be entitled to tender into the registry or custody of any court of
competent jurisdiction all money or property in its hand under the terms of this
Agreement, and, upon the advice of counsel, may take such other legal action as
may be appropriate or necessary, whereupon the parties hereto agree Escrow Agent
shall be discharged from all further duties under this Agreement. The filing of
any such legal proceedings shall not deprive Escrow Agent of its compensation
earned prior to such filing.
12.5 Employment of Counsel. The Representative may control the defense of
---------------------
any third party claim with respect to which an Indemnifiable Loss has been
asserted. Notwithstanding the foregoing, if the aggregate amount of all such
third party and indemnity claims plus the aggregate good faith estimates of the
reasonable expenses to defend such claims exceed the number of Escrow Shares
multiplied by the Value Per Share, the Indemnitees may control the defense of
all such third party and general indemnity claims which have been brought under
this Agreement, provided that the Indemnitees may not settle a third party claim
without the approval of the Representative, which approval shall not be
unreasonably withheld. When the Indemnitee is in control of the defense of such
a claim, the Representative may, at his expense, and when the Representative is
in control of the defense of a claim, the Indemnitee may, at its expense (which
expenses shall not be treated as a Loss hereunder), participate in the defense
of any litigation or claim.
12.6 Term; Expiration; Limits
------------------------
(a) Term - General. With respect to the obligations set forth in Section
--------------
12.1 hereof and the availability of the Escrow Fund to compensate and indemnify
an Indemnitee, the term of escrow for the Escrow Shares shall commence on the
Closing Date of the Merger and shall terminate upon the occurrence of (i) the
publication by WebMD of audited consolidated financial statements covering an
accounting period after the Closing Date for those items that would be expected
to be encountered in the audit process or (ii) one (1) year after the Closing
Date for all other items. WebMD and the Representative shall provide written
notice to the Escrow Agent upon expiration of the escrow for the Escrow Shares.
(b) Expiration of Term - No Claim Pending. If at the expiration of the
-------------------------------------
escrow term provided in Section 12.6(a) above, either (i) no Loss Notice has
been received with respect to an Indemnifiable Loss; or (ii) any Loss Notice
that has been received has been resolved in accordance with this Agreement; or
(iii) no litigation or claim is pending for which an Indemnitee may be entitled
to indemnification hereunder, the Escrow Agent shall (i) deliver to the transfer
agent for WebMD Common Stock for issuance to each Shareholder, a certificate
representing the number of shares of WebMD Common Stock equal to the aggregate
number of the Escrow Shares subject to the escrow which term is expiring and
then remaining in escrow times the Percentage Interest for such Shareholder, and
(ii) deliver to each Shareholder, any Cash times the Percentage Interest for
such Shareholder. The Representative and WebMD shall provide written notice to
the Escrow Agent which sets forth the number of Escrow Shares to be delivered as
provided in the foregoing sentence. Any such delivery of WebMD Common Stock
shall be of full shares and any fractional portions shall be rounded to a whole
number by the Escrow Agent so that the number of shares remaining in escrow to
be delivered will be fully allocated among such Shareholders.
(c) Expiration of Term - Claim Pending. If at the expiration of the
----------------------------------
escrow term provided in Section 12.6(a) above, any claim is pending under
Section 12.1 for which a Loss Notice has been delivered to the Escrow Agent
prior to such expiration and for which an Indemnitee would be entitled to
indemnification if such claim were resolved adversely to them, then the Escrow
Agent shall retain in such escrow that number of shares of WebMD Common Stock as
shall equal the number of Escrow Shares (rounded to the next highest whole
number) that, when multiplied by the Value Per Share, equals any amount set
forth by such Indemnitee in the Loss Notice with respect to such claims (the
"Retained Shares"). The number of Escrow Shares, less the number of Retained
Shares, shall then be distributed to the Sapient Shareholders as set forth in
Section 12.1 above. Upon the resolution of any claim for which shares were
retained in escrow at the expiration of the term of this Agreement and receipt
of written notice from WebMD and the Representative to such effect, the Escrow
Agent shall cancel the appropriate number of
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Retained Shares (if any) and shall distribute any remaining Retained Shares to
the Sapient Shareholders as set forth in Section 12.1 above.
(d) Effect of Final Delivery. Notwithstanding the expiration of the term
------------------------
of the escrow, the provisions of Article 12 of this Agreement shall continue in
full force and effect until the Escrow Agent has delivered all of the Escrow
Shares pursuant to the terms hereof. After all of such shares have been so
delivered, all rights, duties and obligations of the respective parties under
this Article 12 shall terminate. If any cash is held in escrow at the
expiration of the term of the escrow, such cash shall be distributed pro rata
with the Escrow Shares as provided in Section 12.1.
(e) Maximum Liability and Remedies. If the Closing occurs, except for
------------------------------
remedies based upon fraud and except for equitable remedies (including temporary
restraining orders, injunctive relief and specific performance), the rights of
an Indemnitee to make claims on the Escrow Shares pursuant to this Agreement
shall be the sole and exclusive remedy of an Indemnitee with respect to any
breach of a representation, warranty, covenant or agreement made by Sapient
under this Agreement or in any certificate or schedule delivered by Sapient
pursuant to this Agreement or against Sapient in connection with the Merger.
12.7 Dividends; Voting Rights
------------------------
(a) Cash Dividends; Voting Rights. The Escrow Agent shall distribute
-----------------------------
promptly any and all cash dividends or other cash income with respect to the
Escrow Shares to the Sapient Shareholders at their addresses of record and in
accordance with their Percentage Interest in the Escrow Fund to (which amounts
shall also be allocable to the Sapient Shareholders for tax reporting purposes
By written notice signed by the Representative, the Representative shall have
the right to direct the Escrow Agent as to the exercise of any voting rights
with respect to such Escrow Shares held by the Escrow Agent on behalf of the
Sapient Shareholders, and the Escrow Agent shall comply with such directions if
received from the Representative at least five (5) days prior to the date of the
meeting at which such vote is to be taken.
(b) Stock Splits; Stock Dividends. In the event of any stock split,
-----------------------------
stock dividend, recapitalization or similar transaction with respect to WebMD
Series B Preferred Stock that becomes effective during the term of this
Agreement (including any conversion into WebMD Common Stock), the additional
shares so issued with respect to the Escrow Shares (or WebMD Common Shares
issued upon conversion) shall be added to the Escrow Shares and any other
references herein to a specific number of shares of WebMD Series B Preferred
Stock and the Value Per Share shall be adjusted accordingly.
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<PAGE>
12.8 Escrow Agent
------------
(a) Liability. In performing any of its duties under the Escrow
---------
Agreement and in accordance with the terms of this Agreement, or upon the
claimed failure to perform its duties thereunder, the Escrow Agent shall not be
liable to anyone for any damages, losses or expenses which they may incur as a
result of the Escrow Agent so acting, or failing to act; provided, however, that
Escrow Agent shall be liable for damages arising out of its willful default or
gross negligence under the Escrow Agreement. Accordingly, by virtue of approving
the Merger in accordance with this Agreement, each party shall be deemed to have
consented and agreed that the Escrow Agent shall not incur any such liability
with respect to (i) any action taken or omitted to be taken in good faith upon
advice of its counsel or counsel for WebMD or the Representative given with
respect to any questions relating to the duties and responsibilities of the
Escrow Agent hereunder; or (ii) any action taken or omitted to be taken in
reliance upon any document, including any written notice or instructions
provided for in this Agreement or the Escrow Agreement, not only as to its due
execution and to the validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed or
presented by the purported proper person or persons and to conform with the
provisions of this Agreement and the Escrow Agreement. Written instructions
provided to Escrow Agent hereunder by WebMD and/or the Representative shall be
signed by the "Authorized Representative" as identified on Schedule 12.8
-------------
attached hereto. The limitation of liability provisions of this Section 12.8
shall survive the termination of this Agreement, the Escrow Agreement and the
resignation or removal of the Escrow Agent.
(b) Indemnification of Escrow Agent. WebMD and the Shareholders, hereby,
-------------------------------
jointly and severally, agree to indemnify and hold harmless the Escrow Agent
against any and all losses, claims, damages, liabilities and expenses,
including, without limitation, reasonable costs of investigation and counsel
fees and disbursements (both at the trial and appellate levels) which may be
imposed on Escrow Agent or incurred by it in connection with its acceptance of
this appointment as Escrow Agent hereunder or the performance of its duties
hereunder (except in connection with the willful default or gross negligence of
the Escrow Agent hereunder), including, without limitation, any litigation
arising from this Agreement or the Escrow Agreement, or involving the subject
matter thereof. The indemnity provisions of this Section 12.8 shall survive the
termination of this Agreement, the Escrow Agreement and the resignation or
removal of the Escrow Agent.
(c) Resignation. The Escrow Agent shall be able to resign at any time
------------
from its obligations under the Escrow Agreement by providing written notice to
the parties thereto. Such resignation shall be effective not later than sixty
(60) days after such written notice has been given. The Escrow Agent shall have
no responsibility for the appointment of a successor escrow agent. If a
successor escrow agent is not selected within sixty (60) days of the resignation
of Escrow Agent, the Escrow Agent shall have the right to institute a Bill of
Interpleader or other appropriate judicial proceeding in any court of competent
jurisdiction, and shall be entitled to tender into the registry or custody of
any court of competent jurisdiction all money or property in its hand under the
terms of this Agreement, whereupon the parties hereto agree Escrow Agent shall
be discharged from all further duties under this Agreement and the Escrow
Agreement. The filing of any such legal proceedings shall not deprive Escrow
Agent of its compensation earned prior to such filing. The Escrow Agent may be
removed for cause by WebMD or the Representative. The removal of the Escrow
Agent shall not deprive the Escrow Agent of its compensation earned prior to
such removal.
(d) Expenses of Escrow Agent. WebMD shall be liable for the fees and
------------------------
expenses of the Escrow Agent. Escrow Agent shall bill WebMD for the amount of
such fees and expenses and WebMD shall pay the fees and expenses to Escrow
Agent..
12.9 Representative
--------------
(a) Representative; Power and Authority. In the event the Merger is
-----------------------------------
approved, effective upon such vote, and without further act of any Sapient
Shareholder, Phillipe Chambon shall be appointed as agent and attorney-in-fact
for each shareholder of Sapient (except such Sapient Shareholders, if any, as
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shall have perfected their appraisal or dissenters' rights under Oregon law),
for and on behalf of each such Sapient Shareholder, with full power and
authority to represent the Sapient Shareholders and their successors with
respect to all matters arising under this Agreement and the Escrow Agreement,
and all actions taken by the Representative hereunder shall be binding upon such
Sapient Shareholders and their successors as if expressly ratified and confirmed
in writing by each of them. Without limiting the generality of the foregoing,
the Representative shall have full power and authority, on behalf of all the
Sapient Shareholders and their successors, to interpret all the terms and
provisions of this Agreement, to dispute or fail to dispute any claim of
Indemnifiable Loss against the Escrow Shares made by an Indemnitee, to negotiate
and compromise any dispute which may arise under this Agreement, to sign any
releases or other documents with respect to any such dispute, and to authorize
delivery of Escrow Shares in satisfaction (partial or otherwise) of by an
Indemnitee or any other payments to be made with respect thereto. All
determinations of the Representative shall be decided by a majority thereof in
the event there is more than one Representative.
(b) Resignation; Successors. The Representative, or any successor
-----------------------
hereafter appointed, may resign and shall be discharged of his duties hereunder
upon the appointment of a successor Representative as hereinafter provided. In
case of such resignation, or in the event of the death or inability to act of
the Representative, a successor shall be named from among the Sapient
Shareholders by a majority of the members of the Board of Directors of Sapient
who served on such board prior to the Merger. Each such successor
Representative shall have all the power, authority, rights and privileges hereby
conferred upon the original Representative, and the term "Representative" as
used herein shall be deemed to include such successor Representative.
(c) Liability. In performing any of his duties under this Agreement, or
---------
upon the claimed failure to perform his duties hereunder, the Representative
shall not be liable to the Shareholders or anyone else for any damages, losses
or expenses which they may incur as a result of any act, or failure to act under
this Agreement or the Escrow Agreement; provided, however, that the
Representative shall be liable for damages arising out of actions or omissions
that both (i) were taken or omitted not in good faith and (ii) constituted
willful default or gross negligence under this Agreement or the Escrow
Agreement. Accordingly, the Representative shall not incur any such liability
with respect to (i) any action taken or omitted to be taken in good faith upon
advice of his counsel given with respect to any questions relating to the duties
and responsibilities of the Representative hereunder; or (ii) any action taken
or omitted to be taken in reliance upon any document, including any written
notice or instructions provided for in this Agreement or the Escrow Agreement,
not only as to its due execution and to the validity and effectiveness of its
provisions, but also as to the truth and accuracy of any information contained
therein, which the Representative shall in good faith believe to be genuine, to
have been signed or presented by the purported proper person or persons and to
conform with the provisions of this Agreement and the Escrow Agreement. The
limitation of liability provisions of this Section 12.9 shall survive the
termination of this Agreement and the resignation of the Representative.
12.10 Representative Expenses. WebMD shall pay Representative Expenses in
-----------------------
an amount up to $10,000.
[Signatures on next page.]
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<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: SAPIENT HEALTH NETWORK, INC.
/s/ By: /s/ James R. Kean
- ---------------------- --------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: WEBMD, INC.
/s/ W. Michael Heekin By: /s/ Jay P. Gilbertson
- ---------------------- --------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: SHN MERGER CORP.
/s/ W. Michael Heekin By: /s/ Jay P. Gilbertson
- ---------------------- --------------------------
Secretary President
[CORPORATE SEAL]
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EXHIBIT 2.4
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
---------
into as of January __, 1999, by and among WEBMD, INC. ("WebMD"), a Georgia
-----
corporation having its principal office located in Atlanta, Georgia; SHN MERGER
CORP. Inc. ("Merger Corp."), a Georgia corporation having its principal office
------------
located in Atlanta, Georgia; DIRECT MEDICAL KNOWLEDGE, INC. ("DMK"), a
---
California corporation having its principal office located in San Francisco,
California; the shareholders of DMK identified in Schedule I hereto (each a
----------
"Shareholder" and collectively, the "Shareholders") and Kemp Battle ("Indemnitor
- ------------ ------------ ----------
Representative").
- --------------
Preamble
--------
The Shareholders and the Boards of Directors of WebMD, Merger Corp., a
wholly owned subsidiary of WebMD, and DMK are of the opinion that the
transactions described herein are in the best interests of the parties and their
respective shareholders. This Agreement provides for the acquisition of DMK by
WebMD pursuant to the merger of DMK with and into Merger Corp. At the Effective
Time of such merger, the outstanding shares of the capital stock of DMK shall be
converted into the right to receive shares of the preferred stock of WebMD
(except as provided herein). As a result, shareholders of DMK shall become
shareholders of WebMD and Merger Corp. shall conduct the business and operations
of DMK as a wholly owned subsidiary of WebMD. The transactions described in
this Agreement are subject to the approval of the shareholders of DMK and the
satisfaction of certain other conditions described in this Agreement. It is the
intention of the parties to this Agreement that the Merger shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
- ---------------
Code for federal income tax purposes.
Certain terms used in this Agreement are defined in Section 13.1 of this
------------
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, DMK shall be merged with and into Merger Corp. in accordance
with the applicable provisions of the CCC and the GBCC (the "Merger"). Merger
------
Corp. shall be the Surviving Corporation resulting from the Merger and shall
continue the operations of DMK as a wholly owned Subsidiary of WebMD and shall
continue to be governed by the Laws of the State of Georgia. The Merger shall
be consummated pursuant to the terms of this Agreement, which has been approved
and adopted by the respective Boards of Directors of WebMD, Merger Corp. and
DMK.
1.2 Time and Place of Closing. The closing (the "Closing") will take
------------------------- -------
place on January 14, 1999 at 10:00 A.M. (the "Closing Date"), which (subject to
------------
the satisfaction or waiver of the conditions set forth in Sections 9.2 and 9.3)
------------ ---
shall be no later than the second business day after the satisfaction of the
conditions set forth in Section 9.1. The place of Closing shall be at the
-----------
offices of Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street,
Atlanta, Georgia 30309-3424, or such other place as may be mutually agreed upon
by the Parties.
1.3 Effective Time. Subject to the provisions of this Agreement, the
--------------
parties shall file Articles of Merger executed in accordance with the relevant
provisions of the CCC and the GBCC and shall make all other filings or
recordings required under the CCC as soon as practicable on or after the Closing
Date. The Merger and other transactions contemplated by this Agreement shall
become effective on the date and
<PAGE>
at the time the Articles of Merger reflecting the Merger become effective with
the Secretary of State of the State of California and the Secretary of the State
of Georgia (the "Effective Time").
--------------
ARTICLE 2
TERMS OF MERGER
---------------
2.1 Charter. The Articles of Incorporation of Merger Corp. in effect
-------
immediately prior to the Effective Time shall be amended and restated, effective
at the Effective Time, in a manner satisfactory to WebMD. The Articles of
Incorporation of Merger Corp., as so amended and restated, shall be the Articles
of Incorporation of the Surviving Corporation until otherwise amended or
repealed.
2.2 Bylaws. The Bylaws of Merger Corp. in effect immediately prior to
------
the Effective Time shall be the Bylaws of the Surviving Corporation until
otherwise amended or repealed.
2.3 Directors and Officers. The directors of Merger Corp. in office
----------------------
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of Merger Corp. in office immediately
prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the officers of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
2.4 Tax-Free Reorganization. The parties intend to adopt this Agreement
-----------------------
as a tax-free plan of reorganization under Section 368(a) of the Internal
Revenue Code.
ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Article 3,
-------------------- ---------
at the Effective Time, by virtue of the Merger and without any action on the
part of the Parties or the shareholders of any of the Parties, the shares of the
constituent corporations of the Merger shall be converted, subject to Section
-------
3.2, into an aggregate of 600,000 shares of WebMD Series B Preferred Stock
- ---
(assuming exercise of all outstanding DMK Equity Rights (exclusive of the DMK
Convertible Promissory Notes described in Section 10.2(n) hereof) prior to the
---------------
Effective Time as follows:
(a) Each share of Merger Corp. Common Stock issued and outstanding
at the Effective Time shall not be affected by the Merger and shall remain
outstanding.
(b) Each share of DMK Common Stock (excluding shares held by
shareholders who perfect their statutory dissenters' rights as provided in
Section 3.4 of this Agreement) issued and outstanding at the Effective Time
- -----------
shall cease to be outstanding and shall be converted into and exchanged, subject
to Section 4.3 hereof, for the right to receive that portion of a share of WebMD
-----------
Series B Preferred Stock equal to 2.254876 divided by the price per share of
WebMD Series B Preferred Stock (as calculated and adjusted in accordance with
Section 3.2) (the "Series B Price") (the "Common Stock Exchange Ratio").
- ----------- -------------- ---------------------------
(c) Each share of DMK Series A Preferred Stock (excluding shares
held by shareholders who perfect their statutory dissenters' rights as provided
in Section 3.4 of this Agreement) issued and outstanding at the Effective Time
-----------
shall cease to be outstanding and shall be converted into and exchanged, subject
to Section 4.3 hereof, for the right to receive that portion of a share of WebMD
-----------
Series B Preferred Stock equal to 3.3735536 divided by the Series B Price (the
"Series A Preferred Stock Exchange Ratio").
---------------------------------------
2
<PAGE>
(d) Each share of DMK Series B Preferred Stock (excluding shares
held by shareholders who perfect their statutory dissenters' rights as provided
in Section 3.4 of this Agreement) issued and outstanding at the Effective Time
-----------
shall cease to be outstanding and shall be converted into and exchanged, subject
to Section 4.3 hereof, for the right to receive that portion of a share of WebMD
-----------
Series B Preferred Stock equal to 4.4450756 divided by the Series B Price (the
"Series B Preferred Stock Exchange Ratio").
- ----------------------------------------
3.2 Anti-Dilution Provisions. In the event DMK or WebMD changes the
------------------------
number of shares of DMK Capital Stock or WebMD Series B Preferred Stock,
respectively, issued and outstanding prior to the Effective Time as a result of
a stock split, stock dividend, combination of shares or similar recapitalization
with respect to such stock or issues, rights, options or warrants to subscribe
for, purchase or otherwise acquire shares of WebMD Series B Preferred Stock (an
"Anti-Dilution Event") and the record date therefor (in the case of a stock
-------------------
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the applicable Exchange Ratios shall be proportionately
adjusted to insure that holders of DMK Capital Stock shall receive WebMD Series
B Preferred Stock having the same value as they would have received prior to the
Anti-Dilution Event. In addition, for the purposes of this Agreement, the
Series B Price shall be equal to $20.00; provided, however, if prior to the
earlier of the Effective Time or the completion of a transaction or series of
transactions involving the offering of any equity securities (or securities
exercisable or convertible into equity securities) for cash in which WebMD
raises proceeds of at least $4,000,000 at a price per share equal to $20.00
(appropriately adjusted for an Anti-Dilution Event), WebMD offers and sells any
equity securities (or securities exercisable or convertible into equity
securities of WebMD) in a transaction or series of transactions at a purchase
price per share less than $20.00 per share (appropriately adjusted for an Anti-
Dilution Event) (a "Dilutive Financing") then the price per share of WebMD
------------------
Series B Price shall be equal to the higher of $15.00 or such per share sales
price. For purposes of this Section 3.2, no adjustment of the Series B Price
-----------
shall be made as a result of the offer, sale and issuance of the following: (i)
any shares of WebMD capital stock upon the conversion of any shares of the WebMD
Series B Preferred Stock; (ii) securities of WebMD offered to the public
pursuant to an effective registration statement under the 1933 Act; (iii) any of
WebMD's securities pursuant to the acquisition by WebMD 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 WebMD owns
over 50% of the voting power of such corporation; (iv) any shares of WebMD
capital stock issued at any time following the date hereof pursuant to options,
warrants or other rights granted either before or after the date hereof to
purchase such securities, less the number of any such options, warrants or
rights that are repurchased by WebMD, are canceled or expire, in each case in
favor of employees, officers, directors or consultants to WebMD or any of its
subsidiaries, pursuant to a stock option plan or agreement approved by the Board
of Directors of WebMD, provided, however, that such stock options, warrants or
rights thereunder, if granted after the date hereof, are granted at a conversion
or exercise price that the 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; (v) any shares of WebMD capital stock
issued pursuant to the exchange, conversion or exercise of any WebMD security or
other right currently outstanding or in effect; and (vi) any shares, rights,
options or warrants to subscribe for, purchase or otherwise acquire shares, of
WebMD Capital Stock issued pursuant to any acquisition or financing contemplated
by Section 7.3 hereof (including Schedule 7.3). In the event the Series B
----------- ------------
Price is to be adjusted hereunder, the determination of the Series B Price shall
be mutually agreed upon by WebMD and DMK; provided, however, that if WebMD and
DMK cannot agree on the Series B Price within 2 business days of the Dilutive
Financing, DMK and WebMD shall select a mutually agreeable nationally recognized
investment bank or accounting firm to determine the Series B Price in accordance
herewith.
3.3 Shares Held by DMK. Each share of DMK Common Stock held in treasury
------------------
by DMK, shall be canceled and retired at the Effective Time and no consideration
shall be issued in exchange therefor.
3.4 Dissenting Shareholders. Any holder of shares of DMK Common Stock
-----------------------
who perfects its dissenters' rights in accordance with and as contemplated by
the CCC shall be entitled to receive the value
3
<PAGE>
of such shares in cash from DMK after the Effective Time as determined pursuant
to such provision of Law; provided, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of the CCC and surrendered to DMK the certificate
or certificates representing the shares for which payment is being made. In the
event that a dissenting shareholder of DMK fails to perfect, or effectively
withdraws or loses, its right to appraisal and of payment for its shares, WebMD
shall issue and deliver the consideration to which such holder of shares of DMK
Common Stock is entitled under this Article 3 (without interest) upon surrender
---------
by such holder of the certificate or certificates representing such shares held
by such holder.
3.5 Fractional Shares. No certificates representing fractional shares
-----------------
of WebMD Series B Preferred Stock will be issued as a result of the Merger.
Each holder of shares of DMK Capital Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of WebMD
Series B Preferred Stock shall receive, in lieu thereof, cash (without interest)
in an amount equal to such fractional part of a share of WebMD Series B
Preferred Stock multiplied by the Series B Price. No such holder will be
entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
3.6 Conversion of DMK Options.
-------------------------
(a) At the later of (i) the Effective Time and (ii) the date on
which all necessary Permits (if any) of any Regulatory Authorities are made,
filed and obtained, each option granted by DMK to purchase shares of DMK Common
Stock, which is outstanding immediately prior thereto (an "Option" or,
------
collectively, the "Options"), granted by the DMK under the DMK Stock Plan or
-------
otherwise, whether or not exercisable, shall be converted into and become rights
with respect to WebMD Series B Preferred Stock (or WebMD Common Stock upon
certain events set forth in the designation governing the Series B Preferred
Stock), and WebMD shall assume each Option, in accordance with the terms of the
DMK Stock Plan and stock option agreement by which it is evidenced, except that
from and after the Effective Time, (i) WebMD and its Compensation Committee
shall be substituted for DMK and the Committee of DMK's Board of Directors
(including, if applicable, the entire Board of Directors of DMK) administering
the DMK Stock Plan, (ii) each Option assumed by WebMD may be exercised solely
for shares of WebMD Series B Preferred Stock (or WebMD Common Stock upon certain
events set forth in the designation governing the Series B Preferred Stock),
(iii) the number of shares of WebMD Series B Preferred Stock subject to such
Option shall be equal to the number of whole shares (rounded down to the nearest
whole share) of DMK Common Stock subject to such Option immediately prior to the
Effective Time multiplied by the Common Stock Exchange Ratio, and (iv) the per
share exercise price under each such Option shall be adjusted by dividing the
per share exercise price under each such Option by the Common Stock Exchange
Ratio and rounding up to the nearest whole cent. Notwithstanding the provisions
of clauses (iii) and (iv) of the first sentence of this Section 3.6(a), each
--------------
Option which is an "incentive stock option" shall be adjusted as required by
----------------------
Section 424 of the Code, and the regulations promulgated thereunder, so as not
to constitute a modification, extension or renewal of such Option, within the
meaning of Section 424(h) of the Code.
(b) Prior to the Effective Time, (i) DMK shall be permitted to
accelerate the vesting of the Options and (ii) DMK shall use its reasonable best
efforts to obtain all necessary consents from holders of Options under the DMK
Stock Plan or otherwise and take all such other lawful action as may be
necessary to give effect to the transactions contemplated by this Section.
(c) As soon as practicable after the Effective Time, WebMD shall
deliver to the holders of Options appropriate notices setting forth such
holders' rights pursuant to the DMK Stock Plan and the agreements evidencing the
grants of such Options and the Options shall continue in effect on the same
terms and conditions (subject to adjustments required by this Section 3.6 after
-----------
giving effect to the Merger and the provisions set forth above). If necessary,
WebMD shall comply with the terms of the DMK Stock Plan and ensure, to the
extent lawful and practicable, and subject to the provisions of, the DMK Stock
Plan, that Options which qualified as incentive stock options prior to the
Effective Time of the Merger continue to qualify as incentive stock options
after the Effective Time of the Merger.
4
<PAGE>
(d) WebMD shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of WebMD Series B Preferred Stock (or
WebMD Common Stock upon certain events set forth in the designation governing
the WebMD Series B Preferred Stock) for delivery upon the exercise of Options.
(e) Following the Effective Time, if WebMD completes an Initial
Public Offering, then at such time as WebMD shall file a registration statement
on Form S-8 for the option plans of WebMD, WebMD shall also file a registration
statement on Form S-8 to register the shares of WebMD Common Stock subject to
the Options under the DMK Stock Plan and shall use its reasonable efforts to
maintain the effectiveness of such registration statements for so long as such
Options remain outstanding.
3.7 DMK Warrants.
------------
(a) At the Effective Time, WebMD shall assume the obligations of DMK
under the DMK common stock purchase warrants outstanding at the Effective Time
and thereafter, upon exercise, the warrant holder shall receive the number of
shares of WebMD Series B Preferred Stock (or WebMD Common Stock upon certain
events set forth in the designation governing the WebMD Series B Preferred
Stock) equal to the product of (i) the Common Stock Exchange Ratio and (ii) the
number of shares of DMK Common Stock for which such warrant could have been
exercised immediately prior to the Merger. The per share exercise price under
each such DMK Warrant shall be adjusted by dividing the per share exercise price
under each such Warrant by the Common Stock Exchange Ratio and rounding to the
nearest whole cent by rounding up at .5 and above and down at .5 and below.
(b) As soon as practicable after the Effective Time of the Merger,
WebMD shall deliver to the holders of the DMK warrants appropriate notices
setting forth such holders' rights pursuant to the applicable warrant agreements
with respect thereto to the extent required by the terms of the warrant
agreements with respect thereto.
(c) WebMD shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of WebMD Series B Preferred Stock (or
WebMD Common Stock upon certain events set forth in the designation governing
the WebMD Series B Preferred Stock) for delivery upon exercise of the DMK
warrants.
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 Exchange Procedures. At the Closing, each holder of shares of DMK
-------------------
Capital Stock (other than shares to be canceled pursuant to Section 3.3 of this
-----------
Agreement or as to which statutory dissenters' rights have been perfected as
provided in Section 3.4 of this Agreement) issued and outstanding on the Closing
-----------
Date shall surrender the certificate or certificates representing such shares to
WebMD and shall promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 of this Agreement. To the extent required
-----------
by Section 3.5 of this Agreement, each holder of shares of DMK Capital Stock
-----------
issued and outstanding on the Closing Date also shall receive, upon surrender of
the certificate or certificates representing such shares, cash in lieu of any
fractional share of WebMD Series B Preferred Stock to which such holder may be
otherwise entitled (without interest). WebMD shall not be obligated to deliver
the consideration to which any former holder of DMK Capital Stock is entitled as
a result of the Merger until such holder surrenders his certificate or
certificates representing the shares of DMK Capital Stock for exchange as
provided in this Section 4.1 or such holder provides an appropriate affidavit
-----------
regarding loss of such certificate and an indemnification for loss in favor of
WebMD. The certificate or certificates of DMK Capital Stock so surrendered
shall be duly endorsed as WebMD may require. Any other provision of this
Agreement notwithstanding, neither WebMD, nor the Surviving Corporation shall
be liable to a holder of DMK Capital Stock for any amounts paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property Law.
5
<PAGE>
4.2 Rights of Former DMK Shareholders. At the Effective Time, the stock
---------------------------------
transfer books of DMK shall be closed and no transfer of DMK Capital Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1 of this Agreement,
-----------
each certificate theretofore representing shares of DMK Capital Stock (other
than shares to be canceled pursuant to Sections 3.3 and 3.4 of this Agreement)
------------ ---
shall from and after the Effective Time represent for all purposes only the
right to receive the consideration provided in Sections 3.1, 3.5 and 3.6 of this
------------ --- ---
Agreement in exchange therefor. To the extent permitted by Law or the WebMD
Articles of Incorporation, former shareholders of record of DMK shall be
entitled to vote after the Effective Time at any meeting of WebMD shareholders
the number of whole shares of WebMD Series B Preferred Stock into which their
respective shares of DMK Common Stock are converted, regardless of whether such
holders have exchanged their certificates representing DMK Common Stock for
certificates representing WebMD Series B Preferred Stock in accordance with the
provisions of this Agreement. If a dividend or other distribution is declared
by WebMD on the WebMD Series B Preferred Stock, the record date for which is at
or after the Effective Time, the declaration shall include dividends or other
distributions on all shares issuable pursuant to this Agreement, but no dividend
or other distribution payable to the holders of record of WebMD Series B
Preferred Stock as of any time subsequent to the Effective Time shall be
delivered to the holder of any certificate representing shares of DMK Capital
Stock issued and outstanding at the Effective Time until such holder surrenders
such certificate for exchange as provided in Section 4.1 of this Agreement.
-----------
However, upon surrender of such certificate, both the WebMD Series B Preferred
Stock certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered cash payments to be paid for
fractional share interests (without interest) shall be delivered and paid with
respect to each share represented by such certificate.
4.3 Escrow Shares. At the Effective Time, WebMD shall issue twenty
-------------
percent (20%) of the aggregate number of shares of WebMD Series B Preferred
Stock into which the outstanding shares of DMK Capital Stock are converted into
at the Effective Time pursuant to Articles 3 hereof (the "Escrow Shares") to be
---------- -------------
held in escrow pursuant to the terms of the Escrow Agreement attached hereto as
Exhibit 4.3.
- -----------
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF DMK
-------------------------------------
DMK hereby represents and warrants to WebMD and Merger Corp. as follows:
5.1 Organization, Standing, and Power. DMK is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the state of
its incorporation, and has the corporate power and authority to carry on its
business as it has been and is now being conducted and to own, lease and operate
its Assets. DMK is duly qualified or licensed to transact business as a foreign
corporation and is in good standing in all jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, in the aggregate, a
Material Adverse Effect on DMK. Copies of the articles or certificate of
incorporation and all amendments thereto of DMK and the bylaws, as amended, of
DMK and copies of the corporate minutes (or resolutions adopted by the
shareholders or Board of Directors) of DMK, which have been made available to
WebMD for review, are true and complete, in all Material respects, as in effect
on the date of this Agreement, and accurately reflect all corporate actions
taken at proceedings of the shareholders and Board of Directors (and all
committees thereof) of DMK. The stock record books of DMK, which have been made
available to WebMD for review, contain true and complete records of the stock
ownership of DMK and all prior transfers of the shares of its capital stock.
5.2 Authorization of Agreement; No Breach. The execution, delivery and
-------------------------------------
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger have been duly authorized by all
necessary corporate and shareholder action of DMK. This Agreement constitutes,
and all agreements and other instruments and documents to be executed and
delivered by DMK pursuant to this Agreement will constitute, legal, valid and
binding obligations of DMK enforceable against
6
<PAGE>
DMK in accordance with their respective terms. The execution, delivery and
performance of this Agreement and the agreements and other documents and
instruments to be executed and delivered by DMK pursuant to this Agreement and
the consummation of the transactions contemplated hereby and thereby will not,
subject to obtaining the consents identified herein, (i) violate or result in a
breach of or Default under the articles or certificate of incorporation or
bylaws of DMK or any other Material instrument or agreement to which DMK is a
party or is bound; (ii) to the knowledge of DMK, violate any Law, administrative
decision or award of any court, arbitrator, mediator, tribunal, administrative
agency or governmental body applicable to or binding upon DMK or upon their
respective securities, property or business; (iii) except as set forth on
Schedule 5.2, conflict with or constitute a Default under any Material Contract
- ------------
to which DMK is a party or by which DMK is bound; or (iv) create a Lien upon the
securities, property or business of DMK.
5.3 Capital Stock. The authorized capital stock of DMK consists of (i)
-------------
5,000,000 shares of DMK Common Stock, of which 1,046,233 shares are issued and
outstanding as of the date of this Agreement, (ii) 1,100,000 shares of DMK
Series A Preferred Stock, 1,072,658 of which are issued and outstanding as of
the date of this Agreement, and (iii) 1,500,000 shares of DMK Series B Preferred
Stock, 1,463,413 of which are issued and outstanding as of the date of this
Agreement. All of such shares are duly and validly issued and outstanding, are
fully paid and non-assessable, and were issued pursuant to a valid exemption
from registration under the 1933 Act and all applicable state securities laws.
Except as set forth on Schedule 5.3, there are no outstanding warrants, options,
------------
rights (including outstanding rights to demand registration or to sell in
connection with a registration by DMK under the 1933 Act), calls or other
commitments of any nature relating to the DMK Common Stock, and there are no
outstanding securities of DMK convertible into or exchangeable for shares of DMK
Common Stock or any other capital stock ("DMK Equity Rights"). Except as set
-----------------
forth on Schedule 5.3, DMK is not obligated to issue or repurchase any shares of
------------
its capital stock for any purpose, and to the knowledge of DMK no person or
entity has entered into any Contract or option or any right or privilege
(whether preemptive or contractual) capable of becoming a Contract or option for
the purchase, subscription or issuance of any unissued shares, or other
securities of DMK.
5.4 DMK Subsidiaries. DMK does not own, directly or indirectly, any
----------------
capital stock or other equity or ownership or proprietary interest in any
corporation, partnership or other entity.
5.5 Financial Statements.
--------------------
(a) Schedule 5.5(a) contains true and complete copies of the (i)
---------------
audited balance sheet of DMK as of December 31, 1997, and the related statements
of income, changes in stockholders' equity and cash flows for the year then
ended and for the period from inception (May 24, 1995) to December 31, 1997 (the
"Audited Statements"), and (ii) unaudited balance sheet of DMK as of November
- -------------------
30, 1998 and unaudited statement of income and statement of income for the
eleven months ended November 30, 1998 (the "Unaudited Statements") (the Audited
--------------------
Statements and the Unaudited Statements are sometimes hereinafter collectively
referred to as the "Financial Statements").
--------------------
(b) Except as disclosed in Schedule 5.6, the Financial Statements
------------
(i) are in accordance with the books and records of DMK, which books and records
have been maintained in accordance with reasonable business practices; (ii)
present fairly the financial condition, assets and liabilities of DMK, as of the
respective dates indicated and the results of operations and cash flows for the
respective periods indicated; (iii) have been prepared in accordance with GAAP
consistently applied throughout the periods involved, except for the omission of
notes to the Unaudited Statements, and except that the Unaudited Statements are
subject to normal year end adjustments of the type specifically listed in
Schedule 5.5(b) which will not, individually or in the aggregate, be Material;
- ---------------
and (iv) reflect adequate reserves for all known Material Liabilities and
reasonably anticipated losses required to be recorded under GAAP.
5.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
5.6, as of the date hereof, DMK does not have any Undisclosed Liabilities,
- ---
except for unpaid liabilities and obligations
7
<PAGE>
incurred since November 30, 1998, in the ordinary course of business and
consistent with past practice and not involving Funded Debt.
5.7 Absence of Changes. Except for the transactions contemplated by
------------------
this Agreement or as disclosed on Schedule 5.7, since November 30, 1998 there
------------
has not been any transaction or occurrence in which DMK has:
(a) issued or delivered or agreed to issue or deliver any capital
stock or other securities (whether stock, bonds, debentures or other corporate
securities) or granted or agreed to grant any options or rights to purchase any
securities or borrowed or agreed to borrow any Funded Debt;
(b) incurred or become subject to, or agreed to incur or become
subject to, any Material Liability other than in the ordinary course of
business;
(c) discharged or satisfied any Lien or paid any Material Liability
other than (i) current liabilities shown on the balance sheet as of November 30,
1998 included in the Financial Statements, (ii) current liabilities incurred
since that date in the ordinary course of business, or (iii) Funded Debt shown
on such balance sheet or incurred since November 30, 1998;
(d) declared, set aside or made, or agreed to declare, set aside or
make any payments or dividends or any distribution to shareholders or purchased,
redeemed or otherwise acquired, directly or indirectly, or agreed to purchase,
redeem or acquire, any shares of capital stock or other securities; other then
as contemplated by Section 10.2(m) hereof;
---------------
(e) mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any Lien, except for any liens regarding
current real and personal property taxes not yet due and payable;
(f) sold, assigned or transferred (or agreed so to do) any of its
tangible assets, or canceled or agreed to cancel any debts or claims, except, in
each case, in the ordinary course of business;
(g) sold, assigned or transferred any patents, trademarks, trade
names, copyrights or other intangible assets;
(h) suffered any Material damage, destruction or loss, whether or
not covered by insurance, which materially and adversely affected the properties
or business thereof, or suffered any extraordinary losses or waived any rights
of substantial value, whether or not in the ordinary course of business;
(i) increased the rate of compensation payable or to become payable
by it to any of its officers, directors, employees or agents over the rate being
paid to them at November 30, 1998, or agreed so to do, except general hourly
rate increases and normal merit increases for employees other than officers;
(j) terminated or amended any Material Contract, license or other
instrument to which it is a party or suffered any loss or termination or
threatened loss or termination, of any existing business arrangement, the
termination or loss of which would materially and adversely affect any such
entity;
(k) through negotiation or otherwise, made any commitment or
incurred any Liability, whether or not enforceable, to any labor organization;
(l) except for any year-end compensation bonuses to be paid
consistent with past practice, if any, made or agreed to make any accrual or
arrangement for or payment of any bonus or special compensation of any kind to
any officer, director, employee or agent;
8
<PAGE>
(m) directly or indirectly paid or entered into a Contract to pay
any severance or termination pay to any officer, director, employee or agent;
(n) changed any of the accounting principles followed by it or the
methods of applying such principles;
(o) reclassified its shares of capital stock into a different number
of shares;
(p) made or approved the making of any capital expenditure exceeding
the amount of $25,000 in any instance;
(q) except in the ordinary course of business, loaned funds to or
increased the aggregate amount of existing loans to any Person;
(r) experienced any Material development, quality assurance or
network operations problems;
(s) suffered or experienced any other event or condition which would
be reasonably likely to have a Material Adverse Effect on the business,
operations, assets, properties or condition of DMK, taken as a whole, financial
or otherwise.
5.8 Indebtedness. Schedule 5.8(a) lists all Funded Debt of DMK as of the
------------ ---------------
date hereof, setting forth the principal amounts outstanding, per annum interest
rates and maturity dates for all such indebtedness. All of the indebtedness
(including Funded Debt) of DMK as of the respective dates of the Financial
Statements and as of the date of this Agreement is accurately reflected in the
Financial Statements or reflected on Schedule 5.6 and with respect to any Funded
------------
Debt, except as disclosed in Item 1 of Schedule 5.19(b)(i), DMK is not in breach
-------------------
or Default under any of the terms or conditions set forth in the loan documents
or any other document or instrument related thereto. Except as disclosed on
Schedule 5.8(b), all of the Funded Debt of DMK is prepayable at any time without
- ---------------
penalty or premium at the option of the obligor. Except as disclosed on Schedule
--------
5.8(c), (i) the transactions contemplated in this Agreement will not result in
- ------
any penalty or incurrence of any additional obligation or change of any terms
with respect to any such indebtedness, and (ii) DMK does not have any
obligations, Liabilities or indebtedness to any Affiliate.
5.9 Tax Matters.
-----------
(a) DMK has filed all federal and state income tax returns for all
periods prior to the date hereof which were required to be filed, and no returns
so filed have been examined by the IRS or any state agency with respect to any
such period. DMK has not received notice of any Tax claims being asserted or any
proposed assessment by any taxing authority and to the knowledge of DMK, no Tax
returns thereof have been examined by the IRS or the appropriate state agencies
for any fiscal year or period ended prior to the date hereof, and DMK is not
presently under, nor has it received notice of any contemplated, investigation
or audit by the IRS or any state agency concerning any fiscal year or period
ended prior to the date hereof. DMK has not executed any extension or waivers of
any statute of limitations on the assessment or collection of any tax due that
is currently in effect.
(b) As of the date hereof, DMK has filed all Tax returns required to
be filed at this date, taking into account any extensions of the filing
deadlines which have been validly granted to any such entity and which are
disclosed on Schedule 5.9, and such returns are true and correct in all Material
------------
respects and properly reflect the Tax Liabilities of DMK for the periods,
property or events covered thereby, and each such entity has paid all Taxes
(including penalties and interest in respect thereof, if any) that have become
or are due with respect to any period through the date hereof whether shown on
such returns or not, except for taxes which DMK is contesting in good faith and
for which it has made adequate reserves in the Financial Statements.
9
<PAGE>
(c) Adequate provision has been made in the Financial Statements in
accordance with GAAP as of November 30, 1998, for all Tax Liabilities not
required to be paid prior to such date and for all current and deferred Taxes.
(d) DMK has withheld or collected from each payment made to its
employees the amount of all Taxes required to be withheld or collected therefrom
and has paid the same to the proper tax depositories or collecting authorities.
(e) All ad valorem property taxes for fiscal years prior to 1999
imposed on DMK have been paid in full or adequately reserved in the Financial
Statements, as appropriate.
(f) DMK has never made an election under Section 341(f) of the
Internal Revenue Code and is not a United States real property holding
corporation as defined in Section 897 of the Internal Revenue Code.
5.10 Real Property.
-------------
(a) DMK does not own any real property. True and correct copies of
all real property leases of DMK have been provided or made available to WebMD.
Each of such leases is in full force and effect on the date hereof, except as
the validity of such leases may be affected by actions, events or conditions
involving only the other party thereto, none of which actions, events or
conditions have occurred or exist to the knowledge of DMK. Except as disclosed
in Schedule 5.10(a)(i), DMK is not in Default under any of the terms or
-------------------
conditions set forth in any of the foregoing leases or any other documents or
instruments related thereto and to DMK's knowledge, no Default has been made or
asserted by any other party thereto. Except as disclosed on Schedule
--------
5.10(a)(ii), the continuation, validity and effectiveness of the terms and
- -----------
conditions of such leases will not be Materially affected in any way by the
transactions contemplated by this Agreement.
(b) To DMK's knowledge, all improvements on the real estate owned
by, leased to or used by DMK conform to all Material applicable state and local
laws, zoning and building ordinances and health and safety ordinances, and the
property is zoned for the various purposes for which the real estate and
improvements thereon are presently being used.
(c) DMK's leased premises are in satisfactory condition and repair
consistent with the uses to which each such property is being put.
(d) To DMK's knowledge, no proceedings for the taking of any of such
real property by eminent domain by any governmental authority are pending or
threatened.
5.11 Personal Property.
-----------------
(a) True and correct copies of all leases for personal property
(except miscellaneous leases of office machinery, medical equipment, or any
leases having future minimum lease payments of less than $10,000) used or
employed by DMK have been provided or made available to WebMD. Each of such
leases is in full force and effect on the date hereof, except as the validity of
such leases may be affected by actions, events or conditions affecting the other
party thereto, none of which actions, events or conditions exists of has
occurred to the knowledge of DMK. DMK is not in Default under any of the terms
or conditions set forth in any of the foregoing leases or any document or
instrument related thereto and, to DMK's knowledge, no Default has been made or
asserted by any other party thereto. Except as disclosed on Schedule 5.11(a)(i),
-------------------
the continuation, validity and effectiveness of such leases will not be affected
in any Material way by the transactions contemplated by this Agreement. Except
as disclosed on Schedule 5.11(a)(ii), DMK does not lease any personal property
--------------------
as lessor.
(b) All Material items of tangible personal property and leasehold
improvements owned or leased by DMK are in satisfactory operating condition and
in a state of reasonable maintenance and repair, consistent with the uses to
which they are being put, and all such personal
10
<PAGE>
property, and leasehold improvements are considered adequate and usable for the
continued operation of the business of DMK, as the same is presently being
conducted and are physically located either at the principal place of business
of DMK or at DMK's principal business office.
5.12 Intellectual Property.
---------------------
(a) Schedule 5.12(a)(i) contains a true and complete list of all
-------------------
Intellectual Property owned by, registered in the name of, or used by DMK in its
business on the date hereof, or for which application has been made, including
all internet domain names registered with any third party. All such
Intellectual Property rights are in full force and effect and constitute legal,
valid and binding obligations of DMK and, to DMK's knowledge, any other party
thereto; and there have not been and there currently are no Defaults thereunder
by DMK or, to DMK's knowledge, by any other party thereto. DMK owns or has a
valid license to all such Intellectual Property rights free and clear of all
Liens or claims of infringement. DMK has not misused the Intellectual Property
rights of others and none of the Intellectual Property rights as used in the
business conducted by DMK infringes upon or otherwise violates the rights of
others, nor has any person asserted a claim of such infringement. Except as set
forth on Schedule 5.12(a)(ii), DMK is not obligated to pay any royalties to any
--------------------
person or entity with respect to any such Intellectual Property. DMK owns or
has the valid right to use all of the Intellectual Property rights which it is
presently using in the conduct of its business or which it proposes to use in
connection with the performance of any Material contract, proposal or letter of
intent to which it is a party. Except as set forth on Schedule 5.12(a)(iii),
---------------------
DMK has not licensed or sublicensed its rights in any Intellectual Property.
(b) Except as described on Schedule 5.12(b), every current and
----------------
former officer, director, consultant or employee of DMK has entered into any
Contract which requires such officer, director, consultant or employee to assign
any interest in any Intellectual Property which relates to the business of DMK
to DMK and to keep confidential any trade secrets, proprietary data, patient
lists or other proprietary business information of DMK or any customer of DMK,
and to DMK's knowledge no such officer, director, consultant or employee is a
party to any Contract that requires such individual to assign any interest in
any Intellectual Property which relates to the business of DMK to any Person
other than DMK, or to keep confidential any trade secrets, proprietary data,
customer information or other business information of any Person other than DMK
or, on behalf of DMK, a customer of DMK, or which restricts or prohibits such
officer, director, consultant or employee from engaging in activities on behalf
of DMK.
(c) DMK has sufficient rights to the Intellectual Property described
in Schedule 5.12(a) to continue to operate the business as conducted on the date
----------------
hereof. The conduct of the business of DMK does not infringe any Intellectual
Property of any other Person.
(d) DMK is the sole owner of record for each application and
registration listed on Schedule 5.12(d). There is no opposition, interference or
----------------
cancellation proceeding before any court or registration authority in any
jurisdiction against the registrations listed on Schedule 5.12(d), or against
----------------
any Intellectual Property licensed to DMK that is pending or, to the knowledge
of DMK, threatened.
(e) There are no settlements, forbearances to sue, consents,
judgments, or orders or similar obligations to which DMK is a party or, to DMK's
knowledge, which otherwise apply to DMK, which (i) restrict DMK's rights to use
any Intellectual Property, (ii) restrict DMK's business in order to accommodate
a third party's intellectual rights or (iii) permit third parties to use any
Intellectual Property owned or controlled by DMK.
(f) Except as set forth on Schedule 5.12(f), the consummation of the
----------------
transactions contemplated hereby will not result in the loss or impairment of
DMK's right to own or use any of the Intellectual Property, nor will require the
consent of any government authority or third party in respect of such
Intellectual Property.
5.13 Accounts Receivable. The accounts receivable of DMK as of November
-------------------
30, 1998, as reflected in the Financial Statements (net of reserves reflected in
such Financial Statements), to the extent uncollected on the date hereof, and
the accounts receivable reflected on the books of DMK on the date
11
<PAGE>
hereof, are validly existing and represent monies due for goods sold and
delivered or services performed, and are collectible within ninety (90) days
after billing net of the reserve reflected in such Financial Statements and the
value of such accounts receivable as shown in the Financial Statements are, in
the aggregate, net of adequate reserves for doubtful and uncollectible accounts
as determined in accordance with GAAP. Except as set forth in Schedule 5.13, DMK
-------------
has issued or granted no refunds, discounts or other adjustments payable with
respect to any such accounts receivable, and there are no valid defenses, rights
of set-off, assignments, restrictions, encumbrances, or conditions enforceable
by third parties on or affecting any of the foregoing.
5.14 The Software.
------------
(a) The computer software of DMK used in the performance of its
business (the "Software") performs in accordance with the documentation and
--------
other written material used in connection with the Software, is free of Material
defects in operation, is in machine-readable form, and contains all current
revisions of such software, and includes all computer programs, materials,
tapes, object and source codes and other written materials related to the
Software. DMK has delivered to WebMD complete and correct copies of all user and
technical documentation related to the Software.
(b) Neither DMK nor, to DMK's knowledge, any employee, contractor or
agent thereof, has developed or assisted in the enhancement of the Software
except for enhancements included in the Software as delivered to WebMD pursuant
hereto.
(c) To DMK's knowledge no employee or contractor of DMK is, or is
now expected to be, in default under any term of any employment contract,
agreement or arrangement relating to the Software or noncompetition arrangement,
or any other Contract or any restrictive covenant relating to the Software or
its development or exploitation. The Software was developed entirely by the
employees of DMK during the time they were employees only of DMK or by
consultants who have assigned in writing all of their rights in the Software to
DMK.
(d) All right, title and interest in and to the Software developed
by DMK is owned by DMK, free and clear of all liens, claims, charges or
encumbrances, is fully transferable to WebMD, and no party other than DMK has
any ownership interest in such Software, including without limitation, any
security interest, license, contingent interest or otherwise. DMK's development
or sale of such Software did and does not violate any rights of any other person
or entity and DMK has not received any communication alleging such a violation.
DMK does not have any obligation to compensate any Person for the development,
use, sale or exploitation of such Software nor has DMK granted to any other
person or entity any license, option or other right to develop, use, sell or
exploit in any manner such Software, whether requiring the payment of royalties
or not.
(e) DMK has kept secret and has not disclosed the source code for
the Software to any person or entity other than certain employees of, and
consultants to, DMK. DMK has taken all reasonable measures to protect the
confidential and proprietary nature of the Software. There have been no patents
applied for and no copyrights registered for any part of the Software. To the
knowledge of DMK, there are no trademark rights of any person or entity other
than DMK in the names listed in Item 1 of Schedule 5.12(a)(i).
-------------------
(f) Except as set forth on Schedule 5.14(f), DMK has not given any
----------------
warranties to any third parties with respect to the products or services offered
by it.
5.15 Insurance. All of the properties and business of DMK of an
---------
insurable nature and of a character usually insured by companies of similar size
and in similar businesses are insured in such amounts and against such losses,
casualties or risks as is usual in such companies and for such properties and
business. A complete and accurate list of all insurance policies held by DMK
and now in force (including, without limitation, property damage, public
liability, worker's compensation, fidelity bonds, errors and omissions, theft,
forgery and other coverage) is attached hereto as Schedule 5.15(a), and true and
----------------
correct copies of all such policies have been provided or made available to
WebMD. All such policies are
12
<PAGE>
in full force and effect and the premiums due thereon have been timely paid. DMK
is not in Default regarding the provisions of any such policy, nor has it failed
to give any notice or present any Material claim thereunder in due and timely
fashion. Except as set forth on Schedule 5.15(b), the consummation of the
----------------
transactions contemplated by this Agreement will not constitute a Default under,
or otherwise affect the coverage under, any such insurance policies.
5.16 Compliance with Laws.
--------------------
(a) DMK has in effect all Permits necessary for it to own, lease or
operate its Assets and to carry on its business as now conducted, except for
those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on DMK. DMK is not
in violation of any Laws, Orders or Permits applicable to its business or
employees conducting its business, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. No notice or warning from any Regulatory Authority with respect to any
failure or alleged failure of DMK to comply with any Law has been issued or
given, nor to DMK's knowledge, is any such notice or warning proposed or
threatened.
(b) Except as set forth on Schedule 5.16, no consent or approval of,
-------------
prior filing with or notice to, or other action by, any Regulatory Authority or
any other third party is required in connection with the execution and delivery
of this Agreement or any agreement or other instrument to be executed and
delivered pursuant to this Agreement by DMK or the consummation of the
transactions provided for herein or therein except for such consents and
approvals that have been obtained and filings, notices and other actions that
have been taken or made.
(c) To DMK's knowledge, there are no Material capital expenditures
that DMK anticipates will be required to be made in connection with its business
as now conducted in order to comply with any existing Laws or other governmental
requirements, including, without limitation, requirements relating to
occupational health and safety. "Capital Expenditures" shall have the same
--------------------
meaning as it has in the Financial Statements if and to the extent that the
treatment thereof is in accordance with GAAP.
(d) Neither DMK, nor, to DMK's knowledge, any officer, director,
employee, agent or other representative of DMK, has, directly or indirectly,
made or authorized any payment, contribution or gift of money, property, or
services, in violation of applicable law (i) as a kickback or bribe to any
person, or (ii) to any political organization or the holder of, or any aspirant
to, any elective or appointive office of any nation, state, political
subdivision thereof, or other governmental body or instrumentality.
5.17 Environmental Matters.
---------------------
(a) Except as set forth on Schedule 5.17(a)(i), there are no claims,
-------------------
actions, suits, proceedings or investigations related to Environmental Laws with
respect to the use, condition or operation of any of the assets held for use or
sale by DMK in any court or before or by any federal, state or other
governmental agency or private arbitration tribunal (hereinafter collectively
referred to as "Environmental Litigation"). Except as set forth on Schedule
------------------------ --------
5.17(a)(ii), there are no existing violations of Environmental Laws by DMK with
- -----------
respect to the use, condition, lease or operation of any assets thereof or any
property used by DMK Except as set forth on Schedule 5.17(a)(iii), no written
----------------------
or oral notice, or other communication from any court or governmental agency,
official or instrumentality, of any alleged violation of any Environmental Law
has been filed or communicated to DMK with respect to the use, ownership,
condition, operation, or disposal of any of the assets of DMK or any property
formerly held for use or sale by any such entity or, to the knowledge of DMK,
any of their respective predecessors. To the knowledge of DMK, no basis exists
for the allegation of any such violations.
(b) Except as set forth on Schedule 5.17(b), to the knowledge of
----------------
DMK, no building or other improvement or any premises owned, leased, operated or
managed by DMK contains any asbestos-containing materials.
13
<PAGE>
5.18 Litigation and Claims. There are no outstanding Orders directed at
---------------------
or to which DMK is subject, and, except as disclosed on Schedule 5.18, there is
-------------
no Litigation pending or, to DMK's knowledge, threatened against or relating to
DMK or its Assets or business, and to the knowledge of DMK , there is no
specific event which has occurred for which any such action or any state of
facts or occurrence of any event which might give rise to the foregoing. Except
as disclosed on Schedule 5.18, DMK has not been advised by any attorney
-------------
representing it that there are any "loss contingencies" (as defined in Statement
------------------
of Financing Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975 ("FASB 5")), which would be required by FASB 5 to
------
be disclosed or accrued in the Financial Statements.
5.19 Contracts and Commitments.
-------------------------
(a) Except as set forth on Schedule 5.19(a), DMK is not a party to
----------------
and does not obtain benefits under, any Contract, whether written or oral, of
the following nature:
(i) any Contract for the employment of any officer,
director, employee or consultant;
(ii) any Contract for the purchase, sale, production, supply,
maintenance or support, whether on a continuing basis or otherwise, of
goods or services of any type involving in any one case $25,000 or more;
(iii) any Contract or term sheet with a managed care
organization, or other License or other strategic agreement;
(iv) any sales or vendor Contract or sub-contract;
(v) lease under which DMK is either lessor or lessee
relating to its Assets or any property at which such Assets are located;
(vi) note, debenture, bond, equipment trust agreement, letter
of credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money relating to the business of DMK or agreement
or arrangement for a line of credit or guarantee, pledge or undertaking of
the indebtedness of any other Person;
(vii) agreement, contract or commitment for any charitable or
political contribution;
(viii) agreement, contract or commitment limiting or
restraining DMK, or any successor thereto from engaging or competing in any
manner or in any business, nor, to the knowledge of DMK, is any employee of
DMK subject to any such agreement, contract or commitment;
(ix) license, franchise, distributorship or other agreement,
which relates in whole or in part to any software, patent, trademark, trade
name, service mark or copyright or to any ideas, technical assistance or
other know-how of or used by DMK in the conduct of the business of DMK
(exclusive of any shrink-wrap license agreements entered into in the
ordinary course of business);
(x) Material agreement, contract or commitment of DMK not
made in the ordinary course of business;
(xi) any Contracts that are, in the reasonable opinion of
DMK, materially adverse, onerous or otherwise harmful to DMK's businesses,
properties, operations or assets;
14
<PAGE>
(xii) any agreements pursuant to which any of DMK's web sites
or pages therein are linked with other web sites or pages therein;
agreements with web site hosts or internet access providers; agreements
regarding data center hosting or security; agreements relating to
advertising or sponsorships; agreements providing for the use, display or
distribution of third party content, information or data or the provision
of services through DMK's web sites agreements regarding the establishment
or maintenance of networks, telecommunication links, virtual private
networks or other similar non-public networks;
(xiii) subscriber or end-user agreements and other forms or
policies governing the use of (i) DMK's web sites or the information
contained therein or (ii) the information obtained by DMK from third
parties through its web sites; and
(xiv) any Contracts upon which the business, rights or assets,
or condition, financial or otherwise, of DMK depends or is or would be
Materially affected.
(b) Each of the agreements, Contracts, commitments, leases, plans
and other instruments, documents and undertakings of DMK whether or not listed
on Schedule 5.19(a), is valid and enforceable in accordance with its terms,
----------------
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or
principles of public policy; DMK is, and to the knowledge of DMK all other
parties thereto are, in compliance with the provisions thereof; except as
disclosed in Schedule 5.19(b)(i), DMK is not, and to the knowledge of DMK no
-------------------
other party thereto is, in Default in the performance, observance or fulfillment
of any Material obligation, covenant or condition contained therein. Except as
disclosed in Schedule 5.19(b)(ii), no written or oral agreement, contract or
--------------------
commitment described therein requires the consent of any party to its assignment
in connection with the transactions contemplated hereby. True, complete and
correct copies of each such agreement have been furnished by DMK to WebMD (or
true, complete and correct descriptions thereof are set forth in Schedule
--------
5.19(a) if such agreement is oral).
- -------
(c) Except as set forth in Schedule 5.19(c), the products and
----------------
services DMK provides to its customers conform in all Material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of DMK without imposition
of any performance credits or other penalties, and there has not been during the
last three (3) years any claim made against DMK by any customer of DMK or by any
other Person alleging that any DMK product or service (including each version
thereof that has been licensed or otherwise made available by DMK to any Person)
does not conform in all Material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of DMK, and, to the knowledge of DMK, there is not a reasonable basis for
any such claim. No product liability or warranty claims which individually or
in the aggregate could exceed the reserves therefor on the DMK Financial
Statements have been communicated in writing to or threatened in writing against
DMK.
(d) Except as disclosed in Schedule 5.19(d), the DMK products and
----------------
services, including the Software, as of the date hereof, during and after the
calendar year 2000 A.D., include design, function and performance capabilities
such that the DMK products and services shall not abnormally end and/or have
invalid and/or incorrect results from and/or performance or functional
degradation because of the then-current date. The design and function of the
DMK products and services shall ensure year 2000 A.D. and shall include, but not
be limited to, date data century recognition, calculations that accommodate same
century and multicentury formulas and date values, and date data interface
values that reflect the century.
5.20 Powers of Attorney. Except as disclosed on Schedule 5.20, DMK has
------------------ -------------
not given or granted any power of attorney, whether limited or general, to any
Person that is continuing in effect.
5.21 Benefit Plans.
-------------
(a) Neither DMK nor any ERISA Affiliate (as hereafter defined)
maintains, contributes or sponsors, and have not maintained, contributed to or
sponsored any "employee
--------
15
<PAGE>
pension benefit plan" that is subject to Section 3(2) of ERISA or Section 412 of
- --------------------
the Internal Revenue Code of 1986, as amended ("Code") or any "Multiemployer
---- -------------
Plan" (as defined in Section 4001(a)(3) of ERISA). ERISA Affiliate means all
- ----
persons which are treated as being under common control or as a single employer
with DMK or any of its subsidiaries under Section 414(b), (c), (m) or (o) of the
Code. Any "employee welfare benefit plan" (as defined in ERISA Section 3(1))
-----------------------------
maintained by, contributed to or sponsored by DMK or any ERISA Affiliate (or
previously maintained by, contributed to or sponsored by DMK or any ERISA
Affiliate) as fully insured arrangements that are not subject to discrimination
rules of the Code. Neither DMK nor any ERISA Affiliate maintains, contributes or
sponsors, and have not maintained, contributed to or sponsored any arrangement
subject to Code Sections 419 or 419A.
(b) The consummation of the transactions contemplated by this
Agreement will not (1) entitle any current or former employee of DMK to
severance pay, unemployment compensation or any payment contingent upon a change
in control or ownership of DMK, or (2) except as set forth in Section 3.6(b)(i),
-----------------
accelerate the time of payment or vesting, increasing the amount, of any
compensation due to any such employee of DMK.
(c) DMK shall be responsible for complying with the requirements of
Code Section 4980B and Part 6 of Title I of ERISA for its employees (including
for those employees of DMK who are hired by WebMD on or after the Closing) and
their "qualified beneficiaries" whose "qualifying event" (as such terms are
----------------------- ----------------
defined in Code Section 4980(B) occurs on or prior to the Closing.
5.22 Remuneration. Schedule 5.22(a) contains a complete and accurate
------------ ----------------
schedule of the direct compensation (including wages, salaries and actual or
anticipated bonuses), plus a description of other annual benefits not made
available to the other employees generally, paid in the fiscal year 1998 to (i)
all of the officers and directors of DMK; and (ii) all of the employees and
consultants of DMK who received or will be receiving in excess of $50,000
(excluding commission and bonus compensation) during such year. Except as
contained in Schedule 5.22(b), no unpaid salary, other than for the immediately
----------------
preceding pay period and other than pursuant to the existing deferred
compensation plans of DMK is now payable to any of such officers, directors,
employees or consultants.
5.23 Union and Employment Agreements. Except as set forth on Schedule
------------------------------- --------
5.23(i)), DMK is not a party to any union agreement, nor does any such entity
- --------
have any written or oral agreement that is not terminable by it at will with any
of its officers, directors, employees, consultants, agents, or any other person
performing services therefor, relating to their employment by or performance of
services or their compensation therefor. No union attempts to organize the
employees of DMK have been made, nor are any such attempts now threatened so far
as is known to any such entity. Except as set forth on Schedule 5.23(ii), DMK
-----------------
has not received notice, or has any reason to believe, that any of its officers
or directors of any such entity will terminate or contemplates terminating his
or her employment currently or at any time within sixty (60) days of the Closing
Date.
5.24 Interested Transactions.
-----------------------
(a) Except as set forth on Schedule 5.24(a), DMK is not currently a
----------------
party to any Contract, loan or other transaction with any of the following
persons, or in which any of the following persons have any direct or indirect
interest (other than as a shareholder or employee of DMK):
(i) Any director, officer, employee of DMK or any of the
Shareholders;
(ii) Any of the spouses, parents, siblings, children, aunts,
uncles, nieces, nephews, in-laws and grandparents of any of the persons
described in clause (i); or
(iii) Any corporation, trust, partnership or other entity in
which any of the persons described in clauses (i) or (ii) has a beneficial
interest (other than in a corporation whose shares are publicly traded and
in which such persons own beneficially in the aggregate no more than 5% of
the equity interest).
16
<PAGE>
(b) Except as set forth on Schedule 5.24(b), none of the
----------------
Shareholders is an employee, consultant, partner, principal, director or
shareholder of any business entity which is engaged in a business which competes
with or is similar to the business of DMK.
5.25 Brokers and Finders. No broker, agent, finder or consultant or
-------------------
other person has been retained by or on behalf of DMK (other than legal or
accounting advisors), or is entitled to be paid based upon any agreements or
understandings made by DMK in connection with the transactions contemplated
hereby. Neither WebMD nor DMK shall have any Liability for any broker's fee,
finder's fee, consultant's fee or similar third party remuneration by reason of
any actions of DMK.
5.26 Statements True and Correct. No certificate, schedule, or other
---------------------------
exhibit furnished or to be furnished by DMK to WebMD pursuant to the terms of
this Agreement contains or will contain any untrue statement of Material fact or
will omit to state a Material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. None of
the information furnished in writing by DMK or, to DMK's knowledge, any
Affiliate thereof for inclusion in the Private Placement Memorandum to be mailed
to DMK's Shareholders in connection with the Shareholder's approval of the
Merger will, at the time such documents are first mailed to the Shareholders of
DMK or at the time of the Shareholder's approval of the Merger, be false or
misleading with respect to any Material fact, or omit to state any Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.27 Bank Accounts. A true and correct and complete list as of the date
-------------
of this Agreement of all banks, trust companies, savings and loan associations
and brokerage firms in which DMK has an account or a safe deposit box and the
names of all Persons authorized to draw thereon, to have access thereto, or to
authorize transactions therein, the names of all Persons, if any, holding powers
of attorney from DMK and a summary statement as to the terms thereof is listed
in Schedule 5.27.
-------------
5.28 Accounting and Tax Matters. DMK has not taken any action or has any
--------------------------
knowledge of any fact or circumstance that is reasonably likely to prevent the
transactions contemplated hereby, including the Merger, from qualifying as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code.
5.29 State Takeover Laws. DMK has taken all necessary action to exempt
-------------------
the transactions contemplated by this Agreement from any applicable state
takeover Law.
5.30 Authority of Shareholders; No Breach by Agreement. To the
-------------------------------------------------
knowledge of DMK:
(a) Each of the Shareholders has the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and the
Shareholders' Closing Documents and to perform its obligations under this
Agreement and the Shareholders' Closing Documents. This Agreement represents a
legal, valid, and binding obligation of each Shareholder, enforceable against
each Shareholder in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought). Upon the execution and delivery by the Shareholders party to each
of the Shareholders' Closing Documents, each such Shareholders' Closing Document
will constitute the legal, valid, and binding obligations of each such
Shareholder, enforceable against such Shareholder in accordance with its
respective terms.
(b) Neither the execution and delivery of this Agreement by any
Shareholder, nor the consummation by any Shareholder of the transactions
contemplated hereby, nor compliance by any Shareholder with any of the
provisions hereof, will (i) conflict with or result in a breach of any provision
of DMK's articles of incorporation or bylaws or the governing instruments of any
Shareholder that is not a natural person, or (ii) except as listed in Schedule
--------
5.30(b), constitute or result in a
- -------
17
<PAGE>
Default under, or require any Consent pursuant to, or result in the creation of
any Lien on any Asset of DMK under, or permit any acceleration or modification
under, any Contract or Permit of DMK, or (iii) subject to receipt of the
requisite Consents, violate any Law or Order applicable to any Shareholder or to
DMK or any of their respective Material Assets.
(c) Other than as required under the Hart-Scott-Rodino Act or
listed in Schedule 5.30(c), no notice to, filing with, or Consent of, any public
----------------
body or authority is necessary for the consummation by the Shareholders of the
transactions contemplated in this Agreement.
5.31 Schedules. Matters disclosed on each Schedule shall be deemed
---------
disclosed only for purposes of the matters to be disclosed on such Schedule and
shall not be deemed to be disclosed for any other purpose unless expressly
provided therein.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
Each of the Shareholders, severally but not jointly, hereby represents and
warrants as to itself to WebMD as of the date that such Shareholder becomes a
party to this Agreement and as of the Closing Date as follows:
6.1 Ownership of Shares. The Shareholder is the owner of all right,
-------------------
title and interest (legal, record and beneficial) in and to the number of shares
of DMK Common Stock and Preferred Stock listed opposite Shareholder's name on
Schedule I to this Agreement (the "Shares"), free and clear of any and all
- ---------- ------
Liens. The delivery to WebMD of the DMK Common Stock and Preferred Stock
pursuant to the provisions of this Agreement will transfer to WebMD good and
marketable title to all of such Shares free and clear of all Liens. Except as
disclosed in Schedule 6.1, other than the DMK Equity Rights identified and
------------
listed opposite the name of the Shareholder on Schedule I, the Shareholder owns
----------
no right, title or interest (legal, record or beneficial) to any securities of
DMK or right of any kind to have any such security issued. No Person other than
DMK has any agreement or option or any right or privilege (whether pre-emptive
or contractual) capable of becoming an agreement or option for the purchase of
any of the DMK Common Stock from the Shareholder.
6.2 Authority of Shareholder; No Breach. The Shareholder has the
-----------------------------------
absolute and unrestricted right, power, authority, and capacity to execute and
deliver the Shareholders' Closing Documents and to perform its obligations under
the Shareholders' Closing Documents. This Agreement represents a legal, valid,
and binding obligation of the Shareholder, enforceable against the Shareholder
in accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought). Upon the execution
and delivery by the Shareholder of the Shareholders' Closing Documents, the
Shareholders' Closing Documents will constitute the legal, valid, and binding
obligations of the Shareholder, enforceable against the Shareholder in
accordance with their respective terms.
6.3 Absence of Conflicting Agreements or Required Consents. The
------------------------------------------------------
execution, delivery and performance by the Shareholder of the Shareholders'
Closing Documents to which it is a party (with or without the giving of notice,
the lapse of time, or both): (a) other than in connection or compliance with the
provisions of the federal securities laws, applicable state corporate and
securities laws, or under the Hart-Scott-Rodino Act, no notice to, filing with,
or Consent of, any public body or authority is necessary for the consummation by
the Shareholder of the transactions contemplated in this Agreement, (b) will not
conflict with, result in a breach of, or constitute a default under any ruling,
judgment, order or injunction, or to the knowledge of the Shareholder any law,
ordinance or regulation, of any court or governmental instrumentality to which
the Shareholder is subject or by which the Shareholder, or his, her or its
Assets, are bound; and (c) will not create any Lien upon the Shares owned by the
Shareholder.
18
<PAGE>
6.4 Legal Proceedings. There are no claims, lawsuits, actions,
-----------------
arbitrations, administrative or other proceedings, or governmental
investigations or inquiries, pending or, to the knowledge of the Shareholder,
threatened against the Shareholder affecting the performance by the Shareholder
of the Shareholders' Closing Documents and, to the knowledge of the Shareholder,
there is no basis for any action or any state of facts or occurrence of any
event which might give rise to the foregoing.
6.5 Investment Representations; Access to Information.
-------------------------------------------------
(a) The Shareholder is acquiring the shares of WebMD Series B
Preferred Stock to be issued pursuant to this Agreement for investment only, for
the Shareholder's own account and not as a nominee or agent, and not with the
view to, or for resale in connection with, any distribution, transfer or
assignment thereof or participation therein. The Shareholder is an "accredited
----------
investor" as such term is defined in Rule 501(a) under the 1933 Act. The
- --------
Shareholder understands that the shares of WebMD Series B Preferred Stock to be
issued pursuant to this Agreement have not been, and will not be, registered
under the 1933 Act in reliance upon the representations set forth herein.
(b) The Shareholder understands that the offering and sale of the
WebMD Series B Preferred Stock is intended to be exempt from registration under
the 1933 Act, by virtue of Section 4(2) of the 1933 Act and Regulation D of the
1933 Act. The Shareholder has the financial ability to bear the economic risk of
the Shareholder's investment and has adequate means for providing for the
Shareholder's current needs and personal or other contingencies.
(c) The Shareholder meets any additional or different suitability
standards imposed by the Shareholder's state of incorporation or organization,
or imposed by any other applicable laws.
(d) The Shareholder:
(i) has been advised that the shares have not been registered
under the 1933 Act and, therefore, cannot be sold or otherwise disposed of
except in a transaction which is registered under the 1933 Act or exempted from
registration.
(ii) has been given the opportunity to ask questions of, and
receive answers from, the executive officers of WebMD concerning the terms
and conditions of the Merger; has received any documents which the
Shareholder may have requested and such additional information as it has
deemed necessary or that was otherwise provided to evaluate the merits and
risks of the Merger; and has not been furnished any offering literature or
prospectus other than as described herein;
(iii) except as described in clause (i) above, has not been
furnished with any oral or written representation or oral or written
information in connection with the Merger which is not contained herein;
and
(iv) has determined that the shares of WebMD Series B
Preferred Stock are a suitable investment for it and that, at this time, it
has no need for liquidity of its investment and could bear a complete loss
of such investment.
(e) The Shareholder is not relying on DMK or WebMD, or the
references to any legal opinion in this Agreement, with respect to individual
and corporate tax and other economic considerations involved in this investment.
(f) The Shareholder will not sell or otherwise transfer shares of
WebMD Series B Preferred Stock or any portion thereof without registration under
any applicable federal and state securities laws or an exemption therefrom, and
fully understands and agrees that the Shareholder must bear the economic risk of
this purchase for an indefinite period of time.
19
<PAGE>
6.6 Tax and Regulatory Matters. The Shareholder has not taken or agreed
--------------------------
to take any action and has no knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
listed in Schedule 5.16 or result in the imposition of a condition or
-------------
restriction of the type referred to in the last sentence of such Section.
6.7 Intellectual Property. Each Shareholder who is or has been an
---------------------
employee of or consultant to DMK has entered a Contract which requires the
Shareholder to assign any interest in any Intellectual Property which relates to
the business of DMK to DMK and to keep confidential any trade secrets,
proprietary data, patient lists or other proprietary business information of DMK
or any customer of DMK, and the Shareholder is not a party to any Contract that
requires the Shareholder to assign any interest in any Intellectual Property
which relates to the business of DMK to any Person other than DMK, or to keep
confidential any trade secrets, proprietary data, customer information or other
business information of any Person other than DMK or, on behalf of DMK, a
customer of DMK, or which restricts or prohibits the Shareholder from engaging
in activities on behalf of DMK.
6.8 Interested Transactions. No Shareholder who is a former or current
-----------------------
employee, consultant or director of DMK is an employee, consultant, partner,
principal, director or shareholder of any business entity which is engaged in a
business which competes with or is similar to the business of DMK.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF WEBMD AND MERGER CORP.
--------------------------------------------------------
Each of WebMD and Merger Corp. hereby represents and warrants to DMK and
the Shareholders as follows:
7.1 Organization, Standing, and Power. Each of WebMD and its
---------------------------------
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the Laws of the state of its incorporation, and has the power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate its Assets. Except as set forth in Schedule 7.1, each
------------
of WebMD and its Subsidiaries is duly qualified or licensed to transact business
as a foreign corporation and is in good standing in all jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on WebMD or such Subsidiary.
7.2 Authorization of Agreement; No Breach. The execution, delivery and
-------------------------------------
performance of this Agreement have been duly authorized by all necessary
corporate action of WebMD and Merger Corp. This Agreement constitutes, and all
agreements and other instruments and documents to be executed and delivered by
WebMD and Merger Corp. pursuant to this Agreement will constitute, legal, valid
and binding obligations of WebMD and Merger Corp. enforceable against WebMD and
Merger Corp. in accordance with their respective terms except to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth on Schedule 7.2, the execution, delivery and
------------
performance of this Agreement and the agreements and other documents and
instruments to be executed and delivered by WebMD and Merger Corp. pursuant to
this Agreement and the consummation of the transactions contemplated hereby and
thereby will not, subject to obtaining the consents identified herein, (i)
violate or result in a breach of or Default under the articles or certificate of
incorporation or bylaws of WebMD or any of its Subsidiaries or any other
Material instrument or agreement to which WebMD or any of its Subsidiaries is a
party or is bound; (ii) to the knowledge of WebMD and its Subsidiaries, violate
any Law, administrative decision or award of any court, arbitrator, mediator,
tribunal, administrative agency or governmental body applicable to or binding
upon WebMD or its Subsidiaries or upon their respective securities, property or
business; (iii) conflict with or constitute a Default under any Material
Contract to which WebMD or any of its Subsidiaries is a party or by which
20
<PAGE>
WebMD or any of its Subsidiaries is bound; or (iv) create a Lien upon the
securities, property or business of WebMD or any of its Subsidiaries.
7.3 Capital Stock. As of the date hereof, the authorized capital stock
-------------
of WebMD consists of (a) 75,000,000 shares designated Common Stock (without
designation as to series), of which 3,000,000 shares are issued and outstanding
as of the date hereof and none of which are issued and held as treasury shares,
(b) 3,000,000 shares are designated Common Stock Series B, of which 1,400,000
are issued and outstanding as of the date hereof and none of which are issued
and held as treasury shares, (c) 1,500,000 shares are designated Common Stock
Series C, of which 1,500,000 are issued and outstanding as of the date hereof
and none of which are issued and held as treasury shares, (d) 15,000,000 shares
are designated Common Stock Series D, of which 4,486,805 are issued and
outstanding as of the date hereof and none of which are issued and held as
treasury shares, (e) 2,500,000 are designated Common Stock Series E, of which
2,100,000 are issued and outstanding as of the date hereof and none of which are
issued and held as treasury shares; and (f) 10,000,000 shares designated as
Preferred Stock, of which 1,600,000 are designated Series A Convertible
Preferred Stock, of which 801,000 shares of Series A Convertible Preferred Stock
are issued and outstanding as of the date hereof and none of which are issued
and held as treasury shares. Except as set forth in Schedule 7.3, all of such
------------
shares are duly and validly issued and outstanding, and are fully paid and non-
assessable and were issued pursuant to an exemption from registration under the
1933 Act and all applicable state securities laws. Except as set forth on
Schedule 7.3 and as contemplated by this Agreement, there are no outstanding
- ------------
warrants, options, rights (including outstanding rights to demand registration
or to sell in connection with a registration by WebMD under the 1933 Act), calls
or other commitments of any nature relating to the WebMD Common Stock or any
other capital stock of WebMD to which WebMD is a party, and there are no
outstanding securities of WebMD convertible into or exchangeable for shares of
WebMD Common Stock or any other capital stock of WebMD. WebMD and its
Subsidiaries have no knowledge of any voting agreements or voting trusts between
or among any Person or Persons relating to WebMD, the WebMD Common Stock or any
of its Subsidiaries. Except as set forth on Schedule 7.3, WebMD is not
------------
obligated to issue or repurchase any shares of its capital stock for any
purpose, and, to the knowledge of WebMD, no person or entity has entered into
any Contract or option or any right or privilege (whether preemptive or
contractual) capable of becoming a Contract or option for the purchase,
subscription or issuance of any unissued shares, or other securities of WebMD.
Prior to the Effective Time, WebMD will authorize and file a designation
authorizing at least 1,750,000 and up to 3,400,000 shares of WebMD Series B
Preferred Stock in accordance with Section 9.3 hereto. The shares of WebMD
-----------
Series B Preferred Stock to be issued in accordance with the terms and
provisions of this Agreement will, when so issued, be duly authorized, validly
issued, fully paid and non-assessable. As of the date hereof, the authorized
capital stock of Merger Corp. consists of 1,000 shares of Merger Corp. Common
Stock, of which 100 shares are issued and outstanding and none of which are
issued and held as treasury shares. All of such shares are duly and validly
issued and outstanding, and are fully paid and non-assessable and were issued
pursuant to an exemption from registration under the 1933 Act and all applicable
state securities laws. There are no outstanding warrants, options, rights
(including outstanding rights to demand registration or to sell in connection
with a registration by Merger Corp. under the 1933 Act), calls or other
commitments of any nature relating to Merger Corp. Common Stock or any other
capital stock of Merger Corp. to which Merger Corp. is a party, and there are no
outstanding securities of Merger Corp. convertible into or exchange for shares
of Merger Corp. Common Stock or any other capital stock of Merger Corp.
7.4 WebMD Subsidiaries. Schedule 7.4 attached hereto is a true and
------------------ ------------
correct list of each Subsidiary of WebMD. All of the outstanding shares of
capital stock of each such Subsidiary are duly and validly issued and
outstanding, are fully paid and non-assessable, and were issued pursuant to a
valid exemption from registration under the Securities Act of 1933, as amended,
and all applicable state securities laws are owned of record and beneficially by
WebMD, free and clear of any and all Liens. No shares of capital stock of any
Subsidiary are reserved for issuance and there are no outstanding options,
warrants, rights, subscriptions, claims of any character, Contracts,
obligations, convertible or exchangeable securities or other commitments,
contingent or otherwise, relating to the capital stock of any Subsidiary,
pursuant to which any Subsidiary is or may become obligated to issue or exchange
any share of capital stock. Neither WebMD nor any Subsidiary owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, or other entity.
21
<PAGE>
7.5 Financial Statements.
--------------------
(a) Schedule 7.5 contains true and complete copies of the (i) audited
------------
consolidated balance sheets of WebMD as of December 31, 1997 and 1996, and the
audited consolidated statements of income and audited consolidated statements of
cash flows for the years ended December 31, 1997, 1996 and 1995 and (ii) the
unaudited balance sheet of WebMD as of September 30, 1998 and the unaudited
consolidated statements of income and unaudited statements of cash flows for the
nine months ended September 30, 1998 and 1997 (the "WebMD Financial
---------------
Statements").
- ----------
(b) The WebMD Financial Statements (i) are in accordance with the
books and records of WebMD and its Subsidiaries, which books and records have
been maintained in accordance with reasonable business practices; (ii) present
fairly the consolidated financial condition, assets and liabilities of WebMD and
its Subsidiaries, taken as a whole, as of the respective dates indicated and the
results of operations and cash flows for the respective periods indicated; (iii)
have been prepared in accordance with GAAP consistently applied throughout the
periods involved, except for the omission of notes to interim unaudited
consolidated statements, and except that interim unaudited consolidated
statements are subject to normal year end adjustments of the type specifically
listed in Schedule 7.5 which will not, individually or in the aggregate, be
------------
Material; and (iv) reflect adequate reserves for all known Material Liabilities
and reasonably anticipated losses required to be recorded under GAAP.
7.6 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
---------------------------------- --------
7.6 and on the September 30, 1998 WebMD Financial Statements, as of the date
- ---
hereof neither WebMD nor any of its Subsidiaries has any Undisclosed
Liabilities, except for unpaid liabilities and obligations incurred since
September 30, 1998, in the ordinary course of business and not involving Funded
Debt and which are not, in the aggregate, Material.
7.7 Absence of Certain Changes or Events. Since September 30, 1998,
------------------------------------
except as disclosed on Schedule 7.7, there have been no events, changes or
------------
occurrences (other than events or conditions affecting the economy generally)
which have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on WebMD.
7.8 Legal Proceedings. There are no outstanding Orders to which WebMD
-----------------
or any of its Subsidiaries is subject, and, except as disclosed on Schedule 7.8,
------------
there is no Litigation pending or, to WebMD's knowledge, threatened against or
relating to WebMD or any of its Subsidiaries or their respective assets or
businesses, which if resolved adversely to WebMD would have a Material Adverse
Effect on WebMD and its Subsidiaries, taken as a whole. Except as disclosed on
Schedule 7.8, neither WebMD nor any of its Subsidiaries have been advised by any
- ------------
attorney representing any such entity that there are any "loss contingencies" as
------------------
defined in FASB 5, which would be required by FASB 5 to be disclosed or accrued
in the consolidated financial statements of WebMD and which are not so disclosed
or accrued.
7.9 Brokers and Finders. No broker, agent, finder or consultant or
-------------------
other person has been retained by or on behalf of WebMD (other than legal or
accounting advisors), or is entitled to be paid based upon any agreements or
understandings made by WebMD in connection with the transactions contemplated
hereby. Neither DMK nor WebMD shall have any Liability for any broker's fee,
finder's fee, consultant's fee or similar third party remuneration by reason of
any action of WebMD.
7.10 Statements True and Correct. No certificate, schedule or other
---------------------------
exhibit furnished or to be furnished by WebMD or any Affiliate thereof to DMK
pursuant to the terms of this Agreement contains or will contain any untrue
statement of Material fact or will omit to state a Material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information furnished in writing by WebMD
or, to WebMD's knowledge, any Affiliate thereof for inclusion in the Private
Placement Memorandum to be mailed to DMK's Shareholders in connection with the
Shareholder's approval of the Merger will, at the time such documents are first
mailed to the Shareholders of DMK or at the time of the Shareholder's approval
of the Merger, be false or misleading
22
<PAGE>
with respect to any Material fact, or omit to state any Material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
7.11 Authority of Merger Corp. Merger Corp is a corporation duly
-------------------------
organized, validly existing and in good standing under the Laws of the State of
Georgia as a wholly owned Subsidiary of WebMD. The authorized capital stock of
Merger Corp. consists of 1,000 shares of Merger Corp. Common Stock, of which 100
shares are validly issued and outstanding, fully paid and nonassessable and is
owned by WebMD free and clear of any Lien. Merger Corp. has the corporate power
and authority necessary to execute, deliver and perform its obligations under
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Merger Corp. This Agreement represents a legal, valid, and binding
obligation of Merger Corp., enforceable against Merger Corp. in accordance with
its terms.
7.12 Accounting and Tax Matters. Neither WebMD nor any Affiliate has
--------------------------
taken any action or has any knowledge of any fact or circumstance that is
reasonably likely to prevent the transactions contemplated hereby, including the
Merger, from qualifying as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code.
7.13 Insurance. All of the properties and business of WebMD and its
---------
Subsidiaries of an insurable nature and of a character usually insured by
companies of similar size and in similar businesses are insured in such amounts
and against such losses, casualties or risks as is usual in such companies and
for such properties and business. All such insurance policies are in full force
and effect and the premiums due thereon have been timely paid. Neither WebMD
nor any of its Subsidiaries is now in Default regarding the provisions of any
such policy, nor have they failed to give any notice or present any Material
claim thereunder in due and timely fashion. The consummation of the
transactions contemplated by this Agreement will not constitute a Default under,
or otherwise affect the coverage under any such insurance policies.
7.14 Compliance with Laws.
--------------------
(a) Each of WebMD and its Subsidiaries has in effect all Permits
necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits disclosed on Schedule 7.14
-------------
or those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on WebMD or its
Subsidiaries, taken as a whole. Except as disclosed on Schedule 7.14, neither
-------------
WebMD nor any of its Subsidiaries is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect. No notice or warning from any Regulatory
Authority with respect to any failure or alleged failure of WebMD or any of its
Subsidiaries to comply with any Law has been issued or given, nor is any such
notice or warning proposed or threatened.
(b) Except as set forth on Schedule 7.14, no consent or approval of,
-------------
prior filing with or notice to, or other action by, any Regulatory Authority or
any other third party is required in connection with the execution and delivery
of this Agreement or any assignment, agreement or other instrument to be
executed and delivered pursuant to this Agreement by WebMD or the consummation
of the transactions provided for herein or therein except for such consents and
approvals that have been obtained and filings, notices and other actions that
have been taken or made.
(c) Neither WebMD or any of its Subsidiaries, nor, to the knowledge
of WebMD, any officer, director, employee, agent or other representative thereof
acting or purporting to act on behalf of any such entity or any business
enterprise with which WebMD has been associated or affiliated, has, directly or
indirectly, made or authorized any payment, contribution or gift of money,
property, or services, in violation of applicable law (i) as a kickback or bribe
to any person, or (ii) to any
23
<PAGE>
political organization or the holder of, or any aspirant to, any elective or
appointive office of any nation, state, political subdivision thereof, or other
governmental body or instrumentality.
7.15 Tax Matters.
-----------
(a) WebMD and its Subsidiaries have filed all federal and state
income tax returns for all periods prior to the date hereof which were required
to be filed, and, except as described on Schedule 7.15, no returns so filed have
-------------
been examined by the IRS or any state agency with respect to any such period.
Except as listed on Schedule 7.15, WebMD has not received notice of any Tax
-------------
claims being asserted or any proposed assessment by any taxing authority and, to
the knowledge of WebMD, no Tax returns thereof have been examined by the IRS or
the appropriate state agencies for any fiscal year or period ended prior to the
date hereof, and WebMD is not presently under, nor has any such entity received
notice of, any contemplated, investigation or audit by the IRS or any state
agency concerning any fiscal year or period ended prior to the date hereof.
Except as listed on Schedule 7.15, WebMD has not executed any extension or
-------------
waivers of any statute of limitations on the assessment or collection of any tax
due that is currently in effect.
(b) As of the date hereof, WebMD and each of its Subsidiaries have
filed all Tax returns required to be filed at this date, taking into account any
extensions of the filing deadlines which have been validly granted to any such
entity and which are listed on Schedule 7.15, and such returns are true and
-------------
correct in all Material respects and properly reflect the Tax Liabilities of
WebMD and each of its Subsidiaries for the periods, property or events covered
thereby, and each such entity has paid all Taxes (including penalties and
interest in respect thereof, if any) that have become or are due with respect to
any period through the date hereof whether shown on such returns or not.
(c) Adequate provision has been made in the Financial Statements in
accordance with GAAP as of September 30, 1998, for all Tax Liabilities not
required to be paid prior to such date and for all current and deferred Taxes.
(d) WebMD and each of its Subsidiaries, and each of their respective
predecessors to which any such entity has succeeded, has withheld or collected
from each payment made to each of their employees the amount of all Taxes
required to be withheld or collected therefrom and has paid the same to the
proper tax depositories or collecting authorities.
(e) All ad valorem property taxes for years prior to 1999 imposed on
WebMD, or any of its Subsidiaries or their respective predecessors have been
paid in full or adequately reserved in the consolidated financial statements
contained in the WebMD Documents, as appropriate.
(f) Neither WebMD nor any of its Subsidiaries, nor to the knowledge
of WebMD or its Subsidiaries, their respective predecessors to which any such
entity has succeeded, has ever made an election under Section 341(f) of the
Internal Revenue Code and no such entity is a United States real property
holding corporation as defined in Section 897 of the Internal Revenue Code.
7.16 Intellectual Property.
---------------------
(a) Schedule 7.16 contains a true and complete list of all
-------------
Intellectual Property owned by, registered in the name of, or used by WebMD in
its business on the date hereof, or for which application has been made,
including all internet domain names registered with any third party. All such
Intellectual Property rights are in full force and effect and constitute legal,
valid and binding obligations of WebMD and, to WebMD's knowledge, any other
party thereto; and there have not been and there currently are not any Defaults
thereunder by WebMD or, to WebMD's knowledge, by any other party thereto. WebMD
owns or is a valid licensee of all such Intellectual Property rights free and
clear of all Liens or claims of infringement. Neither WebMD or, to the knowledge
of WebMD, its predecessors has misused the Intellectual Property rights of
others and none of the Intellectual Property rights as used in the business
conducted by any such entity infringes upon or otherwise violates the rights of
others, nor has any person asserted a claim of such infringement. WebMD is not
obligated to pay any royalties to any person
24
<PAGE>
or entity with respect to any such Intellectual Property. Each such entity owns
or has the valid right to use all of the Intellectual Property rights which it
is presently using, or in connection with the performance of any Material
contract, proposal or letter of intent to which it is a party. Except as set
forth on Schedule 7.16, WebMD has not licensed or sublicensed its rights in any
-------------
material Intellectual Property.
(b) To the knowledge of WebMD, except as described on Schedule 7.16,
-------------
no officer, director or employee of WebMD has entered into any Contract other
than on behalf of WebMD and with WebMD's authorization, which requires such
officer, director or employee to assign any interest in any Intellectual
Property or which restricts or prohibits such officer, director or employee from
engaging in activities competitive with WebMD.
(c) The Intellectual Property owned by WebMD is sufficient to
continue to operate the business as conducted on the date hereof. Except as
disclosed on Schedule 7.16, the conduct of the business of WebMD and Merger
-------------
Corp. do not infringe any Intellectual Property of any other Person.
(d) WebMD is listed in the records of the appropriate United States,
state or foreign agency as the sole owner of record for each application and
registration listed on Schedule 7.16. There is no pending, or to the knowledge
-------------
of WebMD, threatened opposition, interference or cancellation proceeding before
any court or registration authority in any jurisdiction against the
registrations listed on Schedule 7.16, or, to the knowledge of WebMD, against
-------------
any Intellectual Property licensed to WebMD.
(e) Except as set forth on Schedule 7.16, there are no settlements,
-------------
forbearances to sue, consents, judgments, or orders or similar obligations which
(i) restrict WebMD's rights to use any Intellectual Property, (ii) restrict
WebMD's business in order to accommodate a third party's intellectual rights or
(iii) permit third parties to use any Intellectual Property owned or controlled
by WebMD.
(f) Except as set forth on Schedule 7.16, the consummation of the
-------------
transactions contemplated hereby will not result in the loss or impairment of
WebMD's right to own or use any of the Intellectual Property, nor will require
the consent of any government authority or third party in respect of such
Intellectual Property.
7.17 Schedules. All Schedules attached hereto are true, correct and
---------
complete as of the date of this Agreement. Matters disclosed on each Schedule
shall be deemed disclosed only for purposes of the matters to be disclosed on
such Schedule and shall not be deemed to be disclosed for any other purpose.
ARTICLE 8
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
8.1 Conduct of DMK Business. Prior to the Closing Date, except with the
-----------------------
prior written consent of WebMD, and except as necessary to effect the
transactions contemplated in this Agreement, DMK shall:
(a) conduct its business in substantially the same manner as
presently being conducted and refrain from entering into any transaction or
Contract other than in the ordinary course of business (or, even if in the
ordinary course of business, not in excess of $50,000), and not make any
Material change in its methods of management, marketing, accounting, or
operations;
(b) consult with WebMD prior to undertaking any Material new business
opportunity outside the ordinary course of business and not undertake such new
business opportunity without the prior written consent of WebMD, which consent
will not be unreasonably withheld;
25
<PAGE>
(c) confer on a regular basis with one or more designated
representatives of WebMD to report Material operational matters and to report
the general status of ongoing business operations;
(d) notify WebMD of any unexpected Material change in the normal
course of business or in the operation of its properties, and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings or
submissions involving any Material property, and DMK agrees to keep WebMD fully
informed of such events and permit WebMD's representatives prompt access to all
materials prepared in connection therewith;
(e) not enter into any new employment Contract or, except in the
ordinary course of business, any commitment to employees (including any
commitment to pay retirement or other benefits);
(f) not increase the compensation (including fringe benefits) payable
or to become payable to any officer, director, employee, agent or independent
contractor of DMK, except general hourly rate increases and normal merit
increases for employees other than officers made in the ordinary course of
business and consistent with past practice;
(g) except in the ordinary course of business, not (i) create or
incur any indebtedness, (ii) enter into or terminate any lease of real estate,
or (iii) release or create any Liens of any nature whatsoever;
(h) except in the ordinary course of business and, even if in the
ordinary course of business, then not in an amount to exceed $25,000 in the
aggregate, make or commit to make any capital expenditure, or enter into any
lease of capital equipment as lessee or lessor;
(i) not sell any Material asset or make any Material commitment
relating to its assets other than in the ordinary course of business;
(j) not amend its Articles of Incorporation or Bylaws, or
(k) not make any changes in its accounting methods or practices,
except for changes in its tax accounting methods or practices that may be
necessitated by changes in applicable tax laws;
(l) except for this Agreement, or pursuant to the exercise of stock
options or the DMK Warrants outstanding as of the date hereof in accordance with
their current terms, and except for shares of DMK Common Stock which may be
issued upon the conversion of the DMK Convertible Promissory Note, DMK Series A
Preferred Stock or DMK Series B Preferred Stock, not issue, sell, pledge,
encumber, authorize the issuance of, enter into any Contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of DMK Common Stock, or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock, or pay
or declare or agree to pay or declare any dividend with respect to any DMK
Common Stock;
(m) other than in the ordinary course of business, not take any
action, or omit to take any action, which would cause the representations and
warranties contained in Article 5 to be untrue or incorrect;
---------
(n) not make any loan to any Person or increase the aggregate amount
of any loan currently outstanding to any Person, except for usual and customary
advances to employees made in the ordinary course of business;
(o) not enter into any license or other strategic agreement; and
26
<PAGE>
(p) not make any agreement or commitment which will result in or cause
to occur a violation of any of the items contained in paragraphs (a) through
(o).
8.2 Adverse Changes in Condition. Each Party agrees to give written
----------------------------
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it, or (ii) would cause or constitute a
breach of any of its representations, warranties, or covenants contained herein,
and to use its reasonable efforts to prevent or promptly to remedy the same.
ARTICLE 9
ADDITIONAL AGREEMENTS
---------------------
9.1 Shareholder Approval. DMK shall cause a Shareholders' vote to be
--------------------
taken by unanimous written consent as soon as practicable for the purpose of
approving this Agreement and voting upon the Merger, including the Escrow
Agreement and the election of the Indemnitor Representative as representative of
the shareholders for purposes of this Agreement and the Escrow Agreement, and
such other related matters as it deems appropriate (the "Shareholders' Vote").
------------------
In connection with the Shareholders' Vote, (i) WebMD shall prepare a Private
Placement Memorandum and mail such Private Placement Memorandum to DMK's
Shareholders as soon as practicable, and (ii) the Parties shall furnish to each
other all information concerning them that the other may reasonably request in
connection with such Private Placement Memorandum. Unless this Agreement is
terminated in accordance with its terms, the Board of Directors of DMK shall
recommend to its shareholders the approval of this Agreement, and unless this
Agreement is terminated in accordance with its terms, the Board of Directors and
officers of DMK shall use their reasonable efforts to obtain such shareholders'
approval.
9.2 Applications. WebMD shall promptly prepare and file, and DMK shall
------------
cooperate in the preparation and, where appropriate, filing of, applications
with any Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement.
9.3 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, DMK and Merger Corp. shall execute and file the
Articles of Merger with the Secretary of State of the State of California in
connection with the Closing. Prior to the Effective Time, WebMD shall file with
the Secretary of State of the State of Georgia articles of amendment to its
Articles of Incorporation designating the WebMD Series B Preferred Stock and
setting forth the relative rights, privileges and preferences with respect
thereto (the "Designation"). In the event that WebMD raises proceeds of at
-----------
least $4,000,000 without a Dilutive Financing in accordance with Section 3.2,
-----------
the Designation shall be substantially in the form of, and with terms no less
favorable than, Exhibit 9.3(a) attached hereto; otherwise the Designation shall
--------------
be substantially in the form of, and with terms no less favorable than, Exhibit
-------
9.3(b) attached hereto. The Designation shall authorize at least 1,750,000 and
- ------
up to 3,400,000 shares of Series B Preferred Stock. Between the date hereof and
the Closing Date, without the prior consent of DMK, WebMD shall not file
designations for a series or class of capital stock which has preferences senior
to the Series B Preferred Stock.
9.4 Agreement as to Efforts to Consummate. Subject to the terms and
-------------------------------------
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including using its reasonable best efforts to lift or rescind
any Order adversely affecting its legal ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 10 of this Agreement; provided, that nothing herein shall preclude
- ----------
either Party from exercising its rights under this Agreement. Each Party shall
27
<PAGE>
use, and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
9.5 Investigation and Confidentiality.
---------------------------------
(a) Prior to the Effective Time, each Party shall keep the other
Party advised of all Material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it by
the other Party concerning its and its Subsidiaries' businesses, operations, and
financial positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
9.6 Press Releases. Prior to the Effective Time, DMK and WebMD shall
--------------
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 9.6
-----------
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
9.7 No Shop. Except with respect to this Agreement and the transactions
-------
contemplated hereby, neither DMK nor any of its Affiliates, nor any
Representatives thereof shall directly or indirectly solicit or respond (except
as permitted by the next sentence) to any Acquisition Proposal by any Person.
Except to the extent necessary to comply with the fiduciary duties of DMK's
Board of Directors as advised by counsel, none of DMK or any Affiliate or
Representative thereof shall furnish any non-public information, negotiate with
respect to, or enter into any Contract with respect to, any Acquisition
Proposal, but DMK may communicate information about such an Acquisition Proposal
to its shareholders if and to the extent that it is required to do so in order
to comply with its fiduciary obligations as advised by counsel. DMK shall
promptly notify WebMD orally and in writing in the event that it receives any
inquiry or proposal relating to any such transaction. DMK shall (i) immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Persons conducted heretofore with respect to any of the
foregoing, and (ii) direct and use its reasonable best efforts to cause all of
its Representatives not to engage in any of the foregoing.
9.8 Accounting and Tax Treatment. Each of the Parties undertakes and
----------------------------
agrees to use its reasonable efforts to cause the Merger, and to take no action
which would cause the Merger not, to qualify as a "reorganization" within the
--------------
meaning of Section 368(a) of the Internal Revenue Code for federal income tax
purposes.
9.9 Employee Benefits. Following the Effective Time, WebMD shall
-----------------
provide generally to officers and employees of DMK employee benefits under
employee benefit plans on terms and conditions which when taken as a whole are
substantially similar to those currently provided by WebMD and its Subsidiaries
to their similarly situated officers and employees.
9.10 Voting Agreement. Each Shareholder severally agrees with, and
----------------
covenants to, WebMD that at any meeting of Shareholders of DMK, or at any
adjournment thereof, or in any other circumstances upon which a vote, consent,
or other approval is sought, the Shareholder shall vote (or cause to be voted)
the Shareholder's shares of DMK Capital Stock (a) in favor of the Merger and the
approval of the terms thereof and each of the other transactions contemplated by
this Agreement, (b) against any action or
28
<PAGE>
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of DMK or such
Shareholder under this Agreement and the related documents; and (c) against any
action which is intended to impede or prevent the Merger and the transactions
contemplated by this Agreement. Shareholder, as a holder of DMK Capital Stock,
shall be present in person or by proxy at all meetings of Shareholders of DMK so
that all shares of DMK Capital Stock are counted for purposes of determining the
presence of a quorum at such meetings.
9.11 Accredited Investor Questionnaire and Shareholder Representation
----------------------------------------------------------------
Agreement. DMK shall use its reasonable efforts to cause each Shareholder to
- ---------- ---
promptly execute and deliver to WebMD an Accredited Investor Questionnaire and
Shareholder Representation Agreement in the form of Exhibit 9.11, respectively,
------------
hereto.
9.12 Termination of Agreements. DMK and each Shareholder agrees that,
-------------------------
as of the Effective Time, any agreement relating to the DMK Capital Stock by and
among any of DMK and the Shareholders (except for the transactions contemplated
herein) shall be terminated without any further action or consent of any of DMK
or any Shareholder. DMK and each Shareholder hereby waive any and all rights or
claims arising out of any Shareholder's failure to observe the three day notice
requirements for a liquidation under Article III, Section D.2(c) of DMK's
Amended and Restated Articles of Incorporation.
9.13 Legend on Shares. The Shareholder acknowledges that all
----------------
certificates representing the shares delivered to Shareholder shall be stamped
or otherwise imprinted with a legend substantially in the following form
(together with any other legend required by state law), and that stop transfer
orders will be given to WebMD's transfer agent:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES ACTS OR
EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE."
9.14 Registration of Shares.
----------------------
(a) Following the Initial Public Offering, if WebMD proposes to
register any of its securities under the 1933 Act for sale by it for cash
(otherwise than in connection with the registration of securities issuable
pursuant to an employee stock option, stock purchase or similar plan or pursuant
to a merger, exchange offer or a transaction of the type specified in Rule
145(a) of the 1933 Act), WebMD shall give the Shareholders notice of such
proposed registration at least 15 days prior to the filing of a registration
statement. At the written request of a Shareholder delivered to WebMD within 10
days after delivery of the notice from WebMD, WebMD shall use its best efforts
to effect the registration ("Piggyback Registration") under the 1933 Act of the
----------------------
shares of WebMD Common Stock (the "Shares") held upon conversion of the WebMD
------
Series B Preferred Stock issued to such Shareholder pursuant hereto; provided
that WebMD may, without the consent of the Shareholders, withdraw such
registration statement prior to its becoming effective if WebMD has abandoned
its proposal to register its securities, and following the effectiveness of any
such registration statement, and upon notice to the Shareholders, may suspend
the rights of the Shareholders to make sales pursuant to such registration
statement if the Board of Directors of WebMD determines in good faith that it is
in the best interests of WebMD (i) not to disclose the existence of facts
surrounding any proposed or pending acquisition, disposition, strategic alliance
or financing transaction involving WebMD; or (ii) for any reasonable purpose
relating to the business of WebMD, to suspend the registration rights set forth
herein. The term "Initial Public Offering" means the offer and sale of shares of
-----------------------
WebMD Common Stock in a transaction underwritten by an investment banking firm
following the completion of which (i) such equity securities will be listed for
trading on any national securities exchange or (ii) there will be at least two
market makers who are making a market in such equity securities through the
Nasdaq National Market System.
29
<PAGE>
(b) In the event of the offer and sale of shares of WebMD Common
Stock held by Shareholders under the 1933 Act, WebMD shall, and hereby does,
indemnify and hold harmless each Shareholder, its directors, officers and
partners and each other Person, if any, who controls such Shareholder within the
meaning of Section 15 of the 1933 Act, against any losses, claims, damages or
liabilities, joint or several, to which the Shareholder or any such director or
officer or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
Material fact contained in any registration statement under which such shares
were registered under the 1933 Act, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
or any omission or alleged omission to state therein a Material fact required to
be stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and WebMD shall reimburse
the Shareholder, and each such director, officer, partner and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided that WebMD shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement in or omission or alleged omission from such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to WebMD through an instrument duly executed
by or on behalf of such Shareholder specifically stating that it is for use in
the preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of WebMD, or any such
director, officer, partner or controlling person and shall survive the transfer
of such shares by the Shareholder.
(c) WebMD may require, as a condition to including any shares of
WebMD Common Stock to be offered by a Shareholder in any registration statement
filed pursuant to this Section 9.14, that WebMD shall have received an agreement
------------
from such Shareholder to be bound by the terms of this Section 9.14, including
------------
an undertaking reasonably satisfactory to it from such Shareholder, to indemnify
and hold WebMD, its directors and officers and each other Person, if any, who
controls WebMD within the meaning of Section 15 of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which WebMD or any
such director or officer or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
in or omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contain therein,
or any amendment or supplement thereto, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity with
written information about such Shareholder as a shareholder of WebMD furnished
to WebMD through an instrument duly executed by such Shareholder specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that such indemnity agreement found in this
Section 9.14(c) shall in no event exceed the gross proceeds from the offering
- ---------------
received by such Shareholder. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or on behalf of WebMD or any
such director, officer or controlling person and shall survive the transfer by
any Shareholder of such shares.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 9.14(b) or (c) (including any governmental action), such indemnified
- ----------------------
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under Section
-------
9.14(b) or (c), except to the extent that the indemnifying party is actually
- --------------
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist or the indemnified party may have defenses not available to
the indemnifying party in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party and, after notice
30
<PAGE>
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. Neither an indemnified nor an indemnifying party shall be liable
for any settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) The indemnification required by Section 9.14(b) and (c) shall be
-----------------------
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(f) If the indemnification provided for in this Section 9.14 is held
------------
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense as is
appropriate to reflect the relative benefits received by the indemnified party
on the one hand, and the indemnifying party on the other from the offering of
the WebMD Common Stock, as well as other relevant equitable considerations.
(g) Notwithstanding anything to the contrary contained herein, no
Shareholder shall have rights to a registration under Section 9.14(a) after the
---------------
time that such Shareholder could sell his shares of WebMD Common Stock pursuant
to Rule 144(k) without regard to the volume limitations of Rule 144 under the
1933 Act or any successor rules thereto.
(h) WebMD shall pay, all expenses in connection with any
registration, including, without limitation, all registration, filing and NASD
fees, all fees and expenses of complying with securities or blue sky laws, the
fees and disbursements of one counsel for the Shareholders and the fees and
disbursements of counsel for WebMD and of its independent accountants; provided
that, in any registration, each party shall pay for its own underwriting
discounts and commissions and transfer taxes.
(i) The Shareholders may not assign their rights under this Section
-------
9.14 to anyone without the prior written consent of WebMD, which shall not be
- ----
unreasonably withheld, and any attempted transfer in violation of this Section
-------
9.14(i) shall be null and void; provided, however, the Shareholders may assign
- -------
their rights under this Section 9.14 without such prior written consent to a
------------
transferee or assignee that is a subsidiary, parent, partner, limited partner,
retired partner or shareholder of a Shareholder.
(j) Notwithstanding any other provision of this Section 9.14, in an
------------
underwritten offering, if the underwriters advise WebMD in writing that in their
opinion the number of securities requested to be included in the registration
exceeds the number which can be sold in the offering, then the number of Shares
that may be included in the registration and underwriting shall be allocated
first to WebMD and then to all selling shareholders, including the Shareholders,
who have requested to sell in the registration on a pro rata basis according to
the number of shares requested to be included; provided, however, that in no
event shall the total amount of shares of securities included in the offering by
HBO & Company of Georgia, Sirrom Capital Corporation, Premiere Technologies,
Inc., and Matria Healthcare, Inc. pursuant to a piggyback registration be less
than the number of securities included in the offering by any other single
selling shareholder pursuant to piggyback registration rights unless all shares
of securities of HBO & Company of Georgia, Sirrom Capital Corporation, Premiere
Technologies, Inc., and Matria Healthcare, Inc. are included in such offering,
unless such shareholders of WebMD waive such limitation or such shareholders of
WebMD choose not to sell any shares in such registration.
(k) If requested by WebMD or an underwriter of securities of WebMD
within one year after the Effective Date, the Shareholders shall not sell or
otherwise transfer or dispose of any shares of WebMD Capital Stock, other than
shares sold by the Shareholders pursuant to an effective registration statement,
during a period of the earlier of (i) ninety (90) days following the effective
date of a registration
31
<PAGE>
statement of WebMD filed under the 1933 Act or (ii) the period ending on the day
such Shareholder could sell his shares of WebMD Common Stock pursuant to Rule
144 under the 1933 Act or any successor rule thereto. Such agreement shall be in
writing in form satisfactory to WebMD and such underwriter. WebMD may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said period.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
10.1 Conditions to Obligations of Each Party. The respective
---------------------------------------
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
-------
13.6 of this Agreement:
- ----
(a) Shareholder Approval. The shareholders of DMK shall have
--------------------
approved this including the Merger, as and to the extent required by Law and by
the provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and
--------------------
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Merger shall have been obtained or made and shall be in
full force and effect. No Consent so obtained which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of WebMD or
DMK would so materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement so as to render inadvisable the
consummation of the Merger.
(c) Consents and Approvals. Each Party shall have obtained any and
----------------------
all Consents required for consummation of the Merger or for the preventing of
any Default under any Contract or Permit of such Party which, if not obtained or
made, is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on such Party. No Consent so obtained which is necessary to
consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner which in the reasonable judgment of the Board of
Directors of WebMD or DMK would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement so as to
render inadvisable the consummation of the Merger.
(d) Legal Proceedings. No court or governmental or regulatory
-----------------
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
10.2 Conditions to Obligations of WebMD and Merger Corp. The
---------------------------------------------------
obligations of WebMD and Merger Corp. to perform this Agreement and consummate
the Merger and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by WebMD pursuant to
Section 13.6(a) of this Agreement:
- ---------------
(a) Representations and Warranties. The representations and
------------------------------
warranties of DMK and the Shareholders set forth or referred to in this
Agreement shall be true and correct in all Material respects (except for those
which are qualified as to materiality shall be true and correct in all respects)
as of the date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties which are
confined to a specified date shall speak only as of such date).
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of DMK and the Shareholders to be performed and
complied with pursuant to
32
<PAGE>
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with.
(c) Certificates. DMK shall have delivered to WebMD (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
obligations of DMK set forth in Section 10.2(a) and 10.2(b) of this Agreement
--------------- -------
have been satisfied, and (ii) certified copies of resolutions duly adopted by
DMK's Board of Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as WebMD and its counsel shall request.
(d) Opinion of Counsel. WebMD shall have received an opinion of
------------------
Cooley Godward LLP, counsel to DMK, dated as of the Closing, in form reasonably
satisfactory to WebMD, as to the matters set forth in Exhibit 10.2(d).
---------------
(e) Tax Opinion. WebMD shall have received the opinion of Alston &
-----------
Bird LLP to the effect that the Merger will constitute a tax-free reorganization
within the meaning of 368(a) of the Internal Revenue Code, which opinion shall
be in form and substance reasonably satisfactory to WebMD. In connection with
delivering such opinion, WebMD, DMK and the Shareholders shall have made such
representations to Alston & Bird LLP as are customary in connection therewith.
(f) Delivery of Documents. DMK shall have delivered all of its
---------------------
books and records to WebMD including, but not limited to, (i) all corporate and
other records of DMK and their respective predecessors, including the minute
books, stock books, stock transfer registers, books of account, leases and
Contracts, deeds and title documents, and Financial Statements; and (ii) such
other documents or certificates as shall be reasonably requested by WebMD.
(g) Resignation of DMK Directors. On or prior to the Closing Date,
----------------------------
DMK shall have delivered to WebMD evidence satisfactory to WebMD of the
resignation of the directors of DMK effective as of the Closing Date.
(h) Employment Agreements. The Employment Agreements attached
---------------------
hereto as Exhibits 10.2(i)(1)-10.2(i)(2) shall have been executed by the
------------------------------
employees named therein and delivered to WebMD.
(i) Option Agreements. The Option Agreements attached hereto as
-----------------
Exhibits 10.2(j)(1)-10.2(j)(2) shall have been executed by the employees named
- ------------------------------
therein and delivered to WebMD.
(j) Escrow Agreement. The Escrow Agreement shall have been executed
and delivered by a national bank as escrow agent in substantially the form of
Exhibit 4.3 hereto, with any changes thereto from the form of Exhibit 4.3 being
-----------
only such changes which relate specifically to the Escrow Agent and which
changes are reasonably acceptable to WebMD.
(k) No Material Adverse Change. There shall not have been any
--------------------------
Material adverse change in the business, assets, Liabilities, financial
condition, or results of operations of DMK , taken as a whole, between the date
hereof and the Closing Date, and DMK shall have delivered to WebMD a
certificate, dated as of the Closing Date, signed by its chief executive officer
and chief financial officer certifying to such effect.
(l) Accredited Investor Questionnaire and Shareholder Representation
----------------------------------------------------------------
Agreements. Each Shareholder of DMK who has not provided to WebMD an Accredited
- ----------
Investor Questionnaire in the form previously provided to DMK certifying that
such Shareholder is an "Accredited Investor" as defined in Rule 501(a) under the
-------------------
1933 Act shall have either (i) appointed a "Purchaser Representative" as set
------------------------
forth under Rule 501(h) and 506(b)(2)(ii) under the 1933 Act, or (ii) delivered
to WebMD a Shareholder Representation Agreement certifying as to the
sophistication of the investor and
33
<PAGE>
other reasonably related matters set forth therein. As of the Effective Time,
DMK shall have no shareholders who are non-accredited investors under Rule
501(a) and (e) under the 1933 Act (in the event of non-receipt of an Accredited
Investor Questionnaire, such holder shall be deemed to be a non-accredited
investor).
(m) Redemption of Shareholders. Each of Anne Brewer, Winslow
--------------------------
Colwell, Livia DiMare, Lisa Lee and Kim Wallace, holding an aggregate of no more
than 21,233 shares of DMK Common Stock shall have entered into a share purchase
agreement in form and substance satisfactory to WebMD evidencing such holder's
agreement to, prior to the Effective Time, sell to DMK any DMK Capital Stock
held by such holder at a per share price equal to the no less than the Common
Stock Exchange Ratio multiplied by Series B Price. There shall be no holders of
DMK Capital Stock who shall have elected to seek their statutory dissenters'
rights.
(n) Note Purchase. At the Effective Time, Eucalyptus, Ltd. shall
-------------
have tendered to WebMD those two (2) Convertible Promissory Notes, each dated
December 29, 1998 and issued by DMK to Eucalyptus, Ltd. in the amount of
$250,000 (for a total of $500,000) in exchange for 25,000 shares of WebMD Series
B Preferred Stock pursuant to the terms of a note purchase agreement containing
terms and conditions satisfactory to WebMD.
(o) Shareholders. Each of Eucalyptus, Ltd., H&Q Direct Medical
------------
Knowledge Investors, LP, HealthMagic, Inc., P. Ryan Phelan, Daniel Hillis and
Kemp Battle shall be made parties to this Agreement as Shareholders.
(p) Agreements. As of Closing, (i) DMK and each employee or
----------
consultant not currently a party to a confidentiality and invention assignment
agreement shall have entered into such an agreement in form and substance
satisfactory to WebMD, and (ii) DMK shall have terminated the tuition
reimbursement program for its employees and obtained the consent of any employee
participating in such plan (if any) to such termination.
(q) There shall be issued and outstanding as of the Effective Time
no more than (i) 268,165 shares of DMK Series A Preferred Stock and (ii) 365,853
shares of DMK Series B Preferred Stock.
(r) Each officer and director of DMK shall have executed and
delivered a Conditional Release, in the form of Exhibit 10.2(r) to this
---------------
Agreement, to be effective as of the Effective Time.
10.3 Conditions to Obligations of DMK. The obligations of DMK and the
--------------------------------
Shareholders to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by DMK and a majority in interest of the
Shareholders pursuant to Section 13.6(b) of this Agreement:
---------------
(a) Representations and Warranties. The representations and
------------------------------
warranties of WebMD and Merger Corp. set forth or referred to in this Agreement
shall be true and correct in all Material respects (except those which are
qualified as to materiality shall be true and correct in all respects) as of the
date of this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are confined
to a specified date shall speak only as of such date).
(b) Performance of Agreements and Covenants. Each and all of the
---------------------------------------
agreements and covenants of WebMD to be performed and complied with pursuant to
this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with.
34
<PAGE>
(c) Certificates. Each of WebMD and Merger Corp. shall have
------------
delivered to DMK (i) a certificate, dated as of the Effective Time and signed on
its behalf by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in Section 10.3(a)
---------------
and 10.3(b) of this Agreement have been satisfied, and (ii) certified copies of
-------
resolutions duly adopted by WebMD's Board of Directors and Merger Corp.'s Board
of Directors and sole shareholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as DMK and its counsel shall request.
(d) Opinion of Counsel. DMK and the Shareholders shall have
------------------
received an opinion of Alston & Bird LLP, counsel to WebMD, dated as of the
Effective Time, in form reasonably acceptable to DMK, as to the matters set
forth in Exhibit 10.3(d).
---------------
(e) Employment Agreements. The Employment Agreements attached
---------------------
hereto as Exhibits 10.2(i)(1)-10.2(i)(2) shall have been executed by WebMD and
------------------------------
delivered to the employees named therein.
(f) Option Agreements. The Option Agreements attached hereto as
-----------------
Exhibits 10.2(j)(1)-10.2(j)(2) shall have been executed by WebMD and delivered
- ------------------------------
to the employees named therein.
(g) Articles of Amendment. At or prior to the Effective Time, WebMD
---------------------
shall have filed with the Secretary of State of the State of Georgia articles of
amendment to its Articles of Incorporation designating the Series B Preferred
Stock and setting forth the relative rights, privileges and preferences with
respect thereto, all in accordance with Section 9.3 hereof, and WebMD shall have
-----------
delivered to DMK a certified copy of such filed amendment.
(h) Escrow Agreement. The Escrow Agreement shall have been executed
----------------
and delivered by a national bank as escrow agent in substantially the form of
Exhibit 4.3 hereto, with any changes thereto from the form of Exhibit 4.3 being
- ----------- -----------
only such changes which relate specifically to the Escrow Agent and which
changes are reasonably acceptable to WebMD.
(i) No Material Adverse Change. There shall not have been any
--------------------------
Material adverse change in the business, assets, Liabilities, financial
condition, or results of operations of WebMD and its Subsidiaries, taken as a
whole, between the date hereof and the Closing Date, and WebMD shall have
delivered to DMK a certificate, dated as of the Closing Date, signed by its
chief executive officer and chief financial officer certifying to such effect.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 Definitions. For purposes of this Article 11:
----------- ----------
(a) "Indemnification Claim" shall mean a claim for indemnification
---------------------
hereunder.
(b) "Indemnitees" shall mean WebMD and DMK and their respective
-----------
agents, representatives, employees, officers, directors, shareholders,
controlling persons, subsidiaries and affiliates.
(c) "Indemnitor Representative" shall mean Kemp Battle.
-------------------------
(d) "Indemnitors" shall mean the Shareholders.
-----------
35
<PAGE>
(e) "Losses" shall mean any and all demands, claims, actions or
------
causes of action, assessments, losses, diminution in value, damages (including
special and consequential damages), liabilities, costs and expenses, including,
without limitation, interest, penalties, cost of investigation and defense and
reasonable attorneys' and other professional fees and expenses.
(f) "Third Party Claim" shall mean any claim, suit or proceeding
-----------------
(including, without limitation, a binding arbitration or audit by any taxing
authority) that is instituted against an Indemnitee by a person or entity other
than an Indemnitor and which, if prosecuted successfully, would result in a Loss
for which such Indemnitee is entitled to indemnification hereunder.
(g) "Value Per Share" shall mean $20.00 as adjusted as appropriate
---------------
to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected by WebMD between the
Effective Time and the date such liability is satisfied.
11.2 Agreement of Indemnitors to Indemnify. Subject to the terms and
-------------------------------------
conditions of this Article 11, (a) Indemnitors jointly and severally agree to
----------
indemnify and hold harmless Indemnitees, and each of them, from, against, for
and in respect of any and all Losses asserted against, or paid, suffered or
incurred by, an Indemnitee by reason of, based upon, or arising out of the
inaccuracy, untruth, incompleteness or breach of any representation, warranty,
covenant or agreement contained in or made pursuant to this Agreement by DMK or
in any certificate, schedule or exhibit published or delivered by DMK in
connection herewith and (b) each Shareholder severally, and not jointly, agrees
to indemnify and hold harmless Indemnitees, and each of them, from, against, for
and in respect of any and all Losses asserted against, or paid, suffered or
incurred by, an Indemnitee by reason of, based upon, or arising out of the
inaccuracy, untruth, incompleteness or breach of any representation, warranty,
covenant or agreement contained in or made pursuant to this Agreement by such
Shareholder or in any certificate, schedule or exhibit published or delivered by
such Shareholder in connection herewith.
11.3 Procedures for Indemnification.
------------------------------
(a) An Indemnification Claim shall be made by an Indemnitee against
the Indemnitors by delivery of a written notice to the Indemnitor Representative
requesting indemnification and specifying the basis on which indemnification is
sought and, in the case of a Third Party Claim, containing (by attachment or
otherwise) such other information as such Indemnitee shall have concerning such
Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 11.4 hereof shall be observed by the Indemnitee
------------
and the Indemnitors.
(c) If the Indemnification Claim involves a matter other than a
Third Party Claim, the Indemnitor Representative shall have thirty (30) days
following receipt of the notice of an Indemnification Claim to object to such
Indemnification Claim by delivery of a written notice of objection to the
Indemnitee specifying in reasonable detail the basis for such objection. Failure
to timely so object shall constitute a final and binding acceptance of the
Indemnification Claim by the Indemnitors, and the Indemnification Claim shall be
paid in accordance with subsection (d) hereof. If any objection is timely
interposed by the Indemnitor Representative and the dispute is not resolved by
the Indemnitee and the Indemnitor Representative within fifteen (15) days from
the date the Indemnitee receives such objection, such dispute shall be resolved
by arbitration as provided in Article 11.10 of this Agreement.
-------------
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between the Indemnitor Representative and the Indemnitee or
by an arbitration award or by any other final adjudication, the Indemnitor
Representative and WebMD shall cause the Escrow Agent to deliver to WebMD, and
WebMD shall cancel and retire, that number of shares of Common Stock as equals
the amount of the Indemnification Claim divided by the Value Per Share. The
obligations of indemnity under this Article 11 shall be satisfied solely and
----------
exclusively by means of delivery of the WebMD Series B Preferred held in escrow.
36
<PAGE>
11.4 Third Party Claims. The obligations and liabilities of the
------------------
parties hereunder with respect to a Third Party Claim shall be subject to the
following terms and conditions:
(a) The Indemnitee shall give the Indemnitor Representative written
notice of a Third Party Claim promptly after receipt by the Indemnitee of notice
thereof. The failure of the Indemnitee to notify the Indemnitor Representative
of such claim shall not relieve the Indemnitors of any liability that they may
have with respect to such claim except to the extent the Indemnitor
Representative demonstrates that the defense of such claim is prejudiced by such
failure. The assumption of the defense, compromise and settlement of any such
Third Party Claim by the Indemnitor Representative shall be an acknowledgment of
the obligation of the Indemnitors to indemnify the Indemnitee with respect to
such claim hereunder. If the Indemnitee desires to participate in, but not
control, any such defense, compromise and settlement, it may do so at its sole
cost and expense. If, however, the Indemnitor Representative fails or refuses to
undertake the defense of such Third Party Claim within ten (10) days after
written notice of such claim has been given to the Indemnitor Representative by
the Indemnitee, the Indemnitee shall undertake the defense, compromise and
settlement of such claim with counsel of its own choosing. In the circumstances
described in the preceding sentence, the Indemnitee shall, promptly upon its
assumption of the defense of such claim, make an Indemnification Claim as
specified in Section 11.3 which shall be deemed an Indemnification Claim that
------------
is not a Third Party Claim for the purposes of the procedures set forth herein.
(b) If, in the reasonable opinion of the Indemnitee, any Third Party
Claim or the litigation or resolution thereof involves an issue or matter which
could have a Material Adverse Effect on the business, operations, assets,
properties or prospects of the Indemnitee (including, without limitation, the
administration of the tax returns and responsibilities under the tax laws of the
Indemnitee), the Indemnitee shall have the right to control the defense,
compromise and settlement of such Third Party Claim undertaken by the Indemnitor
Representative, and the costs and expenses of the Indemnitee in connection
therewith shall be included as part of the Indemnification Claim. If the
Indemnitee shall elect to exercise such right, the Indemnitor Representative
shall have the right to participate in, but not control, the defense, compromise
and settlement of such Third Party Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of the Indemnitors under this Article 11 shall be made without the
----------
prior written consent by or on behalf of the Indemnitor Representative, which
consent shall not be unreasonably withheld or delayed. Consent shall be presumed
in the case of settlements of $20,000 or less where the Indemnitor
Representative has not responded within fifteen business days of notice of a
proposed settlement. If the Indemnitor Representative assumes the defense of
such a Third Party Claim, (a) no compromise or settlement thereof may be
effected by the Indemnitor Representative without the Indemnitee's consent
(which shall not be unreasonably withheld) unless (i) there is no finding or
admission of any violation of law or any violation of the rights of any person
and no effect on any other claim that may be made against the Indemnitee, (ii)
the sole relief provided is monetary damages that are paid in full by the
Indemnitors, and (iii) the compromise or settlement includes, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnitee of a release, in form and substance satisfactory to the Indemnitee,
from all liability in respect of such Third Party Claim, and (b) the Indemnitee
shall have no liability with respect to any compromise or settlement thereof
effected without its consent.
(d) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties to this Agreement shall execute such powers of
attorney as may reasonably be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may reasonably be related to any
such claim or action, shall provide reasonable access to the counsel,
accountants and other representatives of each party during normal business hours
to all properties, personnel, books, tax records, contracts, commitments and all
other business records of such other party and will furnish to such other party
copies of all such documents as may reasonably be requested (certified, if
requested).
11.5 Indemnification by Indemnitors Exclusive Remedy. If the Closing
-----------------------------------------------
occurs, except for remedies based upon fraud and except for equitable remedies
(including temporary restraining orders,
37
<PAGE>
injunctive relief and specific performance), the remedies provided in this
Article 11 and in the Escrow Agreement constitute the sole and exclusive
- ----------
remedies for recovery against the Indemnitors based upon the inaccuracy,
untruth, incompleteness or breach of any representation or warranty of any
Indemnitor contained herein or in any certificate, Schedule or Exhibit furnished
by any Indemnitor in connection herewith, or based upon the failure of DMK or
any Indemnitor to perform any covenant, agreement or undertaking required by the
terms hereof to be performed by DMK or such Indemnitor.
11.6 Preservation of Rights of the Shareholders. Except as set forth in
------------------------------------------
Section 11.7 hereof, the parties agree and acknowledge that notwithstanding any
- ------------
terms of this Agreement, the Shareholders shall have full rights and remedies at
law or in equity or otherwise based upon the inaccuracy, untruth, incompleteness
or breach of any representation or warranty of WebMD or Merger Corp. contained
herein or in any certificate, Schedule or Exhibit furnished by either such party
in connection herewith, or based upon the failure of WebMD or Merger Corp. to
perform any covenant, agreement or undertaking required by the terms hereof to
be performed by such party.
11.7 Survival. All representations, warranties and agreements contained
--------
in this Agreement or in any certificate delivered pursuant to this Agreement
shall survive the Closing notwithstanding any investigation conducted with
respect thereto. The representations, warranties, covenants and agreements
contained in or made pursuant to this Agreement by WebMD and Merger Sub shall
survive for a period of fifteen months after the Effective Time and no claims
based upon or arising out of the inaccuracy, untruth, incompleteness or breach
of such representations, warranties, covenants or agreements may be made after
such time, and provided that in no event shall any claim made before the
expiration of fifteen (15) months after the Effective Time be barred as a result
of the expiration of any representation, warranty, covenant or agreement. The
representations, warranties, covenants and agreements contained in or made
pursuant to this Agreement by DMK and the Shareholders shall survive for a
period of fifteen months after the Effective Time and no claims based upon or
arising out of the inaccuracy, untruth, incompleteness or breach of such
representations, warranties, covenants or agreements may be made after such
time; provided that the representations set forth in Section 6.1 shall continue
-----------
to survive and in no event shall any claim made before the expiration of fifteen
(15) months after the Effective Time be barred as a result of the expiration of
any representation, warranty, covenant or agreement.
11.8 Limitations.
-----------
(a) The Indemnitors will have no liability to the Indemnitees under
or in connection with a breach of any of the representations, warranties,
covenants or agreements made or to be performed by the Indemnitors contained in
this Agreement unless written notice asserting an Indemnification Claim based
thereon is given to the Indemnitor Representative prior to the date that is
fifteen months following the Effective Time.
(b) The Shareholders shall not be required to make any
indemnification payment for any inaccuracy in or breach of any of their
representations, warranties, covenants and agreements until such time as the
total amount of all Losses (including the Losses arising from such inaccuracy or
breach and all other Losses arising from any other inaccuracies in or breaches
of any representations, warranties, covenants or agreements) that have been
directly or indirectly suffered or incurred by the Indemnitees, or to which the
Indemnitees have otherwise become subject, exceeds $100,000 in the aggregate
(the "Threshold Amount"). If the total amount of such Losses exceeds the
----------------
Threshold Amount, then the Indemnitees shall be entitled to be indemnified
against and compensated and reimbursed only for those Losses exceeding the
Threshold Amount.
(c) The maximum liability of the Shareholders under Section 11.2
------------
shall be equal to the aggregate Value Per Share of all WebMD Series B Preferred
Stock held by the Escrow Agent pursuant to the Escrow Agreement (the "Escrow
------
Amount") and the maximum liability of each Shareholder under Section 11.2 shall
- ------
be equal to the Escrow Amount multiplied by a fraction, the numerator of which
is the shares of DMK Common Stock held by such Shareholder at the Closing Date
and the denominator of which is all shares of DMK Common Stock outstanding at
the Closing Date. Except as set forth in
38
<PAGE>
Section 11.5, the sole remedy of the Indemnitees against the Shareholders under
- ------------
this Article 11 shall be the Escrow Amount.
----------
11.9 Tax Effect and Insurance. The liability of the Indemnitors with
------------------------
respect to any Indemnification Claim shall be reduced by the tax benefit
actually realized and any insurance proceeds received by the Indemnitees as a
result of any Losses upon which such Indemnification Claim is based, and shall
include any tax detriment actually suffered by the Indemnitees as a result of
such Losses. The amount of any such tax benefit or detriment shall be
determined by taking into account the effect, if any and to the extent
determinable, of timing differences resulting from the acceleration or deferral
of items of gain or loss resulting from such Losses. Any dispute as to the
amount of such tax benefit or detriment shall be resolved by arbitration as
provided in Section 11.11 of this Agreement.
-------------
11.10 Appointment of Indemnitor Representative.
----------------------------------------
(a) Each Indemnitor constitutes and appoints the Indemnitor
Representative as his or her true and lawful attorney-in-fact to act for and on
behalf of such Indemnitor in all matters relating to or arising out of this
Article 11 and the liability or asserted liability of such Indemnitor under
- ----------
Article 11 hereof and the Escrow Agreement, including specifically, but without
- ----------
limitation, accepting and agreeing to the liability of such Indemnitor with
respect to any Indemnification Claim, objecting to any Indemnification Claim,
disputing the liability of such Indemnitor, or the amount of such liability,
with respect to any Indemnification Claim and prosecuting and resolving such
dispute as herein provided, accepting the defense, compromise and settlement of
any Third Party Claim on behalf of such Indemnitor or refusing to accept the
same, settling and compromising the liability of such Indemnitor hereunder,
instituting and prosecuting such actions (including arbitration proceedings) as
the Indemnitor Representative shall deem appropriate in connection with any of
the foregoing, retaining counsel, accountants, appraisers and other advisers in
connection with any of the foregoing, all for the account of the Indemnitor,
such Indemnitor agreeing to be fully bound by the acts, decisions and agreements
of the Indemnitor representative taken and done pursuant to the authority herein
granted. Each Indemnitor hereby agrees to indemnify and to save and hold
harmless the Indemnitor Representative from any liability incurred by the
Indemnitor Representative based upon or arising out of any act, whether of
omission or commission, of the Indemnitor Representative pursuant to the
authority herein granted, other than acts, whether of omission or commission, of
the Indemnitor Representative that constitute gross negligence or willful
misconduct in the exercise by the Indemnitor Representative of the authority
herein granted.
(b) The Indemnitor Representative shall have full power and
authority to represent the Indemnitors and their successors with respect to all
matters arising under Article 11 hereof and the Escrow Agreement, and all action
----------
taken by the Indemnitor Representative hereunder shall be binding upon such
Indemnitors and their successors as if expressly ratified and confirmed in
writing by each of them. Without limiting the generality of the foregoing, the
Indemnitor Representative shall have full power and authority, on behalf of all
the Indemnitors and their successors, to interpret all the terms and provisions
of this Agreement, to dispute or fail to dispute any claim of Indemnifiable Loss
against the Escrow Shares made by an Indemnitee, to negotiate and compromise any
dispute which may arise under this Agreement, to sign any releases or other
documents with respect to any such dispute, and to authorize payments to be made
with respect thereto. All determinations of the Indemnitor Representative shall
be decided by holders of a majority in interest of the Escrow Shares.
(c) The Indemnitor Representative, or any successor hereafter
appointed, may resign and shall be discharged of his duties hereunder upon the
appointment of a successor Indemnitor Representative as hereinafter provided. In
case of such resignation, or in the event of the death or inability to act of
the Indemnitor Representative, a successor shall be named from among the
Indemnitors by a majority of the members of the Board of Directors of DMK who
served on such board prior to the Merger. Each such successor Indemnitor
Representative shall have all the power, authority, rights and privileges hereby
conferred upon the original Indemnitor Representative, and the term "Indemnitor
----------
Representative" as used herein shall be deemed to include such successor
- --------------
Indemnitor Representative.
39
<PAGE>
(d) In performing any of his duties under this Agreement, or upon
the claimed failure to perform his duties hereunder, the Indemnitor
Representative shall not be liable to the Indemnitors or anyone else for any
damages, losses or expenses which they may incur as a result of any act, or
failure to act under this Agreement; provided, however, that the Indemnitor
Representative shall be liable for damages arising out of actions or omissions
that both (i) were taken or omitted not in good faith and (ii) constituted
willful default or gross negligence under this Agreement. Accordingly, the
Indemnitor Representative shall not incur any such liability with respect to (i)
any action taken or omitted to be taken in good faith upon advice of his counsel
given with respect to any questions relating to the duties and responsibilities
of the Indemnitor Representative hereunder; or (ii) any action taken or omitted
to be taken in reliance upon any document, including any written notice or
instructions provided for in this Agreement, not only as to its due execution
and to the validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which the Indemnitor
Representative shall in good faith believe to be genuine, to have been signed or
presented by the purported proper person or persons and to conform with the
provisions of this Agreement. The limitation of liability provisions of this
Section 11.10 shall survive the termination of this Agreement and the
- -------------
resignation of the Indemnitor Representative.
(e) Each Indemnitor hereby irrevocably grants to, and appoints the
Indemnitor Representative the Indemnitor's proxy to vote the Indemnitor's Escrow
Shares at any meeting of Shareholders of WebMD, or at any adjournment thereof or
in any other circumstances upon which a vote, consent or other approval is
sought.
(f) The Shareholders shall be obligated to pay any expenses of the
Indemnitor Representative on a pro rata basis in accordance with their
respective Percentage Interests (as defined in the Escrow Agreement).
11.11 Arbitration. All disputes arising under this Article 11 (other
----------- ----------
than claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Indemnitor Representative and Indemnitee in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be held in such place in Atlanta, Georgia as may be specified
by the arbitrator (or any place agreed to by the Indemnitor Representative,
Indemnitee and the arbitrator). The decision of the arbitrator shall be final
and binding as to any matters submitted under this Article 11; provided,
----------
however, if necessary, such decision and satisfaction procedure may be enforced
by either the Indemnitor Representative or Indemnitee in any court of record
having jurisdiction over the subject matter or over any of the parties to this
Agreement. All costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys fees) shall be borne by
the party against which the decision is rendered, or, if no decision is
rendered, such costs and expenses shall be borne equally by the Indemnitors as
one party and the Indemnitees as the other party. If the arbitrator's decision
is a compromise, the determination of which party or parties bears the costs and
expenses incurred in connection with any such arbitration proceeding shall be
made by the arbitrator on the basis of the arbitrator's assessment of the
relative merits of the parties' positions.
ARTICLE 12
TERMINATION
-----------
12.1 Termination. Notwithstanding any other provision of this
-----------
Agreement, and notwithstanding the approval of this Agreement by the
Shareholders, this Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of WebMD and the
Board of Directors of DMK; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant, or other agreement contained
40
<PAGE>
in this Agreement) in the event of a breach by the other Party of any
representation, warranty, covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach and which breach is reasonably
likely, in the reasonable opinion of the non-breaching Party, to have,
individually or in the aggregate, a Material Adverse Effect on the breaching
Party; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
any Consent of any Regulatory Authority required for consummation of the Merger
and the other transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such authority
is not appealed within the time limit for appeal; or
(d) By the Board of Directors of either Party in the event that the
Merger shall not have been consummated by January 31, 1999, if the failure to
consummate the transactions contemplated hereby on or before such date is not
caused by any breach of this Agreement by the Party electing to terminate
pursuant to this Section 12.1(d); or
---------------
(e) By the Board of Directors of either Party (provided that the
terminating Party is not then in Material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such Party to
consummate the Merger cannot be satisfied or fulfilled by the date specified in
Section 12.1(d) of this Agreement.
- ---------------
12.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 12.1 of this Agreement, this
------------
Agreement shall become void and have no effect, except that (i) the provisions
of this Section 12.2 and Article 13 and Section 9.5(b) of this Agreement shall
------------ ---------- --------------
survive any such termination and abandonment, and (ii) a termination pursuant to
Sections 12.1(b), or 12.1(e) of this Agreement shall not relieve a breaching
- ---------------- -------
Party from Liability for an uncured willful breach of a representation,
warranty, covenant, or agreement giving rise to such termination.
ARTICLE 13
MISCELLANEOUS
-------------
13.1 Definitions.
-----------
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"Acquisition Proposal" with respect to a Party shall mean any
--------------------
tender offer or exchange offer or any proposal for a merger, acquisition of all
of the stock or assets of, or other business combination involving such Party or
any of its Subsidiaries or the acquisition of a substantial equity interest in,
or a substantial portion of the assets of, such Party or any of its
Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
---------
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including
---------
the Exhibits delivered pursuant hereto and incorporated herein by reference.
41
<PAGE>
"Articles of Merger" shall mean the Articles of Merger to be
------------------
executed by Merger Corp. and DMK and filed with the Secretary of State of the
State of California and the Secretary of State of the State of Georgia relating
to the Merger as contemplated by Section 1.1 of this Agreement.
-----------
"Assets" of a Person shall mean all of the assets, properties,
------
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued or
contingent, or otherwise relating to or utilized in such Person's business,
directly or indirectly, in whole or in part, whether or not carried on the books
and records of such Person, and whether or not owned in the name of such Person
or any Affiliate of such Person and wherever located.
"Audit Release Date" shall mean the date of the audit opinion
------------------
rendered by Ernst & Young LLP with respect to the consolidated financial
statements of WebMD as of December 31, 1998.
"Business Day" shall mean every day other than Saturday or Sunday
------------
or a day on which national banks in New York, New York are closed.
"CCC" shall mean the California Corporation Code.
---
"Closing Date" shall mean the date on which the Closing occurs.
------------
"Consent" shall mean any consent, approval, authorization, clearance,
-------
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
--------
authorization, commitment, contract, indenture, instrument, lease, obligation,
plan, practice, restriction, understanding or undertaking of any kind or
character, or other document to which any Person is a party or that is binding
on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default
-------
under any Contract, Order or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the giving
of notice would give rise to a right to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.
"DMK Capital Stock" shall mean the DMK Common Stock, DMK Series A
-----------------
Preferred Stock and DMK Series B Preferred Stock.
"DMK Series A Preferred Stock" shall mean the no par value Series A
----------------------------
Convertible Preferred Stock of DMK.
"DMK Series B Preferred Stock" shall mean the no par value Series B
----------------------------
Convertible Preferred Stock of DMK.
"DMK Common Stock" shall mean the DMK common stock, no par value
----------------
per share.
"DMK Stock Plan" shall mean the existing stock option plan of DMK
--------------
designated as the Direct Medical Knowledge, Inc. 1997 Stock Option/Stock
Issuance Plan.
"Environmental Laws" shall mean all Laws relating to pollution or
------------------
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata) and which are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the environment,
including the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation
------
and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws
----
relating to
42
<PAGE>
emissions, discharges, releases or threatened releases of any Hazardous
Substance, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any Hazardous
Substance.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exhibits" shall mean the Exhibits so marked, copies of which are
--------
attached to this Agreement. Such Exhibits are hereby incorporated by reference
herein and made a part hereof, and may be referred to in this Agreement and any
other related instrument or document without being attached hereto.
"Exchange Ratios" shall mean the Common Stock Exchange Ratio, the
---------------
Series A Preferred Stock Exchange Ratios and the Series B Preferred Stock
Exchange Ratio.
"Funded Debt" shall mean any outstanding indebtedness for borrowed
-----------
money (including leases required to be capitalized under GAAP) of such party or
its Subsidiaries, but excluding trade payables.
"GAAP" shall mean generally accepted accounting principles used in
----
the United States, consistently applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
----
"Hazardous Material" shall mean (i) any hazardous substance,
------------------
hazardous Material, hazardous waste, regulated substance or toxic substance (as
those terms are defined by any applicable Environmental Laws) and (ii) any
chemicals, pollutants, contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement, removal or
encapsulation pursuant to the requirements of Regulatory Authorities and any
polychlorinated biphenyls).
"Intellectual Property" shall mean the copyrights, patents,
---------------------
trademarks, service marks, service names, tradenames, applications therefor,
technology rights and licenses, computer software (including, without
limitation, any source or object codes therefor or documentation relating
thereto), trade secrets, franchises, know-how, inventions and intellectual
property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code of
---------------------
1986, asamended, and the rules and regulations promulgated thereunder.
"IRS" shall mean the Internal Revenue Service.
---
"Law" shall mean any code, law, ordinance, regulation, reporting or
---
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including those promulgated, interpreted or enforced by
any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
---------
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
----
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable and (ii) Liens which are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on a Party.
43
<PAGE>
"Litigation" shall mean any action, arbitration, cause of action,
----------
claim, complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting a Party, its
business, its Assets (including Contracts related to it), or the transactions
contemplated by this Agreement.
"Material" for purposes of this Agreement shall be determined in
--------
light of the facts and circumstances of the matter in question; provided that
any specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"Material Adverse Effect" on a Party shall mean an event, change or
-----------------------
occurrence which, individually or together with any other event, change or
occurrence, has a Material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries, taken as
a whole, or (ii) the ability of such Party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that Material Adverse Effect shall not be deemed to
include the impact of (x) changes in Laws of general applicability or
interpretations thereof by courts or governmental authorities, (y) changes in
GAAP, and (z) the Merger and compliance with the provisions of this Agreement on
the operating performance of the Parties.
"Merger Corp. Common Stock" shall mean the $0.01 par value common
-------------------------
stock of Merger Corp.
"1933 Act" shall mean the Securities Act of 1933, as amended.
--------
"1934 Act" shall mean the Securities Exchange Act of 1934, as
--------
amended.
"Order" shall mean any administrative decision or award, decree,
-----
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Party" shall mean either DMK, Merger Corp., WebMD or the
-----
Shareholders, and "Parties" shall mean all of DMK, Merger Corp., WebMD and the
-------
Shareholders.
"Permit" shall mean any federal, state, local, and foreign
------
governmental approval, authorization, certificate, easement, filing, franchise,
license, notice, permit, or right to which any Person is a party or that is or
may be binding upon or inure to the benefit of any Person or its securities,
Assets or business.
"Person" shall mean a natural person or any legal, commercial or
------
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Regulatory Authorities" shall mean, collectively, all federal and
----------------------
state regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, including the NASD, and the SEC.
"Representative" shall mean any investment banker, financial advisor,
--------------
attorney, accountant, consultant, or other representative of a Person.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
---------------
Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940,
as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
44
<PAGE>
"Shareholder Closing Documents" shall mean this Agreement, the Escrow
-----------------------------
Agreement, the Stockholder's Agreement, the Employment Agreements, the Option
Agreements and any other agreements or documents and instruments to be executed
and delivered by the Shareholders pursuant to this Agreement.
"Subsidiaries" shall mean all those corporations, partnerships,
------------
associations, or other entities of which the entity in question owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent; provided, there
shall not be included any such entity acquired through foreclosure or any such
entity the equity securities of which are owned or controlled in a fiduciary
capacity.
"Surviving Corporation" shall mean Merger Corp. as the surviving
---------------------
corporation resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
--- -----
foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise, occupancy, and other taxes, assessments,
charges, fares, or impositions, including interest, penalties, and additions
imposed thereon or with respect thereto.
"Undisclosed Liabilities" shall mean any liability or obligation of
-----------------------
a Party to this Agreement, whether accrued, liquidated, unliquidated, absolute,
contingent, matured, unmatured or otherwise, as of the Closing Date, that is not
fully reflected or reserved against in their respective financial statements or
fully disclosed in a Schedule.
"WebMD Common Stock" shall mean the no par value common stock of
------------------
WebMD.
"WebMD Series B Preferred Stock" shall mean the no par value Series B
------------------------------
Convertible Preferred Stock of WebMD to be issued in the Merger.
(b) In addition to the terms defined in Section 12.1(a) above, the
---------------
terms set forth below shall have the meanings ascribed thereto in the referenced
sections:
Benefit Plans - Section 5.20
Capital Expenditures - Section 5.15(c)
Closing - Section 1.2
Closing Date - Section 1.2
Common Stock Exchange Ratio - Section 3.1(b)
Designation - Section 9.3
DMK - Preamble
DMK Equity Rights - Section 5.3
Effective Time - Section 1.3
Environmental Litigation - Section 5.16
ERISA Plan - Section 5.20
Escrow Agreement - Section 4.3
Escrow Amount - Section 11.7(c)
Escrow Shares - Section 4.3
Exchange Agent - Section 4.1
FASB 5 - Section 5.17
Financial Statements - Section 5.4
Indemnitor Representative - Preamble
Merger - Section 1.1
Merger Corp. - Preamble
Multiemployer Plan - Section 5.20(a)
Options - Section 3.5
Piggyback Registration - Section 9.14(a)
Series B Price - Section 3.2
45
<PAGE>
Shareholders - Preamble
Software - 5.14
Third Part Acquisition Event - Section 13.2
Threshold Amount - Section 11.8(b)
WebMD - Preamble
WebMD Financial Statements - Section 7.5(a).
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
-------
"includes" or "including" are used in this Agreement, they shall be deemed
- --------- ---------
followed by the words "without limitation."
------------------
13.2 Expenses.
--------
(a) Each party shall bear and pay all direct costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial or other
consultants, investment bankers, accountants, and counsel. Notwithstanding the
foregoing, WebMD agrees and acknowledges that all reasonable costs and expenses
incurred by DMK in connection with this Agreement and the transactions
contemplated hereby shall be assumed and paid by WebMD upon consummation of the
Merger; provided, however, that the aggregate amount of all such costs and
expenses shall not exceed $250,000, and any expenses in excess thereof shall be
a Loss under Section 11.1.
------------
(b) Notwithstanding the foregoing Section 13.2(a),
---------------
(i) if this Agreement is terminated by WebMD pursuant to any of
--------
Sections 12.1(b), 12.1(c), 12.1(d) or 12.1(e) (except for any termination
- ---------------------------------------------
pursuant to Section 12.1(d) or (e) by WebMD if the basis for such termination
----------------------
is the failure of DMK to obtain all Consents of third parties required to
consummate the transactions contemplated hereby); or
(ii) if the Merger is not consummated as a result of the failure
of DMK to satisfy any of the conditions set forth in Section 10.1(a) or Section
--------------- -------
10.2 (other than the failure to obtain all Consents of third parties required to
- ----
consummate the transactions contemplated hereby), and within one (1) year after
the effective date of such termination DMK is the subject of a Third Party
Acquisition Event with any Person (other than a Party hereto), then at the time
of consummation of such Third Party Acquisition Event, DMK shall promptly pay to
WebMD $600,000, which amount represents the Parties' best estimate of the value
of management time, overhead, opportunity costs and other unallocated costs of
WebMD incurred by or on behalf of WebMD in connection with the transactions
contemplated by this Agreement which cannot be calculated with certainty, plus
all reasonable out of pocket costs and expenses of WebMD, including costs of
counsel, investment bankers, actuaries and accountants up to but not exceeding
an additional $400,000. As used herein, the term "Third Party Acquisition
-----------------------
Event" shall mean either of the following: (i) DMK shall enter into an
- -----
agreement with respect to or be the subject of an Acquisition Proposal, or
(ii) any Person (other than a party hereto) shall have acquired beneficial
ownership (as such term is defined in Rule 13d-3 under the 1934 Act) or the
right to acquire beneficial ownership of, or a new group has been formed which
beneficially owns or has the right to acquire beneficial ownership of, DMK
Capital Stock representing 50% or more of the combined voting power of DMK.
13.3 Brokers and Finders. Each of the Parties represents and warrants
-------------------
that neither it nor any of its officers, directors, employees, or Affiliates has
employed any broker or finder or incurred any Liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions contemplated
hereby. In the event of a claim by any broker or finder based upon his or its
representing or being retained by or allegedly representing or being retained by
DMK or WebMD, each of DMK and WebMD, as the case may be, agrees to indemnify and
hold the other Party harmless of and from any Liability in respect of any such
claim.
46
<PAGE>
13.4 Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
13.5 Amendments. To the extent permitted by Law, this Agreement may be
----------
amended by a subsequent writing signed by WebMD, Merger Corp. and DMK upon the
approval of the Boards of Directors of each and the holders of a majority in
interest of the stock of the Shareholders, whether before or after shareholder
approval of this Agreement has been obtained; provided, that after any such
approval by the holders of DMK Common Stock, there shall be made no amendment
that pursuant to the CCC requires further approval by such shareholders without
the further approval of such shareholders.
13.6 Waivers.
-------
(a) Prior to or at the Effective Time, WebMD, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by DMK, to waive or extend the time for the compliance or fulfillment
by DMK of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of WebMD under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of WebMD.
(b) Prior to or at the Effective Time, DMK, acting through its Board
of Directors, chief executive officer or other authorized officer, shall have
the right to waive any Default in the performance of any term of this Agreement
by WebMD or Merger Corp., to waive or extend the time for the compliance or
fulfillment by WebMD or Merger Corp. of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of DMK or the Shareholders under this Agreement, except any
condition which, if not satisfied, would result in the violation of any Law. No
such waiver shall be effective unless in writing signed by a duly authorized
officer of DMK.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or breach of any other term of this Agreement.
13.8 Assignment. Except as expressly contemplated hereby, neither this
----------
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
13.9 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
47
<PAGE>
DMK: Direct Medical Knowledge, Inc.
The Presidio Building 1009
P.O. Box 29920
San Francisco, California 94129-0920
Telecopy Number: (415) 561-7501
Attention: Ralph Clark
Copy to Counsel: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3500
Telecopy Number: (415) 951-3699
Attention: Jeffrey Zimman
WebMD: WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, Georgia 30326
Telecopy Number: (404) 479-7603
Attention: Mr. Michael Heekin
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Telecopy Number: (404) 881-4777
Attention: J. Vaughan Curtis, Esq.
13.10 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws.
13.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13.12 Captions. The captions contained in this Agreement are for
--------
reference purposes only and are not part of this Agreement.
13.13 Interpretations. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
13.14 Enforcement of Agreement. The Parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
13.15 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in
48
<PAGE>
any other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
[Signatures on next page.]
49
<PAGE>
EXECUTION COPY
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: WEBMD, INC.
/s/ W. Michael Heekin By: /s/ Jay P. Gilbertson
- ----------------------- ------------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: SHN MERGER CORP.
/s/ W. Michael Heekin By: /s/ Jay P. Gilbertson
- ----------------------- ------------------------------
Secretary President
[CORPORATE SEAL]
ATTEST: DIRECT MEDICAL KNOWLEDGE, INC.
/s/ P. Ryan Phelan By: /s/ Ralph Clark
- ----------------------- ------------------------------
Secretary President
[CORPORATE SEAL]
<PAGE>
EXECUTION COPY
SHAREHOLDERS
Eucalyptus, Ltd.
By: /s/ Le Ngoc Saulnier
---------------------------------------
Name: Le Ngoc Saulnier
----------------------------------
Title: Attorney-in-Fact
---------------------------------
H&Q Direct Medical Knowledge Investors, LP
By: /s/ Jackie Berterretche
---------------------------------------
Name: Jackie Berterretche
----------------------------------
Title: Attorney-in-Fact
---------------------------------
HealthMagic, Inc.
By: /s/
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Indemnitor Representative
/s/ Kemp Battle
- ------------------------------------------
Kemp Battle
51
<PAGE>
EXECUTION COPY
/s/ P. Ryan Phelan
- ------------------------------------------
P. Ryan Phelan
/s/ Daniel Hillis
- ------------------------------------------
Daniel Hillis
/s/ Kemp Battle
- ------------------------------------------
Kemp Battle
52
<PAGE>
EXECUTION COPY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER............................................ 1
1.1 Merger...................................................................... 1
------
1.2 Time and Place of Closing................................................... 1
-------------------------
1.3 Effective Time.............................................................. 1
--------------
ARTICLE 2 TERMS OF MERGER............................................................. 2
2.1 Charter..................................................................... 2
-------
2.2 Bylaws...................................................................... 2
------
2.3 Directors and Officers...................................................... 2
----------------------
2.4 Tax-Free Reorganization..................................................... 2
-----------------------
ARTICLE 3 MANNER OF CONVERTING SHARES................................................. 2
3.1 Conversion of Shares........................................................ 2
--------------------
3.2 Anti-Dilution Provisions.................................................... 3
------------------------
3.3 Shares Held by DMK.......................................................... 3
------------------
3.4 Dissenting Shareholders..................................................... 3
-----------------------
3.5 Fractional Shares........................................................... 4
-----------------
3.6 Conversion of DMK Options................................................... 4
-------------------------
3.7 DMK Warrants................................................................ 5
------------
ARTICLE 4 EXCHANGE OF SHARES.......................................................... 5
4.1 Exchange Procedures......................................................... 5
-------------------
4.2 Rights of Former DMK Shareholders........................................... 6
---------------------------------
4.3 Escrow Shares............................................................... 6
-------------
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF DMK....................................... 6
5.1 Organization, Standing, and Power........................................... 6
---------------------------------
5.2 Authorization of Agreement; No Breach....................................... 6
-------------------------------------
5.3 Capital Stock............................................................... 7
-------------
5.4 DMK Subsidiaries............................................................ 7
----------------
5.5 Financial Statements........................................................ 7
--------------------
5.6 Absence of Undisclosed Liabilities.......................................... 7
----------------------------------
5.7 Absence of Changes.......................................................... 8
------------------
5.8 Indebtedness................................................................ 9
------------
5.9 Tax Matters................................................................. 9
-----------
5.10 Real Property............................................................... 10
-------------
5.11 Personal Property........................................................... 10
-----------------
5.12 Intellectual Property....................................................... 11
---------------------
5.13 Accounts Receivable......................................................... 11
-------------------
5.14 The Software................................................................ 12
------------
5.15 Insurance................................................................... 12
---------
5.16 Compliance with Laws........................................................ 13
--------------------
5.17 Environmental Matters....................................................... 13
---------------------
5.18 Litigation and Claims....................................................... 14
---------------------
5.19 Contracts and Commitments................................................... 14
-------------------------
5.20 Powers of Attorney.......................................................... 15
------------------
5.21 Benefit Plans............................................................... 15
-------------
5.22 Remuneration................................................................ 16
------------
5.23 Union and Employment Agreements............................................. 16
-------------------------------
5.24 Interested Transactions..................................................... 16
-----------------------
5.25 Brokers and Finders......................................................... 17
-------------------
5.26 Statements True and Correct................................................. 17
---------------------------
5.27 Bank Accounts............................................................... 17
-------------
5.28 Accounting and Tax Matters.................................................. 17
--------------------------
5.29 State Takeover Laws......................................................... 17
-------------------
5.30 Authority of Shareholders; No Breach by Agreement........................... 17
-------------------------------------------------
5.31 Schedules................................................................... 18
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.......................... 18
6.1 Ownership of Shares......................................................... 18
-------------------
6.2 Authority of Shareholder; No Breach By Agreement............................ 18
------------------------------------------------
6.3 Absence of Conflicting Agreements or Required Consents...................... 18
------------------------------------------------------
6.4 Legal Proceedings........................................................... 19
-----------------
6.5 Investment Intention; Access to Information................................. 19
-------------------------------------------
6.6 Tax and Regulatory Matters.................................................. 20
--------------------------
6.7 Intellectual Property....................................................... 20
---------------------
6.7 Interested Transactions..................................................... 20
-----------------------
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF WEBMD AND MERGER CORP..................... 20
7.1 Organization, Standing, and Power........................................... 20
---------------------------------
7.2 Authorization of Agreement; No Breach....................................... 20
-------------------------------------
7.3 Capital Stock............................................................... 21
-------------
7.4 WebMD Subsidiaries.......................................................... 21
------------------
7.5 Financial Statements........................................................ 22
--------------------
7.6 Absence of Undisclosed Liabilities.......................................... 22
----------------------------------
7.7 Absence of Certain Changes or Events........................................ 22
------------------------------------
7.8 Legal Proceedings........................................................... 22
-----------------
7.9 Brokers and Finders......................................................... 22
-------------------
7.10 Statements True and Correct................................................. 22
---------------------------
7.11 Authority of Merger Corp.................................................... 23
------------------------
7.12 Accounting and Tax Matters.................................................. 23
--------------------------
7.13 Insurance................................................................... 23
---------
7.14 Compliance with Laws........................................................ 23
--------------------
7.15 Tax Matters................................................................. 24
-----------
7.16 Intellectual Property....................................................... 24
---------------------
7.17 Schedules................................................................... 25
---------
ARTICLE 8 CONDUCT OF BUSINESS PENDING CONSUMMATION.................................... 25
8.1 Conduct of DMK Business..................................................... 25
-----------------------
8.2 Adverse Changes in Condition................................................ 27
----------------------------
ARTICLE 9 ADDITIONAL AGREEMENTS....................................................... 27
9.1 Shareholder Approval........................................................ 27
--------------------
9.2 Applications................................................................ 27
------------
9.3 Filings with State Offices.................................................. 27
--------------------------
9.4 Agreement as to Efforts to Consummate....................................... 27
-------------------------------------
9.5 Investigation and Confidentiality........................................... 28
---------------------------------
9.6 Press Releases.............................................................. 28
--------------
9.7 No Shop..................................................................... 28
-------
9.8 Accounting and Tax Treatment................................................ 28
----------------------------
9.9 Employee Benefits........................................................... 28
-----------------
9.10 Voting Agreement............................................................ 28
----------------
9.11 Accredited Investor Questionnaire and Shareholder Representation Agreement.. 29
--------------------------------------------------------------------------
9.12 Termination of Agreements................................................... 29
-------------------------
9.13 Legend on Shares............................................................ 29
----------------
9.14 Registration of Shares...................................................... 29
----------------------
ARTICLE 10 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........................... 32
10.1 Conditions to Obligations of Each Party..................................... 32
---------------------------------------
10.2 Conditions to Obligations of WebMD and Merger Corp.......................... 32
--------------------------------------------------
10.3 Conditions to Obligations of DMK............................................ 34
--------------------------------
ARTICLE 11 INDEMNIFICATION............................................................. 35
11.1 Definitions................................................................. 35
-----------
11.2 Agreement of Indemnitors to Indemnify....................................... 36
-------------------------------------
11.3 Procedures for Indemnification.............................................. 36
------------------------------
11.4 Third Party Claims.......................................................... 37
------------------
11.5 Indemnification by Indemnitors Exclusive Remedy............................. 37
-----------------------------------------------
11.6 Preservation of Rights of the Shareholders.................................. 38
------------------------------------------
11.7 Survival.................................................................... 38
--------
11.8 Limitations................................................................. 38
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
11.9 Tax Effect and Insurance.................................................... 39
------------------------
11.10 Appointment of Indemnitor Representative.................................... 39
----------------------------------------
11.11 Arbitration................................................................. 40
-----------
ARTICLE 12 TERMINATION................................................................. 40
12.1 Termination................................................................. 40
-----------
12.2 Effect of Termination....................................................... 41
---------------------
ARTICLE 13 MISCELLANEOUS............................................................... 41
13.1 Definitions................................................................. 41
-----------
13.2 Expenses.................................................................... 46
--------
13.3 Brokers and Finders......................................................... 46
-------------------
13.4 Entire Agreement............................................................ 47
----------------
13.5 Amendments.................................................................. 47
----------
13.6 Waivers..................................................................... 47
-------
13.7 Assignment.................................................................. 47
----------
13.8 Notices..................................................................... 47
-------
13.9 Governing Law............................................................... 47
-------------
13.10 Counterparts................................................................ 48
------------
13.11 Captions.................................................................... 48
--------
13.12 Interpretations............................................................. 48
---------------
13.13 Enforcement of Agreement.................................................... 48
------------------------
13.14 Enforcement of Agreement.................................................... 48
------------------------
13.15 Severability................................................................ 48
------------
</TABLE>
<PAGE>
EXHIBIT 2.5
-----------
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------
THIS AMENDMENT to Agreement AND PLAN OF MERGER (this "Amendment") is made
as of the ____ day of January, 1999, by and among WebMD, Inc., a corporation
organized and existing under the laws of the State of Georgia (the "WebMD"),
Direct Medical Knowledge, Inc., a corporation organized and existing under the
laws of the State of California ("DMK"), SHN Merger Corp., a corporation
organized and existing under the laws of the State of California ("Merger
Corp.") and the holders of the DMK's capital stock signatory hereto
(individually, a "Shareholder"; collectively the "Shareholders"), and amends
that certain Agreement and Plan of Merger (the "Merger Agreement"), dated as of
January 12, 1999, by and among WebMD, DMK, Merger Corp. the Shareholders, and
Kemp Battle ("Indemnitor Representative").
Background
----------
A. The parties to this Amendment entered into the Merger Agreement,
pursuant to which WebMD acquired DMK pursuant to the merger (the "Merger") of
DMK with and into Merger Corp.
B. The parties wish to amend the Merger Agreement for the purpose of,
among other things, providing for the continued indemnification of the officers,
directors and employees of DMK in respect of acts or omissions occurring on or
prior to the Effective Time.
C. All terms not otherwise defined herein shall have the meaning given
them in the Merger Agreement.
Agreement
---------
In consideration of the mutual promises and covenants herein and in the
Shareholders Agreement, the parties hereby agree as follows:
Section 1. Amendment to Article 9. Article 9 of the Merger Agreement is
---------------------- ---------
hereby amended by adding the following provisions to the end thereof:
9.15 Indemnification of DMK Officers and Directors.
---------------------------------------------
(a) For a period of six (6) years following the Effective Time, WebMD
and the Surviving Corporation jointly and severally shall indemnify, defend
and hold harmless each person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, an
officer, director or employee of DMK in respect of acts or omissions
occurring on or prior to the Effective Time to the extent provided under
DMK's Articles of Incorporation, Bylaws and indemnification agreements (if
any) in effect on the date hereof; provided that such indemnification shall
be subject to any limitation imposed from time to time under applicable
law.
<PAGE>
(b) If WebMD or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates or merges into any other person or
entity and shall not be the continuing or surviving person of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in each such case,
the obligations set forth in this Section 9.15 shall be binding upon such
successors and assigns of WebMD or the Surviving Corporation."
Section 2. Amendment to Section 9.12. Section 9.12 of the Merger
-------------------------
Agreement is hereby amended by deleting the last sentence thereof in its
entirety.
Section 3. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of Georgia, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 4. Multiple Counterparts. This Amendment may be executed as one
---------------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute the same instrument.
IN WITNESS WHEREOF, the parties hereby have executed and caused this
Amendment to be duly executed all as of the day and year first above written.
ATTEST: WEBMD, INC.
/s/ W. Michael Heekin By: /s/ K. Robert Draughon
- --------------------- -----------------------
Secretary Chief Financial Officer
[CORPORATE SEAL]
ATTEST: SHN MERGER CORP.
/s/ K. Robert Draughon By: /s/ W. Michael Heekin
- ---------------------- ----------------------
Assistant Secretary Vice President
[CORPORATE SEAL]
ATTEST: DIRECT MEDICAL KNOWLEDGE, INC.
/s/ P. Ryan Phelan By: /s/ Ralph Clark
- ------------------ ---------------
Secretary President
[CORPORATE SEAL]
2
<PAGE>
SHAREHOLDERS
Eucalyptus, Ltd.
By: /s/ Le Ngoc Saulnier
-----------------------
Name: Le Ngoc Saulnier
Title: Attorney-in-fact
H&Q Direct Medical Knowledge Investors, LP
By: /s/ Rupen Dolasia
-----------------------
Name: Rupen Dolasia
Title: Principal
HealthMagic, Inc.
By: /s/
-----------------------
Name:
------------------
Title:
-----------------
- --------------------------
Indemnitor Representative
/s/ Kemp Battle
- ---------------
Kemp Battle
3
<PAGE>
/s/ P. Ryan Phelan
- ------------------
P. Ryan Phelan
/s/ Daniel Hillis
- -----------------
Daniel Hillis
/s/ Kemp Battle
- ---------------
Kemp Battle
4
<PAGE>
EXHIBIT 2.6
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
NATIONWIDE MEDICAL SERVICES, INC.
AND
WEBMD, INC.
Dated as of January 28, 1999
- --------------------------------------------------------------------------------
<PAGE>
EXHIBITS
EXHIBIT A Form of Warrant
EXHIBIT B Escrow Agreement
EXHIBIT C Amended and Restated Shareholders Agreement
EXHIBIT D Second Articles of Amendment to Amended and Restated Articles of
Incorporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. SALE AND TRANSFER............................................................................ 1
1.1. NATIONWIDE SHARES.................................................................................. 1
1.2. WEBMD SHARES AND WARRANTS.......................................................................... 1
1.3. ESCROW SHARES...................................................................................... 1
ARTICLE II. THE CLOSING.................................................................................. 2
2.1. TIME AND PLACE OF CLOSING.......................................................................... 2
2.2. DELIVERIES BY NATIONWIDE........................................................................... 2
2.3. DELIVERIES BY WEBMD................................................................................ 2
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF NATIONWIDE................................................ 3
3.1. ORGANIZATION, STANDING AND POWER................................................................... 3
3.2. AUTHORIZATION OF AGREEMENT; NO BREACH.............................................................. 3
3.3. CAPITAL............................................................................................ 4
3.4. NATIONWIDE SUBSIDIARIES............................................................................ 4
3.5. FINANCIAL STATEMENTS............................................................................... 5
3.6. ABSENCE OF UNDISCLOSED LIABILITIES................................................................. 5
3.7. ABSENCE OF CHANGES................................................................................. 5
3.8. INDEBTEDNESS....................................................................................... 7
3.9. TAX MATTERS........................................................................................ 7
3.10. REAL PROPERTY...................................................................................... 8
3.11. PERSONAL PROPERTY.................................................................................. 9
3.12. INTELLECTUAL PROPERTY.............................................................................. 9
3.13. ACCOUNTS RECEIVABLE................................................................................11
3.14. INSURANCE..........................................................................................11
3.15. COMPLIANCE WITH LAWS...............................................................................11
3.16. ENVIRONMENTAL MATTERS..............................................................................12
3.17. LITIGATION AND CLAIMS..............................................................................13
3.18. CONTRACTS AND COMMITMENTS..........................................................................13
3.19. POWERS OF ATTORNEY.................................................................................14
3.20. BENEFIT PLANS......................................................................................14
3.21. REMUNERATION.......................................................................................16
3.22. UNION AND EMPLOYMENT AGREEMENTS....................................................................16
3.23. INTERESTED TRANSACTIONS............................................................................16
3.24. BROKERS AND FINDERS................................................................................17
3.25. STATEMENTS TRUE AND CORRECT........................................................................17
3.26. SCHEDULES..........................................................................................17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF WEBMD......................................................18
4.1. ORGANIZATION, STANDING AND POWER...................................................................18
4.2. AUTHORIZATION OF AGREEMENT; NO BREACH..............................................................18
4.3. CAPITAL STOCK......................................................................................19
4.4. WEBMED SUBSIDIARIES................................................................................20
4.5. FINANCIAL STATEMENTS...............................................................................20
4.6. ABSENCE OF UNDISCLOSED LIABILITIES.................................................................20
4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS...............................................................21
4.8. TAX MATTERS........................................................................................21
4.9. INTELLECTUAL PROPERTY..............................................................................22
4.10. INSURANCE..........................................................................................23
4.11. COMPLIANCE WITH LAWS...............................................................................23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.12. LEGAL PROCEEDINGS...............................................................................24
4.13. BROKERS AND FINDERS.............................................................................24
4.14. STATEMENTS TRUE AND CORRECT.....................................................................24
4.15. SCHEDULES.......................................................................................24
ARTICLE V. INTENTIONALLY OMITTED......................................................................24
ARTICLE VI. COVENANTS OF NATIONWIDE...................................................................26
6.1. CERTIFICATE OF INCORPORATION AND BYLAWS.........................................................26
6.2. CORPORATE EXISTENCE AND RIGHTS..................................................................26
6.3. ACCESS AND INFORMATION BEFORE THE CLOSING.......................................................26
6.4. CURRENT INFORMATION.............................................................................27
6.5. CONSENTS........................................................................................27
6.6. CONFIDENTIALITY.................................................................................27
ARTICLE VII. COVENANTS OF WEBMD.......................................................................28
7.1. ARTICLES OF INCORPORATION AND BYLAWS............................................................28
7.2. CORPORATE EXISTENCE AND RIGHTS..................................................................28
7.3. ACCESS AND INFORMATION BEFORE THE CLOSING.......................................................29
7.4. CURRENT INFORMATION.............................................................................29
7.5. CONSENTS........................................................................................29
7.6. CONFIDENTIALITY.................................................................................30
ARTICLE VIII. CLOSING CONDITIONS......................................................................30
8.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE TRANSACTIONS CONTEMPLATED HEREBY...........30
8.2. CONDITIONS TO THE OBLIGATIONS OF NATIONWIDE TO EFFECT THE TRANSACTIONS CONTEMPLATED HEREBY......30
8.3. CONDITIONS TO THE OBLIGATIONS OF WEBMD TO EFFECT THE TRANSACTIONS CONTEMPLATED HEREBY...........31
ARTICLE IX. REGISTRATION RIGHTS.......................................................................32
9.1. PIGGY-BACK REGISTRATION.........................................................................32
9.2. INDEMNIFICATION.................................................................................32
9.3. CONDITIONS......................................................................................33
9.4. INDEMNIFICATION PROCEDURES......................................................................33
9.5. INDEMNIFICATION PAYMENTS........................................................................34
9.6. CONTRIBUTION....................................................................................34
9.7. RULE 144........................................................................................34
9.8. EXPENSES........................................................................................34
9.9. ASSIGNMENT......................................................................................35
9.10. UNDERWRITTEN OFFERING...........................................................................35
9.11. LOCK-UP AGREEMENT...............................................................................35
ARTICLE X. INDEMNIFICATION............................................................................35
10.1. DEFINITIONS.....................................................................................35
10.2. AGREEMENT OF INDEMNITOR TO INDEMNIFY............................................................36
10.3. PROCEDURES FOR INDEMNIFICATION..................................................................36
10.4. THIRD PARTY CLAIMS..............................................................................37
10.5. INDEMNIFICATION BY INDEMNITOR EXCLUSIVE REMEDY..................................................38
10.6. SURVIVAL........................................................................................39
10.7. LIMITATIONS.....................................................................................39
10.8. TAX EFFECT AND INSURANCE........................................................................39
10.9. ARBITRATION.....................................................................................39
ARTICLE XI. TERMINATION AND ABANDONMENT...............................................................40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
11.1. TERMINATION..........................................................................40
11.2. PROCEDURE AND EFFECT OF TERMINATION..................................................40
ARTICLE XII. MISCELLANEOUS PROVISIONS.......................................................41
12.1. COMMISSIONS..........................................................................41
12.2. FURTHER ASSURANCES...................................................................41
12.3. AMENDMENT AND MODIFICATION...........................................................41
12.4. WAIVER OF COMPLIANCE; CONSENTS.......................................................41
12.5. NOTICES..............................................................................42
12.6. ASSIGNMENT...........................................................................43
12.7. GOVERNING LAW........................................................................43
12.8. COUNTERPARTS.........................................................................43
12.9. INTERPRETATION.......................................................................43
12.10. ENTIRE AGREEMENT.....................................................................43
12.11. SEVERABILITY.........................................................................44
12.12. PRESS-RELEASES.......................................................................44
12.13. ARBITRATION..........................................................................44
12.14. DEFINITIONS..........................................................................44
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of January 28, 1999 (the
"Agreement"), is entered into by and between Nationwide Medical Services, Inc.,
a Virginia corporation ("Nationwide"), and WebMD, Inc., a Georgia corporation
("WebMD").
RECITALS:
WHEREAS, WebMD desires to purchase from Nationwide and Nationwide
desires to sell to WebMD, shares of the Series A Preferred Stock of Nationwide
(the "Nationwide Preferred Stock") in exchange for shares of Series D Common
Stock of WebMD (the "WebMD Series D Common Stock") and warrants to acquire
shares of WebMD Series D Common Stock, subject to the terms and conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I.
SALE AND TRANSFER
1.1. Nationwide Shares.
Upon the terms and subject to the conditions set forth in this
Agreement, on the Closing Date (as defined in Section 2.1 hereof), Nationwide
agrees to issue, sell and deliver to WebMD, and WebMD agrees to purchase and
accept from Nationwide, free and clear of all liens, liabilities, claims,
encumbrances, mortgages and security interests, 385,714 shares of the Nationwide
Preferred Stock (the "Nationwide Shares").
1.2. WebMD Shares and Warrants.
In consideration of and in exchange for the Nationwide Shares, WebMD
shall issue, sell and deliver to Nationwide (i) 100,000 shares of WebMD Series D
Common Stock (the "WebMD Shares"), free and clear of all liens, liabilities,
claims, encumbrances, mortgages and security interests, and (ii) warrants (the
"Warrants") to acquire up to an aggregate of 50,000 shares of WebMD Series D
Common Stock. The Warrants shall be substantially in the form of Exhibit A
attached hereto.
1.3. Escrow Shares.
At the Closing, WebMD shall issue a stock certificate to Nationwide
representing twenty percent (20%) of the aggregate number of WebMD Shares (the
"Escrow Shares"), which shall be held in escrow pursuant to the terms of the
Escrow Agreement attached hereto as Exhibit B (the "Escrow Agreement").
<PAGE>
ARTICLE II.
THE CLOSING
2.1. Time and Place of Closing.
Subject to satisfaction or, to the extent permissible by law, waiver
(by the party for whose benefit the closing condition is imposed) on the Closing
Date of the closing conditions described in Article VIII, and the provisions of
Article X hereof, the closing of the transactions contemplated by this Agreement
(the "Closing") will take place at the offices of Morris, Manning & Martin,
L.L.P., or at such other place as Nationwide and WebMD shall mutually agree, at
10:00 a.m., local time, on January 28, 1999, or such earlier date as all
conditions precedent to Closing have been fulfilled, or at such other time and
date as shall otherwise be mutually agreed upon by Nationwide and WebMD (the
"Closing Date").
2.2. Deliveries by Nationwide.
At the Closing, Nationwide will deliver to WebMD the following:
(a) Stock certificate evidencing all of the Nationwide Shares.
(b) The certificates, consents and other documents
contemplated by Section 8.3 hereof.
(c) The Amended and Restated Shareholders' Agreement, in the
form of Exhibit C hereof, executed on behalf of Nationwide and its shareholders
(the "Amended and Restated Shareholders' Agreement").
(d) Evidence of filing the Second Articles of Amendment to the
Amended and Restated Articles of Incorporation of Nationwide in the form
attached hereto as Exhibit D (the "Second Articles of Amendment") with the State
Corporation Commission of the State of Virginia.
(e) The Escrow Agreement, executed on behalf of Nationwide.
(f) All other documents, certificates, instruments and
writings expressly required hereunder to be delivered by Nationwide at or prior
to the Closing.
2.3. Deliveries By WebMD
At the Closing, WebMD will deliver to Nationwide and the Nationwide
Shareholders the following:
(a) Stock certificate representing the WebMD Shares other than
the Escrow Shares.
(b) The Warrants registered in the name of Nationwide.
2
<PAGE>
(c) The certificates, consents and other documents
contemplated by Section 8.2 hereof.
(d) The Amended and Restated Shareholders' Agreement, executed
by WebMD.
(e) All other documents, certificates, instruments and
writings expressly required hereunder to be delivered by WebMD at or prior to
the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF NATIONWIDE
Nationwide hereby represents and warrants to WebMD as follows:
3.1. Organization, Standing and Power.
Nationwide is a corporation duly organized, validly existing, and in
good standing under the Laws of the state of its incorporation, and has the
corporate power and authority to carry on its business as it has been and is now
being conducted and to own, lease and operate its properties. Except as set
forth on Schedule 3.1, Nationwide is duly qualified or licensed to transact
business as a foreign corporation and is in good standing in all jurisdictions
where the character of its properties or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, in the aggregate, a Material Adverse Effect on Nationwide. Copies of the
articles or certificate of incorporation and all amendments thereto of
Nationwide and the bylaws, as amended, of Nationwide and copies of the corporate
minutes (or resolutions adopted by the shareholders or Board of Directors) of
Nationwide, which have been made available to WebMD for review, are true and
complete, in all Material respects, as in effect on the date of this Agreement,
and accurately reflect all proceedings of the shareholders and Board of
Directors (and all committees thereof) of Nationwide. The stock record books of
Nationwide, which have been made available to WebMD for review, contain true and
complete records of the stock ownership of Nationwide and all prior transfers of
the shares of its capital stock.
3.2. Authorization of Agreement; No Breach.
The execution, delivery and performance of this Agreement has been duly
authorized by all necessary corporate action of Nationwide. This Agreement
constitutes, and all agreements and other instruments and documents to be
executed and delivered by Nationwide pursuant to this Agreement will constitute,
legal, valid and binding obligations of Nationwide enforceable against
Nationwide in accordance with their respective terms, except to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief or other equitable
remedies. The execution, delivery and performance of this Agreement and the
agreements and other documents and instruments to be executed and delivered by
Nationwide pursuant to this Agreement and the consummation of the transactions
contemplated hereby and thereby will not, subject to obtaining the consents
identified herein, (i) violate or
3
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result in a breach of or Default under the articles of incorporation or bylaws
of Nationwide or any other Material instrument or agreement to which Nationwide
is a party or is bound; (ii) to the knowledge of Nationwide, violate any Law,
administrative decision or award of any court, arbitrator, mediator, tribunal,
administrative agency or governmental body applicable to or binding upon
Nationwide or upon its property or business; (iii) except as set forth on
Schedule 3.2 or 3.16 conflict with or constitute a Default under any Material
Contract to which Nationwide is a party or by which Nationwide is bound; or (iv)
create a Material Lien upon the assets or business of Nationwide.
3.3. Capital.
Upon effectiveness of the Second Articles of Amendment, the authorized
capital stock of Nationwide shall consist of (i) 1,400,000 shares of Nationwide
Voting Common Stock, none of which are issued and outstanding as of the date of
this Agreement and none of which are issued and held as treasury shares, (i)
100,000 shares of Nationwide Non-Voting Common Stock, none of which are issued
and outstanding as of the date of this Agreement and none of which are issued
and held as treasury shares, and (iii) 1,500,000 shares of Nationwide Preferred
Stock, 900,000 of which are issued and outstanding as of the date of this
Agreement and none of which are issued and held as treasury shares. All of such
shares are duly and validly issued and outstanding, are fully paid and
non-assessable, and were issued pursuant to a valid exemption from registration
under the 1933 Act and all applicable state securities laws. Except as set forth
on Schedule 3.3, there are no outstanding warrants, options, rights (including
------------
outstanding rights to demand registration or to sell in connection with a
registration by Nationwide under the 1933 Act), calls or other commitments of
any nature relating to the Nationwide Capital Stock to which Nationwide is a
party, and there are no outstanding securities of Nationwide convertible into or
exchangeable for shares of Nationwide Capital Stock or any other capital stock
("Nationwide Equity Rights"). Nationwide has no knowledge of any voting
agreements or voting trusts between or among any Person or Persons relating to
Nationwide or the Nationwide Capital Stock. Except as set forth on Schedule 3.3
------------
and as provided in the Nationwide Stock Plans, Nationwide is not obligated to
issue or repurchase any shares of its capital stock for any purpose, and to the
knowledge of Nationwide no person or entity has entered into any Contract or
option or any right or privilege (whether preemptive or contractual) capable of
becoming a Contract or option for the purchase, subscription or issuance of any
unissued shares, or other securities of Nationwide. The Nationwide Shares to be
issued in accordance with the terms and provisions of this Agreement will, when
so issued, be duly authorized, validly issued, fully paid and non-assessable.
3.4. Nationwide Subsidiaries.
Schedule 3.4 attached hereto is a true and correct list of each
------------
Subsidiary of Nationwide. All of the outstanding shares of capital stock of each
such Subsidiary are duly and validly issued and outstanding, are fully paid and
non-assessable, and were issued pursuant to a valid exemption from registration
under the Securities Act of 1933, as amended, and all applicable state
securities laws, and are owned of record and beneficially by Nationwide, free
and clear of any and all Liens, except as set forth on Schedule 3.4. No shares
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of capital stock of any
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Subsidiary are reserved for issuance and there are no outstanding options,
warrants, rights, subscriptions, claims of any character, Contracts,
obligations, convertible or exchangeable securities or other commitments,
contingent or otherwise, relating to the capital stock of any Subsidiary,
pursuant to which any Subsidiary is or may become obligated to issue or exchange
any share of capital stock. Except as set forth on Schedule 3.4, neither
Nationwide nor any Subsidiary owns, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any corporation,
partnership, or other entity.
3.5. Financial Statements.
(a) Nationwide has furnished to WebMD: (a) unaudited balance
sheets of Nationwide as of December 31, 1997, and the unaudited statements of
operations and stockholders' equity of Nationwide for the year ended December
31, 1997 (collectively the " Year-End Financial Statements"), and (b) (i)
unaudited balance sheet of Nationwide as of September 30, 1998 and unaudited
statement of operations of Nationwide for the nine months ended September 30,
1998; and (ii) unaudited balance sheet of J&C Health Services, Inc., a Delaware
corporation and wholly-owned subsidiary of Nationwide ("J&C") as of September
30, 1998 and unaudited statement of operations of J&C for the nine months ended
September 30, 1998 (collectively, the "Interim Financial Statements"). The
Year-End Financial Statements and Interim Financial Statements are referred to
collectively as the "Financial Statements."
(b) The Financial Statements (i) are in accordance with the
books and records of Nationwide, which books and records have been maintained in
accordance with reasonable business practices; (ii) present fairly the financial
condition, assets and liabilities of Nationwide, as of the respective dates
indicated and the results of operations and cash flows for the respective
periods indicated; (iii) have been prepared in accordance with GAAP consistently
applied throughout the periods involved, except for the omission of notes and,
in the case of the Interim Financial Statements, subject to normal year end
adjustments of the type specifically listed in Schedule 3.5 which will not,
------------
individually or in the aggregate, be Material; and (iv) reflect adequate
reserves for all known Material Liabilities and reasonably anticipated losses
required to be recorded under GAAP.
3.6. Absence of Undisclosed Liabilities.
Except as disclosed on Schedule 3.6 and the Financial Statements, as of
the date hereof, Nationwide does not have any Undisclosed Liabilities, except
for unpaid liabilities and obligations incurred since September 30, 1998 (the
"Interim Financials Date"), in the ordinary course of business and not involving
Funded Debt and which are not, in the aggregate, Material.
3.7. Absence of Changes.
Except as disclosed on Schedule 3.7, since the Interim Financials Date
------------
there has not been any transaction or occurrence in which Nationwide has:
(a) issued or delivered or agreed to issue or deliver any
capital stock or other securities (whether stock, bonds, debentures or other
corporate securities) or granted or agreed to
5
<PAGE>
grant any options or rights to purchase any securities or borrowed or agreed to
borrow any funded debt;
(b) incurred or become subject to, or agreed to incur or
become subject to, any Material Liability other than in the ordinary course of
business;
(c) discharged or satisfied any Lien or paid any Material
Liability other than (i) current liabilities shown on in the Interim Financial
Statements, (ii) current liabilities incurred since the Interim Financials Date
in the ordinary course of business, or (iii) Funded Debt shown on such balance
sheet or incurred since the Interim Financials Date;
(d) declared, set aside or made, or agreed to declare, set
aside or make any payments or dividends or any distribution with respect to
Nationwide Capital Stock or purchased, redeemed or otherwise acquired, directly
or indirectly, or agreed to purchase, redeem or acquire, any shares of capital
stock or other securities;
(e) mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any Lien, except for any liens regarding
Material current real and personal property taxes not yet due and payable;
(f) sold, assigned or transferred (or agreed so to do) any of
its Material tangible assets, or canceled or agreed to cancel any Material debts
or claims, except, in each case, in the ordinary course of business;
(g) except pursuant to license agreements entered into in the
ordinary course of business consistent with past practice and which do not
involve consideration in excess of $50,000, sold, assigned or transferred any
patents, trademarks, trade names, copyrights or other intangible assets;
(h) suffered any Material damage, destruction or loss, whether
or not covered by insurance, which materially and adversely affected the
properties or business thereof, or suffered any extraordinary losses or waived
any rights of substantial value, whether or not in the ordinary course of
business;
(i) increased the rate of compensation payable or to become
payable by it to any of its officers, directors, employees or agents over the
rate being paid to them at the Interim Financials Date, or agreed so to do,
except general hourly rate increases and normal merit increases for employees
other than officers;
(j) terminated or Materially amended any Material Contract,
license or other instrument to which it is a party or suffered any loss or
termination or threatened loss or termination, of any existing business
arrangement, the termination or loss of which would materially and adversely
affect Nationwide;
(k) through negotiation or otherwise, made any commitment or
incurred any Liability, whether or not enforceable, to any labor organization;
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(l) except for any year-end compensation bonuses to be paid
consistent with past practice, if any, made or agreed to make any accrual or
arrangement for or payment of any bonus or special compensation of any kind to
any officer, director, employee or agent;
(m) directly or indirectly paid or entered into a Contract to
pay any severance or termination pay to any officer, director, employee or
agent;
(n) changed any of the accounting principles followed by it or
the methods of applying such principles;
(o) reclassified its shares of capital stock into a different
number of shares;
(p) made or approved the making of any capital expenditure
exceeding the amount of $50,000 in any instance;
(q) except in the ordinary course of business, loaned funds to
or increased the aggregate amount of existing loans to any Person;
(r) experienced any development, quality assurance or network
operations problems that has had, or is reasonably likely to have, a Material
Adverse Effect on Nationwide;
(s) suffered or experienced any other event, change or
occurrence (other than events or conditions affecting the economy generally)
which has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Nationwide.
3.8. Indebtedness.
Schedule 3.8 lists all Funded Debt of Nationwide as of the date hereof,
------------
setting forth the principal amounts outstanding, per annum interest rates and
maturity dates for all such indebtedness. All of the indebtedness (including
Funded Debt) of Nationwide as of the respective dates of the Financial
Statements and as of the date of this Agreement is accurately reflected in the
Financial Statements, and with respect to any Funded Debt, Nationwide is not in
Material breach or Default under any of the terms or conditions set forth in the
loan documents or any other document or instrument related thereto. Except as
disclosed on Schedule 3.8, all of the Funded Debt of Nationwide is prepayable at
------------
any time without penalty or premium at the option of the obligor. Except as
disclosed on Schedule 3.8, (i) the transactions contemplated in this Agreement
------------
will not result in any penalty or incurrence of any additional obligation or
change of any terms with respect to any such indebtedness, and (ii) Nationwide
does not have any indebtedness to any employee, officer, director or 5% or
greater shareholder of Nationwide.
3.9. Tax Matters.
(a) Nationwide has filed all federal and state income tax
returns for all periods prior to the date hereof which were required to be
filed, and, except as described on Schedule 3.9, no returns so filed have been
------------
examined by the IRS or any state agency with respect to any such period. Except
as listed on Schedule 3.9, Nationwide has not received notice of any Tax claims
------------
7
<PAGE>
being asserted or any proposed assessment by any taxing authority and no Tax
returns thereof have been examined by the IRS or the appropriate state agencies
for any fiscal year or period ended prior to the date hereof, and Nationwide is
not presently under, nor has any such entity received notice of any
contemplated, investigation or audit by the IRS or any state agency concerning
any fiscal year or period ended prior to the date hereof. Except as listed on
Schedule 3.9, Nationwide has not executed any extension or waivers of any
- ------------
statute of limitations on the assessment or collection of any tax due that is
currently in effect.
(b) As of the date hereof, Nationwide has filed all Tax
returns required to be filed at this date, taking into account any extensions of
the filing deadlines which have been validly granted to any such entity and
which are disclosed on Schedule 3.9, and except to the extent that a reserve for
------------
Taxes (including penalties and interest in respect thereof) is reflected on the
Interim Financial Statements, (i) such returns are true and correct in all
Material respects and properly reflect the Tax Liabilities of Nationwide for the
periods, property or events covered thereby, and (ii) each such entity has paid
all Taxes (including penalties and interest in respect thereof, if any) that
have become or are due with respect to any period through the date hereof
whether shown on such returns or not.
(c) Adequate provision has been made in the Financial
Statements in accordance with GAAP as of the Interim Financials Date, for all
Tax Liabilities not required to be paid prior to such date and for all current
and deferred Taxes.
(d) Nationwide and each of its predecessors to which any such
entity has succeeded, has withheld or collected from each payment made to each
of their employees the amount of all Taxes required to be withheld or collected
therefrom and has paid the same to the proper tax depositories or collecting
authorities.
(e) All ad valorem property taxes for fiscal years ending on
or prior to September 30, 1998 imposed on Nationwide or its predecessors have
been paid in full or adequately reserved in the Financial Statements in
accordance with GAAP, as appropriate.
(f) Neither Nationwide nor to the knowledge of Nationwide, its
predecessors to which it has succeeded, has ever made an election under Section
341(f) of the Internal Revenue Code and no such entity is a United States real
property holding corporation as defined in Section 897 of the Internal Revenue
Code.
3.10. Real Property.
(a) Nationwide does not own any real property. True and
correct copies of all real property leases of Nationwide have been provided or
made available to WebMD. Each of such leases is in full force and effect on the
date hereof, except as the validity of such leases may be affected by actions,
events or conditions involving only the other party thereto, none of which
actions, events or conditions have occurred or exist to the knowledge of
Nationwide. No Material Default under any of the terms or conditions set forth
in any of the foregoing leases or any other documents or instruments related
thereto has occurred or been asserted by any party. Except as disclosed on
Schedule 3.10, the continuation, validity and effectiveness of the terms
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8
<PAGE>
and conditions of such leases will not be materially adversely affected by the
transactions contemplated by this Agreement.
(b) To the knowledge of Nationwide, all improvements on the
real estate leased to or used by Nationwide conform to all applicable state and
local laws, zoning and building ordinances and health and safety ordinances, and
the property is zoned for the various purposes for which the real estate and
improvements thereon are presently being used.
(c) Each of the leased premises is in satisfactory condition
and repair consistent with the uses to which they are being put.
(d) To their knowledge, no proceedings for the taking of any
of such leased real property by eminent domain by any governmental authority are
pending or, to the knowledge of Nationwide, threatened.
3.11. Personal Property.
(a) True and correct copies of all leases for personal
property (except miscellaneous leases of office machinery, medical equipment,
fixtures or any leases having future minimum lease payments of less than
$25,000) used or employed by Nationwide have been provided or made available to
WebMD. Each of such leases is in full force and effect on the date hereof,
except as the validity of such leases may be affected by actions, events or
conditions affecting the other party thereto, none of which actions, events or
conditions exists of has occurred to the knowledge of Nationwide. No Material
Default under any of the terms or conditions set forth in any of the foregoing
leases or any document or instrument related thereto has occurred or been
asserted by any party. Except as disclosed on Schedule 3.11, the continuation,
-------------
validity and effectiveness of such leases will not be materially adversely
affected by the transactions contemplated by this Agreement. Except as disclosed
on Schedule 3.11, Nationwide does not lease any personal property as lessor.
-------------
(b) All Material items of personal property and leasehold
improvements owned or leased by Nationwide are shown on or reflected in the
Interim Financials Date, included in the Financial Statements, are in
satisfactory operating condition and in a state of reasonable maintenance and
repair, consistent with the uses to which they are being put, and all such
personal property, and leasehold improvements are considered adequate and usable
for the continued operation of the business of Nationwide, as the same is
presently being conducted and are physically located either at one of the
principal places of business of Nationwide or at Nationwide's principal business
office.
3.12. Intellectual Property.
(a) Schedule 3.12 contains a true and complete list of all
-------------
patents, trademarks, tradenames, service marks, service names, trade secret
protected computer software and copyright registrations, and applications
therefor owned by or exclusively licensed to Nationwide on the date hereof,
including all Internet domain names registered with any third party. Nationwide
owns, or is a valid licensee of all Intellectual Property used in Nationwide's
business
9
<PAGE>
as currently conducted. Neither Nationwide or, to the knowledge of Nationwide,
its predecessors has misused the Intellectual Property of others, and none of
the Intellectual Property as used in the business conducted by any such entity
infringes upon or otherwise violates the Intellectual Property of others, nor to
Nationwide's knowledge with respect to predecessors, has any person asserted a
claim of such infringement or violation of Intellectual Property against any
such entity. Nationwide is not obligated to pay any royalties to any person or
entity with respect to any Intellectual Property in excess of $5,000.00 per
year. Nationwide owns or has the valid right to use all of the Intellectual
Property rights which it is presently using, or intends to use in connection
with the performance of any existing Material contract, proposal or letter of
intent to which it is a party. Except as set forth on Schedule 3.12, Nationwide
has not licensed or sublicensed its rights in any Intellectual Property, except
non-exclusive licenses in the ordinary course of business, forms of which
license agreements and a list of which licensees, Nationwide has delivered or
made available to WebMD.
(b) To the knowledge of Nationwide, except as described on
Schedule 3.12, no officer, director or employee of Nationwide has entered into
- -------------
any Contract other than on behalf of Nationwide and with Nationwide's
authorization, which requires such officer, director or employee to assign any
interest in any Intellectual Property or which restricts or prohibits such
officer, director or employee from engaging in activities competitive with
Nationwide.
(c) The Intellectual Property owned or licensed by Nationwide
is sufficient to continue to operate the business as conducted on the date
hereof.
(d) Nationwide is listed in the records of the appropriate
United States, state or foreign agency as the sole owner of record for each
application and registration listed on Schedule 3.12 other than that which is
-------------
licensed to Nationwide. There is no pending written threat received by
Nationwide of, or to the knowledge of Nationwide, any verbal threat of
opposition, interference or cancellation proceeding before any court or
registration authority in any jurisdiction against the applications or
registrations listed on Schedule 3.12, or, to the knowledge of Nationwide,
-------------
against any Intellectual Property exclusively licensed to Nationwide.
(e) Except as set forth on Schedule 3.12, there are no
-------------
settlements, forbearances to sue, consents, judgments, or orders of which
Nationwide is a party or of which it is aware and which (i) restrict
Nationwide's rights to use any Intellectual Property owned by or licensed to
Nationwide, (ii) restrict Nationwide's business in order to accommodate a third
party's intellectual rights or (iii) permit third parties to use any
Intellectual Property owned or controlled by Nationwide.
(f) Except as set forth on Schedule 3.12, the consummation of
-------------
the transactions contemplated hereby will not result in the Material loss or
impairment of Nationwide's right to own or use any of the Intellectual Property,
nor will require the consent of any government authority or third party in
respect of such Intellectual Property.
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3.13. Accounts Receivable.
The accounts receivable of Nationwide and J&C, as reflected in the
Financial Statements (net of reserves reflected in such Financial Statements),
to the extent uncollected on the date hereof, and the accounts receivable
reflected on the books of Nationwide on the date hereof, are validly existing
and represent monies due for goods sold and delivered or services performed, and
the value of such accounts receivable as shown in the Financial Statements are,
in the aggregate, net of adequate reserves for doubtful and uncollectible
accounts as determined in accordance with GAAP. Except as set forth in Schedule
--------
3.13, there are no refunds, discounts or other adjustments payable with respect
- ----
to any such accounts receivable, and there are no defenses, rights of set-off,
assignments, restrictions, encumbrances, or conditions enforceable by third
parties on or affecting any of the foregoing.
3.14. Insurance.
All of the properties and business of Nationwide of an insurable nature
and of a character usually insured by companies of similar size and in similar
businesses are insured in such amounts and against such losses, casualties or
risks as is usual in such companies and for such properties and business. A
complete and accurate list of all insurance policies held by Nationwide and now
in force (including, without limitation, property damage, public liability,
worker's compensation, fidelity bonds, errors and omissions, theft, forgery and
other coverage) is attached hereto as Schedule 3.14, and, true and correct
-------------
copies of all such policies, have been provided or made available to WebMD. All
such policies are in full force and effect and the premiums due thereon have
been timely paid. Nationwide is not now in Default regarding the provisions of
any such policy, nor have they failed to give any notice or present any Material
claim thereunder in due and timely fashion. The consummation of the transactions
contemplated by this Agreement will not constitute a Default under, or otherwise
affect the coverage under any such insurance policies.
3.15. Compliance with Laws.
(a) Nationwide has in effect all Permits necessary for it to
own, lease or operate its Assets and to carry on its business as now conducted,
except for those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Nationwide.
Nationwide is not in violation of any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for violations which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect, including without limitation laws and regulations relating to
reimbursement and billing under Medicare, Medicaid and any other federal or
state-funded healthcare program, or the federal Ethics and Patent Referral Law,
no notice or warning from any Regulatory Authority with respect to any failure
or alleged failure of Nationwide to comply with any Law has been received by
Nationwide, nor, to the knowledge of Nationwide, is any such notice or warning
proposed or threatened.
(b) Except as set forth on Schedule 3.15, no consent or
-------------
approval of, prior filing with or notice to, or other action by, any Regulatory
Authority or any other third party is
11
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required in connection with the execution and delivery of this Agreement or any
agreement or other instrument to be executed and delivered pursuant to this
Agreement by Nationwide or the consummation of the transactions provided for
herein or therein except for such consents and approvals that have been obtained
and filings, notices and other actions that have been taken or made., the filing
of the Articles of Merger with the State of Oregon and such consents and
approvals as may be required under state securities laws.
(c) To the knowledge of Nationwide, there are no Material
capital expenditures that Nationwide anticipates will be required to be made in
connection with the business of Nationwide as now conducted in order to comply
with any existing Laws or other governmental requirements applicable to the
business of Nationwide as now conducted including, without limitation,
requirements relating to occupational health and safety. "Capital Expenditures"
shall have the same meaning as it has in the Financial Statements if and to the
extent that the treatment thereof is in accordance with GAAP.
(d) Neither Nationwide nor, to the knowledge of Nationwide,
any officer, director, employee, agent or other representative thereof acting or
purporting to act on behalf of any such entity or any business enterprise with
which Nationwide has been associated or affiliated, has, directly or indirectly,
made or authorized any payment, contribution or gift of money, property, or
services, in violation of applicable law (i) as a kickback or bribe to any
person, or (ii) to any political organization or the holder of, or any aspirant
to, any elective or appointive office of any nation, state, political
subdivision thereof, or other governmental body or instrumentality.
3.16. Environmental Matters.
(a) Except as set forth on Schedule 3.16, there are no claims,
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actions, suits, proceedings or investigations related to Environmental Matters
with respect to the ownership, use, condition or operation of any of the assets
held for use or sale by Nationwide or any of its predecessors in any court or
before or by any federal, state or other governmental agency or private
arbitration tribunal (hereinafter collectively referred to as "Environmental
Litigation"). Except as set forth on Schedule 3.16, there are no existing
-------------
violations of federal, state or local Laws related to Environmental Matters by
Nationwide with respect to the ownership, use, condition, lease or operation of
real property formerly held for use or sale by any of its predecessors other
than violations which would not, either individually or in the aggregate, have a
Material Adverse Effect on Nationwide. Neither Nationwide nor, to the knowledge
of Nationwide, any of its predecessors has used any assets or premises thereof
for the handling, treatment, storage, or disposal of any Hazardous Substances
except in compliance with all applicable environmental Laws. Except as set forth
on Schedule 3.16, no written notice, or other communication from any court or
-------------
governmental agency, official or instrumentality, of any alleged violation of
any Law related to Environmental Matters has been communicated to management of
any such entity or, to the knowledge of Nationwide, filed with respect to the
use, ownership, condition, operation, or disposal of any of the assets of
Nationwide or any property formerly held for use or sale by any such entity or,
to the knowledge of Nationwide, any of its
12
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predecessors. To the knowledge of Nationwide, no basis exists for the allegation
of any such violations.
(b) Except as set forth on Schedule 3.16, to the knowledge of
-------------
Nationwide, no building or other improvement or any premises owned, leased,
operated or managed by Nationwide contains any asbestos-containing materials.
(c) Copies of any environmental audits or environmental
surveys of any real estate owned or leased by Nationwide are attached to
Schedule 3.16.
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3.17. Litigation and Claims.
There are no outstanding Court Orders or administrative decisions to which
Nationwide is subject, and, except as disclosed on Schedule 3.17, there is no
-------------
Litigation pending or, to Nationwide's knowledge, threatened against or relating
to Nationwide or its Assets or businesses, and there is no specific event which
has occurred for which any such action or any state of facts or occurrence of
any event which, to the knowledge of Nationwide, might reasonably be expected to
give rise to the foregoing. Except as disclosed on Schedule 3.18, Nationwide has
-------------
not been advised by any attorney representing any such entity that there are any
"loss contingencies" (as defined in Statement of Financing Accounting Standards
No. 5 issued by the Financial Accounting Standards Board in March 1975 ("FASB
5")), which would be required by FASB 5 to be disclosed or accrued in the
consolidated financial statements of Nationwide and which are not so disclosed
or accrued.
3.18. Contracts and Commitments.
(a) Schedule 3.18 lists the following Contracts to which
-------------
Nationwide is a party or by which any such entity benefits, and which involve
payment by or the receipt of payment by Nationwide of any amounts or value in
excess of $50,000, all of which have been made available to WebMD for review:
(i) any Contract for the employment of any officer,
director, employee or consultant that is not terminable at will;
(ii) any Contract for the purchase, sale, production,
supply, maintenance or support, whether on a continuing basis or otherwise, of
goods or services of any type except those made in the ordinary course of
business;
(iii) any license or other strategic agreement;
(iv) any sales or vendor Contract or sub-contract;
(v) any Contract not made in the ordinary course of
business, including but not limited to any covenants not o compete;
(vi) any Contracts upon which the business, rights or
assets, or condition, financial or otherwise, of Nationwide depends or is or
would be Materially affected.
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(b) Except as set forth on Schedule 3.18 or as to Contracts
-------------
that are cancelable at will or upon 30 days' notice or less, (i) each of the
Contracts described in this Section 3.19 is in full force and effect on the date
hereof, except as the validity of such Contracts may be affected by actions,
events or conditions involving only the other party thereto, none of which
actions, events or conditions have occurred or exist to the knowledge of
Nationwide, (ii) no material Default under any of the terms or conditions set
forth in any of the Contracts to which Nationwide is a party or any document or
instrument related thereto has occurred or been asserted by any party, and (iii)
the continuation, validity and effectiveness of such Contracts, and all other
Material terms thereof, will not be materially and adversely affected by the
transactions contemplated by this Agreement.
3.19. Powers of Attorney.
Except as disclosed on Schedule 3.19, Nationwide has not given or
granted any power of attorney, whether limited or general, to any Person that is
continuing in effect.
3.20. Benefit Plans.
(a) Schedule 3.20.1 lists (i) every pension, retirement,
---------------
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan, any other written or
unwritten employee program, arrangement, agreement or understanding, whether
arrived at through collective bargaining or otherwise; (ii) any medical, vision,
dental or other health plan, any life insurance plan; or (iii) any other
employee benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan," as that term is defined in Section 3(3) of ERISA,
currently or expected to be adopted, maintained by, sponsored in whole or in
part by, or contributed to by Nationwide or any entity aggregated therewith
under Internal Revenue Code Sections 414(b) or 414(c) for the benefit of
employees, former employees, retirees, directors, independent contractors,
spouses or dependents of any of the foregoing or any other beneficiaries and
under which such employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries are eligible to participate
(collectively, the "Benefit Plans"). Any Benefit Plan that is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, or an
"employee welfare benefit plan" as that term is defined in Section 3(1) of
ERISA, is referred to herein as an "ERISA Plan." On or after September 26, 1980,
neither Nationwide or any entity aggregated therewith under Internal Revenue
Code Section 414(b) or 414(c) have had an "obligation to contribute" (as defined
in ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA Sections
4001(a)(3) and 3(37)(A)) ("Multiemployer Plan"). Nationwide has not incurred,
nor is reasonably expected to incur prior to the Closing Date, any liability
under Title I or Title IV of ERISA or under Internal Revenue Code Section 412
other than routine funding obligations and routine claims for benefits. All
Liabilities arising out of or related to Benefit Plans and ERISA Plans of
Nationwide and of its ERISA Affiliates are reflected in the Financial Statements
in accordance with GAAP.
(b) True, correct and complete copies of all written Benefit
Plans, as currently in effect (or as otherwise requested by WebMD), listed on
Schedule 3.20.1 and all trust agreements or other funding arrangements,
- ---------------
including insurance contracts, all amendments thereto
14
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and, where applicable, with respect to any such plans or plan amendments, the
most recent determination letters issued by the IRS, all advisory opinions
issued by the United States Department of Labor after December 31, 1974, the
annual reports or returns, audited or unaudited financial statements, actuarial
valuations, and summary annual reports for the most recent three plan years, the
most recent summary plan descriptions and any Material modifications thereto
have been provided or made available to WebMD.
(c) Except as listed on Schedule 3.20.2, all the Benefit Plans
---------------
and the related trusts subject to ERISA comply with and have been administered
in all Material respects in compliance with, the provisions of ERISA, all
provisions of the Internal Revenue Code relating to qualification and tax
exemption under Internal Revenue Code Section 401(a) and 501(a) or otherwise
applicable to secure intended tax consequences, and all other applicable laws,
rules and regulations and collective bargaining agreements in all Material
respects. Except as listed on Schedule 3.20.2, all governmental approvals for
---------------
the Benefit Plans have been obtained, including, but not limited to, timely
determination letters on the qualification of the ERISA Plans and tax exemption
of related trusts, as applicable under the Internal Revenue Code, and all such
governmental approvals continue in full force and effect. Neither Nationwide nor
any administrator or fiduciary of any such Benefit Plan (or agent of any of the
foregoing) has engaged in any transaction or acted or failed to act in any
manner which could subject any such entity to any direct or indirect liability
(by indemnity or otherwise) for a breach of any fiduciary, co-fiduciary or other
duty under ERISA. No oral or written representation or communication with
respect to any aspect of the Benefit Plans has been made to employees of
Nationwide or any of its predecessors prior to or on the Closing Date that is
not in accordance with the written or otherwise preexisting terms and provisions
of such Benefit Plans in effect immediately prior to the Closing Date. There are
no unresolved claims or disputes under the terms of, or in connection with, the
Benefit Plans and no action, legal or otherwise, has been commenced with respect
to any claim other than processing of claims in the ordinary course of business.
(d) All annual reports or returns, audited or unaudited
financial statements, actuarial valuations, summary annual reports and summary
plan descriptions issued with respect to the Benefit Plans are correct and
accurate in all Material respects.
(e) Since December 31, 1974, no "party in interest" (as
defined in Section 3(14) of ERISA) or "disqualified person" (as defined in
Section 4975(e)(2) of the Internal Revenue Code) of any ERISA Plan has engaged
in any "prohibited transaction" (within the meaning of Section 4975(c) of the
Internal Revenue Code or Section 406 of ERISA) that is not exempt under Section
4975(d) of the Internal Revenue Code or Section 408(a) or (b) of ERISA.
(f) No Liability exists and no event that could result in a
Liability has occurred with respect to any Benefit Plan that individually or in
the aggregate could have a Material Adverse Effect on Nationwide.
(g) Nationwide has not maintained, nor currently maintains, a
Benefit Plan providing welfare benefits (as defined in ERISA Section 3(1)) to
employees after retirement or
15
<PAGE>
other separation of service except to the extent required under Part 6 of Title
I of ERISA and Internal Revenue Code Section 4980B(f).
(h) Except as set forth on Schedule 3.20.3, the consummation
---------------
of the transactions contemplated by this Agreement will not entitle any current
or former employee of Nationwide or any of its predecessors whose employment is
not terminated as a result of such transactions, to severance pay, unemployment
compensation or any similar payment, and will not accelerate the time of payment
or vesting, or increase the amount, of compensation due any such employee or
former employee.
(i) All Benefit Plans subject to Section 4980B of the Internal
Revenue Code or Part 6 of Title I of ERISA, or both, have been maintained in
compliance in all Material respects with the requirements of such laws and any
regulations (proposed or otherwise) issued thereunder.
3.21. Remuneration.
Schedule 3.21 contains a complete and accurate schedule of the direct
-------------
compensation (including wages, salaries and actual or anticipated bonuses), plus
a description of other annual benefits not made available to the other employees
generally, to be paid in the current fiscal year to (i) all of the officers and
directors of Nationwide; and (ii) all of the employees of Nationwide who
received or will be receiving in excess of $50,000 (excluding commission and
bonus compensation) during such year. No unpaid salary, other than for the
immediately preceding pay period and other than pursuant to the existing
deferred compensation plans of Nationwide is now payable to any of such
officers, directors or employees.
3.22. Union and Employment Agreements.
Except as set forth on Schedule 3.22, Nationwide is not a party to any
-------------
union agreement, nor does it have any written or oral agreement that is not
terminable by it at will with any of its officers, directors, employees,
consultants, agents, or any other person performing services therefor, relating
to their employment by or performance of services for any such entity or their
compensation therefor. To the knowledge of Nationwide, no union attempts to
organize the employees of Nationwide have been made, nor are any such attempts
now threatened so far as is known to Nationwide. Except as set forth on Schedule
--------
3.22, to the knowledge of Nationwide, none of its officers will terminate his or
- ----
her employment currently or at any time within sixty (60) days of the Closing
Date.
3.23. Interested Transactions.
(a) Except as set forth on Schedule 3.23 and except for or in
-------------
connection with reasonable expenses or advancement of expenses incurred in the
ordinary course of business for relocation of employees, Nationwide is not
currently a party to any Contract, loan or other transaction with any of the
following persons, or in which any of the following persons have any direct or
indirect interest (other than as a shareholder or employee of Nationwide):
16
<PAGE>
(i) Any director, officer, employee of Nationwide or any
of the five percent (5%) or greater shareholders of Nationwide;
(ii) Any of the spouses, parents, siblings, children,
aunts, uncles, nieces, nephews,
in-laws and grandparents of any of the persons described in clause (i); or
(iii) Any corporation, trust, partnership or other entity
in which any of the persons described in clauses (i) or (ii) has a beneficial
interest (other than in a corporation whose shares are publicly traded and in
which such persons own beneficially in the aggregate no more than 5% of the
equity interest).
(b) Except as set forth on Schedule 3.23, none of the
shareholders of Nationwide is an employee, consultant, partner, principal,
director or shareholder of any business entity which is engaged in a business
which competes with or is similar to the business of Nationwide.
3.24. Brokers and Finders.
No broker, agent, finder or consultant or other person has been
retained by or on behalf of Nationwide (other than legal or accounting
advisors), or is entitled to be paid based upon any agreements or understandings
made by Nationwide in connection with the transactions contemplated hereby.
Neither WebMD nor Nationwide shall have any Liability for any broker's fee,
finder's fee, consultant's fee or similar third party remuneration by reason of
any action of Nationwide.
3.25. Statements True and Correct.
No certificate, schedule, or other exhibit furnished or to be furnished
by Nationwide to WebMD pursuant to the terms of this contains or will contain
any untrue statement of Material fact or will omit to state a Material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.26. Schedules.
All Schedules attached hereto are true, correct and complete as of the
date of this Agreement. Matters disclosed on each Schedule shall be deemed
disclosed for purposes of the matters to be disclosed on such Schedule and shall
be deemed to be disclosed for purposes of other Schedules, provided that such
disclosure is specifically responsive and complete with respect to such other
Schedules, unless expressly provided to the contrary therein.
17
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF WEBMD
WebMD represents and warrants to the other parties hereto as follows:
4.1. Organization, Standing and Power.
Each of WebMD and its Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the Laws of the state of its
incorporation, and has the power and authority to carry on its business as it
has been and is now being conducted and to own, lease and operate its Assets.
Except as set forth on Schedule 4.1, each of WebMD and its Subsidiaries is duly
------------
qualified or licensed to transact business as a foreign corporation and is in
good standing in all jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on WebMD or such Subsidiary. Copies of the articles or
certificate of incorporation and all amendments thereto of WebMD and its
Subsidiaries and the bylaws, as amended, of WebMD and its Subsidiaries and
copies of the corporate minutes (or resolutions adopted by the shareholders or
Board of Directors) of WebMD and its Subsidiaries, which have been made
available to Nationwide for review, are true and complete, in all Material
respects, as in effect on the date of this Agreement, and accurately reflect all
proceedings of the shareholders and Board of Directors (and all committees
thereof) of WebMD and its Subsidiaries. The stock record books of WebMD and its
Subsidiaries, which have been made available to Nationwide for review, contain
true and complete records of the stock ownership of WebMD and all prior
transfers of the shares of its capital stock.
4.2. Authorization of Agreement; No Breach.
The execution, delivery and performance of this Agreement has been duly
authorized by all necessary corporate action of WebMD. This Agreement
constitutes, and all agreements and other instruments and documents to be
executed and delivered by WebMD pursuant to this Agreement will constitute,
legal, valid and binding obligations of WebMD enforceable against WebMD in
accordance with their respective terms, except to the extent such enforceability
is subject to (i) laws of general application relating to bankruptcy,
insolvency, moratorium and the relief of debtors and (ii) the availability of
specific performance, injunctive relief or other equitable remedies. Except as
set forth on Schedule 4.2, the execution, delivery and performance of this
Agreement and the agreements and other documents and instruments to be executed
and delivered by WebMD pursuant to this Agreement and the consummation of the
transactions contemplated hereby and thereby will not, subject to obtaining the
consents identified herein, (i) violate or result in a breach of or Default
under the articles or certificate of incorporation or bylaws of WebMD or any of
its Subsidiaries or any other Material instrument or agreement to which WebMD or
any of its Subsidiaries is a party or is bound; (ii) to the knowledge of WebMD
and its Subsidiaries, violate any Law, administrative decision or award of any
court, arbitrator, mediator, tribunal, administrative agency or governmental
body applicable to or binding upon
18
<PAGE>
WebMD or its Subsidiaries or upon their respective securities, property or
business; (iii) conflict with or constitute a Default under any Material
Contract to which WebMD or any of its Subsidiaries is a party or by which WebMD
or any of its Subsidiaries is bound; or (iv) create a Material Lien upon the
securities, property or business of WebMD or any of its Subsidiaries.
4.3. Capital Stock.
As of the date hereof, the authorized capital stock of WebMD consists
of (a) 75,000,000 shares designated Common Stock (without designation as to
series), of which 3,000,000 shares are issued and outstanding as of the date
hereof and none of which are issued and held as treasury shares, (b) 3,000,000
shares are designated Common Stock Series B, of which 1,400,000 are issued and
outstanding as of the date hereof and none of which are issued and held as
treasury shares, (c) 1,500,000 shares are designated Common Stock Series C, of
which 1,500,000 are issued and outstanding as of the date hereof and none of
which are issued and held as treasury shares, (d) 15,000,000 shares are
designated Common Stock Series D, of which 4,496,805 are issued and outstanding
as of the date hereof and none of which are issued and held as treasury shares,
(e) 2,500,000 are designated Common Stock Series E, of which 2,100,000 are
issued and outstanding as of the date hereof and none of which are issued and
held as treasury shares; and (f) 10,000,000 shares designated as Preferred
Stock, of which (i) 1,600,000 are designated Series A Preferred Stock, of which
801,000 shares of Series A Preferred Stock are issued and outstanding as of the
date hereof and none of which are issued and held as treasury shares, (ii)
3,400,000 are designated Series B Preferred Stock, of which 2,973,263 shares of
Series B Preferred Stock are issued and outstanding as of the date hereof and
none of which are issued and held as treasury shares, and (iii) 2,000,000 are
designated Series C Preferred Stock, of which 578,750 shares of Series C
Preferred Stock are issued and outstanding as of the date hereof and none of
which are issued and held as treasury shares. Except as set forth in Schedule
4.3, all of such shares are duly and validly issued and outstanding, and are
fully paid and non-assessable and were issued pursuant to an exemption from
registration under the 1933 Act and all applicable state securities laws. Except
as set forth on Schedule 4.3 and as contemplated by this Agreement, there are no
------------
outstanding warrants, options, rights (including outstanding rights to demand
registration or to sell in connection with a registration by WebMD under the
Securities Act of 1933, as amended), calls or other commitments of any nature
relating to the WebMD Series D Common Stock or any other capital stock of WebMD
to which WebMD is a party, and there are no outstanding securities of WebMD
convertible into or exchangeable for shares of WebMD Series D Common Stock or
any other capital stock of WebMD. WebMD and its Subsidiaries have no knowledge
of any voting agreements or voting trusts between or among any Person or Persons
relating to WebMD, the WebMD Series D Common Stock or any of its Subsidiaries.
Except as set forth on Schedule 4.3, WebMD is not obligated to issue or
------------
repurchase any shares of its capital stock for any purpose, and, to the
knowledge of WebMD, no person or entity has entered into any Contract or option
or any right or privilege (whether preemptive or contractual) capable of
becoming a Contract or option for the purchase, subscription or issuance of any
unissued shares, or other securities of WebMD. The shares of Series D Common
Stock to be issued in accordance with the terms and provisions of this Agreement
will, when so issued, be duly authorized, validly issued, fully paid and
non-assessable.
19
<PAGE>
4.4. WebMed Subsidiaries.
Schedule 4.4 attached hereto is a true and correct list of each
------------
Subsidiary of WebMD. All of the outstanding shares of capital stock of each such
Subsidiary are duly and validly issued and outstanding, are fully paid and
non-assessable, and were issued pursuant to a valid exemption from registration
under the Securities Act of 1933, as amended, and all applicable state
securities laws, and are owned of record and beneficially by WebMD, free and
clear of any and all Liens. No shares of capital stock of any Subsidiary are
reserved for issuance and there are no outstanding options, warrants, rights,
subscriptions, claims of any character, Contracts, obligations, convertible or
exchangeable securities or other commitments, contingent or otherwise, relating
to the capital stock of any Subsidiary, pursuant to which any Subsidiary is or
may become obligated to issue or exchange any share of capital stock. Neither
WebMD nor any Subsidiary owns, directly or indirectly, any capital stock or
other equity or ownership or proprietary interest in any corporation,
partnership, or other entity.
4.5. Financial Statements.
(a) Schedule 4.5 contains true and correct copies of the (i)
------------
audited consolidated balance sheets of WebMD as of December 31, 1997 and 1996,
and the audited consolidated statements of income and audited consolidated
statements of cash flows for the years ended December 31, 1997, 1996 and 1995
and (ii) the unaudited balance sheet of WebMD as of September 30, 1998 and the
unaudited consolidated statements of income and unaudited statements of cash
flows for the nine months ended September 30, 1998 and 1997 (the "Financial
Statements").
(b) The Financial Statements (i) are in accordance with the
books and records of WebMD and its Subsidiaries, which books and records have
been maintained in accordance with reasonable business practices; (ii) present
fairly the consolidated financial condition, assets and liabilities of WebMD and
its Subsidiaries, taken as a whole, as of the respective dates indicated and the
results of operations and cash flows for the respective periods indicated; (iii)
have been prepared in accordance with GAAP consistently applied throughout the
periods involved, except for the omission of notes to interim unaudited
consolidated statements; and (iv) reflect adequate reserves for all known
Material Liabilities and reasonably anticipated losses required to be recorded
under GAAP. The Financial Statements contain no untrue statements of any
Material fact nor omit to state any Material fact required to be stated to make
the Financial Statements not misleading, except that there are no notes to the
interim unaudited consolidated statements.
4.6. Absence of Undisclosed Liabilities.
Except as disclosed on Schedule 4.6 and on the September 30, 1998
------------
Financial Statements, as of the date hereof neither WebMD nor any of its
Subsidiaries has any Undisclosed Liabilities, except for unpaid liabilities and
obligations incurred since September 30, 1998, in the ordinary course of
business and not involving Funded Debt and which are not, in the aggregate,
Material.
20
<PAGE>
4.7. Absence of Certain Changes or Events.
Since September 30, 1998, except as disclosed on Schedule 4.7, there
------------
have been no events, changes or occurrences (other than events or conditions
affecting the economy generally) which have had, or are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on WebMD.
4.8. Tax Matters.
(a) WebMD and its Subsidiaries have filed all federal and
state income tax returns for all periods prior to the date hereof which were
required to be filed, and, except as described on Schedule 4.8, no returns so
------------
filed have been examined by the IRS or any state agency with respect to any such
period. Except as listed on Schedule 4.8, WebMD has not received notice of any
------------
Tax claims being asserted or any proposed assessment by any taxing authority and
no Tax returns thereof have been examined by the IRS or the appropriate state
agencies for any fiscal year or period ended prior to the date hereof, and WebMD
is not presently under, nor has any such entity received notice of any
contemplated, investigation or audit by the IRS or any state agency concerning
any fiscal year or period ended prior to the date hereof. Except as listed on
Schedule 4.8, WebMD has not executed any extension or waivers of any statute of
- ------------
limitations on the assessment or collection of any tax due that is currently in
effect.
(b) As of the date hereof, WebMD and each of its Subsidiaries
have filed all Tax returns required to be filed at this date, taking into
account any extensions of the filing deadlines which have been validly granted
to any such entity and which are listed on Schedule 4.8, and such returns are
------------
true and correct in all Material respects and properly reflect the Tax
Liabilities of WebMD and each of its Subsidiaries for the periods, property or
events covered thereby, and each such entity has paid all Taxes (including
penalties and interest in respect thereof, if any) that have become or are due
with respect to any period through the date hereof whether shown on such returns
or not.
(c) Adequate provision has been made in the Financial
Statements in accordance with GAAP as of September 30, 1998, for all Tax
Liabilities not required to be paid prior to such date and for all current and
deferred Taxes.
(d) WebMD and each of its Subsidiaries, and each of their
respective predecessors to which any such entity has succeeded, has withheld or
collected from each payment made to each of their employees the amount of all
Taxes required to be withheld or collected therefrom and has paid the same to
the proper tax depositories or collecting authorities.
(e) All ad valorem property taxes for fiscal years prior to
1998 imposed on WebMD, or any of its Subsidiaries or their respective
predecessors have been paid in full or adequately reserved in the consolidated
financial statements contained in the WebMD Documents, as appropriate.
(f) Neither WebMD nor any of its Subsidiaries, nor to the
knowledge of WebMD or its Subsidiaries, their respective predecessors to which
any such entity has
21
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succeeded, has ever made an election under Section 341(f) of the Internal
Revenue Code and no such entity is a United States real property holding
corporation as defined in Section 897 of the Internal Revenue Code.
4.9. Intellectual Property.
(a) Schedule 4.9 contains a true and complete list of all
------------
patents, trademarks, tradenames, service marks, service names, trade secret
protected computer software and copyright registrations, and applications
therefor owned by or exclusively licensed to WebMD on the date hereof, including
all Internet domain names registered with any third party. WebMD owns, or is a
valid licensee of all Intellectual Property used in WebMD's business as
currently conducted. Neither WebMD or, to the knowledge of WebMD, its
predecessors has misused the Intellectual Property of others, and none of the
Intellectual Property as used in the business conducted by any such entity
infringes upon or otherwise violates the Intellectual Property of others, nor to
WebMD's knowledge with respect to predecessors, has any person asserted a claim
of such infringement or violation of Intellectual Property against any such
entity. WebMD owns or has the valid right to use all of the Intellectual
Property rights which it is presently using, or intends to use in connection
with the performance of any existing Material contract, proposal or letter of
intent to which it is a party. Except as set forth on Schedule 4.9, WebMD has
------------
not licensed or sublicensed its rights in any Intellectual Property, except
non-exclusive licenses in the ordinary course of business, forms of which
license agreements and a list of which licensees, WebMD has delivered or made
available to Nationwide.
(b) To the knowledge of WebMD, except as described on Schedule
--------
4.9, no officer, director or employee of WebMD has entered into any Contract
- ---
other than on behalf of WebMD and with WebMD's authorization, which requires
such officer, director or employee to assign any interest in any Intellectual
Property or which restricts or prohibits such officer, director or employee from
engaging in activities competitive with WebMD.
(c) The Intellectual Property owned or licensed by WebMD is
sufficient to continue to operate the business as conducted on the date hereof.
(d) WebMD is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for each application
and registration listed on Schedule 4.9. There is no pending, or to the
-------------
knowledge of WebMD, threatened received by WebMD of, or to the knowledge of
WebMD, any verbal threat of opposition, interference or cancellation proceeding
before any court or registration authority in any jurisdiction against the
registrations listed on Schedule 4.9, or, to the knowledge of WebMD, against any
------------
Intellectual Property exclusively licensed to WebMD.
(e) Except as set forth on Schedule 4.9, there are no
------------
settlements, forbearances to sue, consents, judgments, or orders of which WebMD
is a party or of which it is aware and which (i) restrict WebMD's rights to use
any Intellectual Property owned by or licensed to WebMD, (ii) restrict WebMD's
business in order to accommodate a third party's intellectual rights or (iii)
permit third parties to use any Intellectual Property owned or controlled by
WebMD.
22
<PAGE>
(f) Except as set forth on Schedule 4.9, the consummation of
------------
the transactions contemplated hereby will not result in the Material loss or
impairment of WebMD's right to own or use any of the Intellectual Property, nor
will require the consent of any government authority or third party in respect
of such Intellectual Property.
4.10. Insurance.
All of the properties and business of WebMD and its Subsidiaries of an
insurable nature and of a character usually insured by companies of similar size
and in similar businesses are insured in such amounts and against such losses,
casualties or risks as is usual in such companies and for such properties and
business. All such insurance policies are in full force and effect and the
premiums due thereon have been timely paid. Neither WebMD nor any of its
Subsidiaries is now in Default regarding the provisions of any such policy, nor
have they failed to give any notice or present any Material claim thereunder in
due and timely fashion. The consummation of the transactions contemplated by
this Agreement will not constitute a Default under, or otherwise affect the
coverage under any such insurance policies.
4.11. Compliance With Laws.
(a) Each of WebMD and its Subsidiaries has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits disclosed on Schedule 4.11
-------------
or those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on WebMD or its
Subsidiaries, taken as a whole. Except as disclosed on Schedule 4.11, neither
-------------
WebMD nor any of its Subsidiaries is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect. No notice or warning from any Regulatory
Authority with respect to any failure or alleged failure of WebMD or any of its
Subsidiaries to comply with any Law has been issued or given, nor is any such
notice or warning proposed or threatened.
(b) Except as set forth on Schedule 4.11, no consent or
-------------
approval of, prior filing with or notice to, or other action by, any Regulatory
Authority or any other third party is required in connection with the execution
and delivery of this Agreement or any assignment, agreement or other instrument
to be executed and delivered pursuant to this Agreement by WebMD or the
consummation of the transactions provided for herein or therein except for such
consents and approvals that have been obtained and filings, notices and other
actions that have been taken or made.
(c) Neither WebMD or any of its Subsidiaries, nor, to the
knowledge of WebMD, any officer, director, employee, agent or other
representative thereof acting or purporting to act on behalf of any such entity
or any business enterprise with which WebMD has been associated or affiliated,
has, directly or indirectly, made or authorized any payment, contribution or
gift of money, property, or services, in violation of applicable law (i) as a
kickback or bribe to any person, or (ii) to any political organization or the
holder of, or any
23
<PAGE>
aspirant to, any elective or appointive office of any nation, state, political
subdivision thereof, or other governmental body or instrumentality.
4.12. Legal Proceedings.
There are no outstanding Court Orders or administrative decisions to
which WebMD or any of its Subsidiaries is subject, and, except as disclosed on
Schedule 4.12, there is no Litigation pending or, to WebMD's knowledge,
- -------------
threatened against or relating to WebMD or any of its Subsidiaries or their
respective assets or businesses. Except as disclosed on Schedule 4.12, neither
-------------
WebMD nor any of its Subsidiaries have been advised by any attorney representing
any such entity that there are any "loss contingencies" as defined in FASB 5,
which would be required by FASB 5 to be disclosed or accrued in the consolidated
financial statements of WebMD and which are not so disclosed or accrued.
4.13. Brokers and Finders.
No broker, agent, finder or consultant or other person has been
retained by or on behalf of WebMD (other than legal or accounting advisors), or
is entitled to be paid based upon any agreements or understandings made by WebMD
in connection with the transactions contemplated hereby. Neither Nationwide nor
WebMD shall have any Liability for any broker's fee, finder's fee, consultant's
fee or similar third party remuneration by reason of any action of WebMD.
4.14. Statements True and Correct.
No certificate, schedule or other exhibit furnished or to be furnished
by WebMD or any Affiliate thereof to Nationwide pursuant to the terms of this
Agreement contains or will contain any untrue statement of Material fact or will
omit to state a Material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
4.15. Schedules.
All Schedules attached hereto are true, correct and complete as of the
date of this Agreement. Matters disclosed on each Schedule shall be deemed
disclosed for purposes of the matters to be disclosed on such Schedule and shall
be deemed to be disclosed for purposes of other Schedules, provided that such
disclosure is specifically responsive and complete with respect to such other
Schedules, unless expressly provided to the contrary therein.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1. Additional Agreements.
The parties agree to work together in good faith to web-enable
healthcare professional placement and other related services provided by
Nationwide, and to offer such web-enabled
24
<PAGE>
services through a co-branded career center located within the professional
services area of webmd.com and residing on WebMD's servers. WebMD agrees to
expend $400,000 in connection with the development and web-enabling of the co-
branded career center, and Nationwide agrees to cooperate with WebMD and its
outside contractors to web-enable the Nationwide products and services for use
within the career center. WebMD will own the software and the underlying source
code which operates the career center and web-enables the placement services.
All software (the "Software") in the underlying source code whether developed
jointly or through an outside contractor will be considered "works made for
hire" within the meaning of the Copyright Act of 1976 as amended, and WebMD will
be the "author" within the meaning of such Act. WebMD will grant to Nationwide
the non-exclusive, perpetual, royalty-free license to use the Software and the
documentation thereto, to be used solely in connection with the offering of
Nationwide products and services via an Internet site owned and operated by or
on behalf of Nationwide. Such license will also provide for access by Nationwide
to the underlying source code and documentation. In the event Nationwide ceases
to be a co-branded partner with WebMD within the career center, such license
will continue and Nationwide will have the right to use the Software an related
documentation in connection with an Internet site operated by or on behalf of
Nationwide, either alone or in conjunction with a co-branded partner; provided
that in in no event shall Nationwide have the right to license the Software to
competitors of WebMD other than Nationwide's co-branded partner(s) in connection
with an Internet site operated by or on behalf of Nationwide. Furthermore, in
the event Nationwide ceases to be a co-branded partner of WebMD, Nationwide's
license to use the Software and related documentation and its access to the
underlying source code shall be limited to the Software, documentation and
source code as it exists on the date Nationwide and WebMD ceased to be co-
branded partners. WebMD will use its commercially reasonable efforts to complete
its $400,000 in expenditures no later than the six month anniversary of the
Closing Date. Nationwide and WebMD will undertake to negotiate and enter into a
Web Site Development Agreement in connection with the development of the career
center and consistent with this Article V, as soon as reasonably practicable
after closing.
For a period of three (3) years and as more specifically set forth in
the Web Site Development Agreement, WebMD agrees to utilize and market the
Nationwide placement services as the exclusive on-line physician placement
services offered to WebMD subscribers. In addition, Nationwide agrees to utilize
and market WebMD in the career center as its exclusive Internet-based healthcare
content and services aggregator for delivery of its placement and other services
offered through the Internet. The obligations to maintain exclusivity will be
subject to applicable performance targets for each party as set forth in the Web
Site Development Agreement. The Web Site Development Agreement will be
terminable only for cause, as such term shall be defined by the mutual agreement
of the parties. Notwithstanding the foregoing, the term "for cause" shall
include, without limitation, the failure of either party to meet the applicable
performance targets. The parties agree to negotiate in good faith the Web Site
Development Agreement, including the mutual performance targets, within sixty
(60 days of the execution of this Stock Purchase Agreement.
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ARTICLE VI.
COVENANTS OF NATIONWIDE
Nationwide covenants and agrees that it shall comply with each of the
covenants and agreements set forth in this Article VI, the fulfillment of each
of which shall constitute a condition precedent to the obligations of the other
parties hereto to consummate the transactions contemplated hereby at the
Closing, but each of which may be waived in writing by such other parties.
6.1. Certificate of Incorporation and Bylaws. Except as
specifically required by this Agreement, Nationwide shall not take nor agree to
take any of the following actions:
(a) amend or otherwise change its Certificate of Incorporation
or Bylaws or any instrument similar in purpose and intent to them;
(b) issue any shares of its capital stock (other than upon
exercise of the Nationwide Options);
(c) issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments under which any additional
shares of its capital stock may be authorized, issued or transferred from
treasury;
(d) take any action that would make any of the representations
and warranties in this Agreement untrue or incorrect in any material respect; or
(e) agree to do any of the acts listed above.
6.2. Corporate Existence and Rights. Except as specifically
required by this Agreement, between the date hereof and the Closing Date,
Nationwide shall take all necessary actions to keep in full force and effect the
corporate existence of Nationwide and shall cause the operations of Nationwide
to be conducted only according to its ordinary and usual course of business.
Nationwide shall not do, nor permit to be done, anything that is represented or
warranted not to have occurred since the date of the Nationwide Unaudited
Financial Statements as represented in Section 3.7 hereof. Nationwide shall make
all reasonable efforts to preserve intact its present business organization,
keep available the services of its officers and employees, and preserve its
relationship with customers, suppliers and others having business dealings with
it, to the end that its business shall not be materially impaired at the
Closing. Nationwide shall maintain its records and books of account in a manner
that fairly and correctly reflects its income, expenses, assets and liabilities
in accordance with past practice.
6.3. Access and Information Before the Closing. If the Closing Date
is a date other than the date hereof, between the date hereof and the Closing
Date, Nationwide shall cause to afford WebMD and its respective counsel,
accountants and other representatives reasonable access to all of the
properties, books, contracts and records of Nationwide and will furnish the
other parties hereto and their respective counsel, accountants and other
representatives with all
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information, including copies of books, contracts and records, concerning the
affairs of Nationwide, which may be reasonably requested.
6.4. Current Information. Nationwide shall advise the other parties
hereto in writing as promptly as possible, but in any event prior to the
Closing, of:
(a) the occurrence of any event that renders any of the
representations or warranties of Nationwide set forth herein inaccurate in any
material respect;
(b) the awareness of Nationwide that any representation or
warranty of Nationwide set forth herein was not accurate in all material
respects when made;
(c) the failure of Nationwide to comply with or accomplish any
of the covenants or agreements set forth herein in any material respect; and
(d) the occurrence of any event that constitutes a Nationwide
Material Adverse Effect.
Nationwide will also provide the other parties hereto promptly on becoming
available copies of all material operating and financial reports prepared by or
for the normal conduct of business of Nationwide, including without limitation
monthly financial statements. All such information shall be true and correct in
all material respects.
6.5. Consents. Nationwide shall use its reasonable efforts to
procure all consents, approvals or waivers that must be obtained by Nationwide
and that are necessary for completion of the transactions described herein,
including using all reasonable efforts to obtain all required consents of any
governmental agency or body issuing any permits, licenses or other governmental
authorizations required to consummate the transactions contemplated herein.
Without limiting its obligations hereunder, Nationwide shall not agree to any
material adverse modification of the terms of any document or contractual
arrangement or to prepay or incur additional material obligations to any person,
whenever effective.
6.6. Confidentiality.
(a) In connection with the consideration by WebMD of the
transaction contemplated hereby and other business transactions between WebMD
and Nationwide, WebMD has provided Nationwide with certain information and data
concerning the business and affairs of WebMD that it deems confidential (the
"Confidential Information").
(b) Nationwide agrees that all Confidential Information will
be held and treated by it and its affiliates, associates, directors, officers,
employees, advisors, agents, consultants, subcontractors and representatives
(collectively "Representatives") in confidence and will not, from the date
hereof, be disclosed by it or its Representatives in any manner whatsoever, in
whole or in part, and will not be used by it or its Representatives without the
prior written consent of WebMD, and in any event, not in any way directly or
indirectly detrimental to WebMD including, without limitation, for purposes of
engaging in activities competitive with
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those of WebMD. Moreover, Nationwide further agrees (i) to disclose Confidential
Information only to its Representatives who need to know in participating in a
possible transactions with WebMD and who agree to keep such information
confidential and to be bound by the terms of this Agreement to the same extent
as if they were parties hereto, and (ii) that it will use its best efforts to
cause all of such Representatives to act in accordance herewith and be bound by
this Agreement.
(c) The term Confidential Information shall not include
information that (i) is or becomes generally available to the public, other than
as a result of a disclosure under this Agreement, (ii) is available to
Nationwide on a nonconfidential basis prior to its disclosure by WebMD, or (iii)
becomes available to the undersigned from a person who is not otherwise bound by
a confidentiality agreement with WebMD.
ARTICLE VII.
COVENANTS OF WEBMD
WebMD covenants and agrees that it shall comply with each of the
covenants and agreements set forth in this Article VII, the fulfillment of each
of which shall constitute a condition precedent to the obligations of the other
parties hereto to consummate the transactions contemplated hereby at the
Closing, but each of which may be waived in writing by such other parties.
7.1. Articles of Incorporation and Bylaws. Except as specifically
required by this Agreement, or any other transaction which WebMD anticipates
closing prior to its initial public offering, WebMD shall not take nor agree to
take any of the following actions:
(a) amend or otherwise change its Articles of Incorporation or
Bylaws or any instrument similar in purpose and intent to them;
(b) issue any shares of its capital stock (other than upon
exercise of the WebMD Options);
(c) issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments under which any additional
shares of its capital stock may be authorized, issued or transferred from
treasury;
(d) take any action that would make any of the representations
and warranties in this Agreement untrue or incorrect; or
(e) agree to do any of the acts listed above.
7.2. Corporate Existence and Rights. Except as specifically
required by this Agreement, or any other transaction which WebMD anticipates
closing prior to its initial public offering, between the date hereof and the
Closing Date, WebMD shall take all necessary actions to keep in full force and
effect the corporate existence of WebMD and shall cause the operations of WebMD
to be conducted only according to its ordinary and usual course of business.
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WebMD shall not do, nor permit to be done, anything that is represented or
warranted not to have occurred since the date of the WebMD Unaudited Financial
Statements as represented in Section 4.7 hereof. WebMD shall make all reasonable
efforts to preserve intact its present business organization, keep available the
services of its officers and employees, and preserve its relationship with
customers, suppliers and others having business dealings with it, to the end
that its business shall not be materially impaired at the Closing. WebMD shall
maintain its records and books of account in a manner that fairly and correctly
reflects its income, expenses, assets and liabilities in accordance with past
practice.
7.3. Access and Information Before the Closing. If the Closing Date
is a date other than the date hereof, between the date hereof and the Closing
Date, WebMD shall cause to afford Nationwide and its counsel, accountants and
other representatives reasonable access to all of the properties, books,
contracts and records of WebMD and will furnish the other parties hereto and
their respective counsel, accountants and other representatives with all
information, including copies of books, contracts and records, concerning the
affairs of WebMD, which may be reasonably requested.
7.4. Current Information. WebMD shall advise the other parties
hereto in writing as promptly as possible, but in any event prior to the
Closing, of:
(a) the occurrence of any event that renders any of the
representations or warranties of WebMD set forth herein inaccurate in any
material respect;
(b) the awareness of WebMD that any representation or warranty
of WebMD set forth herein was not accurate in all material respects when made;
(c) the failure of WebMD to comply with or accomplish any of
the covenants or agreements set forth herein in any material respect; and
(d) the occurrence of any event that constitutes a WebMD
Material Adverse Effect.
WebMD will also provide the other parties hereto promptly on becoming available
copies of all material operating and financial reports prepared by or for the
normal conduct of business of WebMD, including without limitation monthly
financial statements. All such information shall be true and correct in all
material respects.
7.5. Consents. WebMD shall use its reasonable efforts to procure
all consents, approvals or waivers that must be obtained by WebMD and that are
necessary for completion of the transactions described herein, including using
all reasonable efforts to obtain all required consents of any governmental
agency or body issuing any permits, licenses or other governmental
authorizations required to consummate the transactions contemplated herein.
Without limiting its obligations hereunder, WebMD shall not agree to any
material adverse modification of the terms of any document or contractual
arrangement or to prepay or incur additional material obligations to any person,
whenever effective.
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7.6. Confidentiality.(a) In connection with the consideration by
Nationwide of the transaction contemplated hereby and other business
transactions between Nationwide and WebMD, Nationwide has provided WebMD with
certain information and data concerning the business and affairs of Nationwide
that it deems confidential (the "Confidential Information").
(b) WebMD agrees that all Confidential Information will be
held and treated by it and its affiliates, associates, directors, officers,
employees, advisors, agents, consultants, subcontractors and representatives
(collectively "Representatives") in confidence and will not, from the date
hereof, be disclosed by it or its Representatives in any manner whatsoever, in
whole or in part, and will not be used by it or its Representatives without the
prior written consent of Nationwide, and in any event, not in any way directly
or indirectly detrimental to Nationwide including, without limitation, for
purposes of engaging in activities competitive with those of Nationwide.
Moreover, WebMD further agrees (i) to disclose Confidential Information only to
its Representatives who need to know in participating in a possible transactions
with Nationwide and who agree to keep such information confidential and to be
bound by the terms of this Agreement to the same extent as if they were parties
hereto, and (ii) that it will use its best efforts to cause all of such
Representatives to act in accordance herewith and be bound by this Agreement.
(c) The term Confidential Information shall not include
information that (i) is or becomes generally available to the public, other than
as a result of a disclosure under this Agreement, (ii) is available to WebMD on
a nonconfidential basis prior to its disclosure by Nationwide, or (iii) becomes
available to the undersigned from a person who is not otherwise bound by a
confidentiality agreement with Nationwide.
ARTICLE VIII.
CLOSING CONDITIONS
8.1. Conditions to Each Party's Obligations to Effect the
Transactions Contemplated Hereby. The respective obligations of each party to
effect the transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing Date of the condition that neither Nationwide nor
WebMD shall be subject on the Closing Date to any order, decree or injunction of
a court of competent jurisdiction that enjoins or prohibits the consummation of
the transactions contemplated by this Agreement.
8.2. Conditions to the Obligations of Nationwide to Effect the
Transactions contemplated hereby The obligations of Nationwide to effect the
transactions contemplated hereby shall be further subject to the fulfillment at
or prior to the Closing Date of the following conditions, any one or more of
which may be waived in writing by Nationwide:
(a) WebMD shall have performed and complied in all material
respects with all agreements, covenants and undertakings contained in this
Agreement required to be performed and complied with by WebMD at or prior to the
Closing Date. All representations and warranties of WebMD set forth in this
Agreement shall be true and correct in all material respects on the date hereof
and as of the Closing Date as though made at and as of such Closing
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Date, except, (i) as a result of actions taken by any person or entity as
expressly permitted hereby, or (ii) insofar as such representation relates to
any specified earlier date only. If the Closing Date is a date other than the
date of this Agreement, Nationwide shall have received a certificate to that
effect signed on behalf of WebMD by its President or Vice President or other
authorized person, which certificate shall be given by such officer after due
inquiry but without personal liability.
(b) Nationwide shall have obtained such consents as shall be
required.
(c) Nationwide shall have received from WebMD copies, certified by an
authorized official of WebMD, of resolutions of WebMD authorizing the execution,
delivery and performance of this Agreement and all instruments and documents to
be delivered in connection herewith and the transactions contemplated hereby and
thereby by WebMD.
(d) All documents required to have been delivered by WebMD to
the Shareholders at or prior to the Closing, pursuant to Section 2.3 shall have
been delivered.
8.3. Conditions to the Obligations of WebMD to Effect the Transactions
Contemplated Hereby. The obligations of WebMD to effect the transactions
contemplated hereby shall be further subject to the fulfillment at or prior to
the Closing Date of the following conditions, any one or more of which may be
waived in writing by WebMD:
(a) Nationwide shall have performed and complied in all material
respects with all agreements, covenants and undertakings contained in this
Agreement required to be performed and complied with by Nationwide at or prior
to the Closing Date. All representations and warranties of Nationwide set forth
in this Agreement shall be true and correct in all material respects on the date
hereof and as of the Closing Date as though made at and as of such Closing Date,
except (i) as a result of actions taken by any person or entity as expressly
permitted hereby, or (ii) insofar as any such representation or warranty relates
to any specified earlier date only. If the Closing Date is a date other than the
date of this Agreement, WebMD shall have received a certificate to that effect
signed by Nationwide.
(b) WebMD shall have obtained such consents as shall be required.
(c) Nationwide shall have amended its Articles of Incorporation to
increase the number of authorized shares of Nationwide Preferred Stock to
1,900,000.
(d) All documents required to have been delivered by Nationwide and
the Nationwide Shareholders to WebMD at or prior to the Closing, pursuant to
Section 2.3, shall have been delivered in form and substance reasonably
satisfactory to WebMD.
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ARTICLE IX.
REGISTRATION RIGHTS
9.1. Piggy-Back Registration.
Following an Initial Public Offering (as defined below), if WebMD
proposes to register any of its securities under the 1933 Act for sale by it for
cash (otherwise than in connection with the registration of securities issuable
pursuant to an employee stock option, stock purchase or similar plan or pursuant
to a merger, exchange offer or a transaction of the type specified in Rule
145(a) of the 1933 Act), WebMD shall give Nationwide notice of such proposed
registration at least 15 days prior to the filing of a registration statement.
At the written request of Nationwide delivered to WebMD within 10 days after
delivery of the notice from WebMD, WebMD shall use its commercially reasonable
efforts to effect the registration ("Piggyback Registration") under the 1933 Act
of the WebMD Common Stock issued to Nationwide pursuant hereto; provided that
WebMD may, without the consent of Nationwide, withdraw such registration
statement prior to its becoming effective if WebMD has abandoned its proposal to
register its securities, and following the effectiveness of any such
registration statement, and upon notice to Nationwide, may suspend the rights of
Nationwide to make sales pursuant to such registration statement if the Board of
Directors of WebMD determines in good faith that it is in the best interests of
WebMD (i) not to disclose the existence of facts surrounding any proposed or
pending acquisition, disposition, strategic alliance or financing transaction
involving WebMD; or (ii) for any reasonable purpose relating to the business of
WebMD, to suspend the registration rights set forth herein. The term "Initial
Public Offering" means the offer and sale of shares of common stock of WebMD in
a transaction underwritten by an investment banking firm following the
completion of which (i) such equity securities will be listed for trading on any
national securities exchange or (ii) there will be at least two market makers
who are making a market in such equity securities through the Nasdaq National
Market System.
9.2. Indemnification.
In the event of the offer and sale of shares of WebMD Series D Common
Stock held by Nationwide under the 1933 Act, WebMD shall, and hereby does,
indemnify and hold harmless Nationwide, its directors, officers and partners and
each other Person, if any, who controls Nationwide within the meaning of Section
15 of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which Nationwide or any such director or officer or controlling
person may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such shares were registered under the
1933 Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances in
which they were made not misleading, and WebMD shall reimburse Nationwide, and
each such director, officer, partner and controlling person for any legal or any
other expenses reasonably incurred by them in connection with
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investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided that WebMD shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement in or omission or alleged omission from such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to WebMD through an instrument duly executed
by or on behalf of Nationwide specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of WebMD, or any such
director, officer, partner or controlling person and shall survive the transfer
of such shares by Nationwide.
9.3. Conditions.
WebMD may require, as a condition to including any shares of WebMD
Series D Common Stock to be offered by Nationwide in any registration statement
filed pursuant to this Article IX, that WebMD shall have received an agreement
from Nationwide to be bound by the terms of this Article IX, including an
undertaking reasonably satisfactory to it from Nationwide, to indemnify and hold
WebMD, its directors and officers and each other person, if any, who controls
WebMD within the meaning of Section 15 of the 1933 Act, against any losses,
claims, damages or liabilities, joint or several, to which WebMD or any such
director or officer or controlling person may become subject under the 1933 Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contain therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information about Nationwide as a shareholder of WebMD furnished to
WebMD through an instrument duly executed by Nationwide specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that such indemnity agreement found in this
Section 9.3 shall in no event exceed the gross proceeds from the offering
received by Nationwide. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of WebMD or any such
director, officer or controlling person and shall survive the transfer by
Nationwide of such shares.
9.4. Indemnification Procedures.
Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 9.2 or 9.3 (including any governmental action), such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action;
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under Section
9.2 or 9.3, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's
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reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not
available to the indemnifying party in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. Neither an indemnified nor an indemnifying party shall be liable
for any settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
9.5. Indemnification Payments.
The indemnification required by Section 9.2 and 9.3 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
9.6. Contribution.
If the indemnification provided for in this Article IX is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense as is appropriate to
reflect the relative benefits received by the indemnified party on the one hand,
and the indemnifying party on the other from the offering of the WebMD Series D
Common Stock, as well as other relevant equitable considerations.
9.7. Rule 144.
Notwithstanding anything to the contrary contained herein, Nationwide
shall have no rights to a registration under Section 9.1 after the time that
Nationwide could sell its shares of WebMD Series D Common Stock pursuant to Rule
144(k) without regard to the volume limitations of Rule 144 under the 1933 Act
or any successor rules thereto.
9.8. Expenses.
WebMD shall pay all expenses in connection with any registration,
including, without limitation, all registration, filing and NASD fees, all fees
and expenses of complying with securities or blue sky laws, the fees and
disbursements of one counsel for Nationwide and the fees and disbursements of
counsel for WebMD and of its independent accountants; provided that, in any
registration, each party shall pay for its own underwriting discounts and
commissions and transfer taxes.
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9.9. Assignment.
Nationwide may not assign its rights under this Article IX to anyone
without the prior written consent of WebMD, which shall not be unreasonably
withheld, and any attempted transfer in violation of this Section 9.9 shall be
null and void; provided, however, Nationwide may assign their rights under this
Article IX without such prior written consent to a transferee or assignee that
is a subsidiary, parent, partner, limited partner, retired partner or
shareholder of Nationwide.
9.10. Underwritten Offering.
Notwithstanding any other provision of this Article IX, in an
underwritten offering, if the underwriters advise WebMD in writing that in their
opinion the number of securities requested to be included in the registration
exceeds the number which can be sold in the offering, then the number of shares
that may be included in the registration and underwriting shall be allocated
first to WebMD and then to all selling shareholders, including Nationwide, who
have requested to sell in the registration on a pro rata basis according to the
number of shares requested to be included; provided, however, that in no event
shall the total amount of shares of securities included in the offering by HBO &
Company of Georgia, Sirrom Capital Corporation, Premiere Technologies, Inc., and
Matria Healthcare, Inc. pursuant to a piggyback registration be less than the
number of securities included in the offering by any other single selling
shareholder pursuant to piggyback registration rights unless all shares of
securities of HBO & Company of Georgia, Sirrom Capital Corporation, Premiere
Technologies, Inc., and Matria Healthcare, Inc. are included in such offering,
unless such shareholders of WebMD waive such limitation or such shareholders of
WebMD choose not to sell any shares in such registration.
9.11. Lock-Up Agreement.
If requested by WebMD or an underwriter of securities of WebMD within
one year after the Effective Date, Nationwide shall not sell or otherwise
transfer or dispose of any shares of WebMD Series D Common Stock, other than
shares sold by Nationwide pursuant to an effective registration statement,
during a period of the earlier of (i) one hundred eighty (180) days following
the effective date of a registration statement of WebMD filed under the 1933 Act
or (ii) the period ending on the day Nationwide could sell its shares of WebMD
Series D Common Stock pursuant to Rule 144 under the 1933 Act or any successor
rule thereto. Such agreement shall be in writing in form satisfactory to WebMD
and such underwriter. WebMD may impose stop-transfer instructions with respect
to the shares (or securities) subject to the foregoing restriction until the end
of said period.
ARTICLE X.
INDEMNIFICATION
10.1. Definitions.
For purposes of this Article 10:
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(a) "Indemnification Claim" shall mean a claim for
indemnification hereunder.
(b) "Indemnitees" shall mean WebMD and its respective agents,
representatives, employees, officers, directors, shareholders, controlling
persons, subsidiaries and affiliates.
(c) "Indemnitor" shall mean Nationwide.
(d) "Losses" shall mean any and all demands, claims, actions
or causes of action, assessments, losses, diminution in value, damages
(including special and consequential damages), liabilities, costs and expenses,
including, without limitation, interest, penalties, cost of investigation and
defense and reasonable attorneys' and other professional fees and expenses.
(e) "Third Party Claim" shall mean any claim, suit or
proceeding (including, without limitation, a binding arbitration or audit by any
taxing authority) that is instituted against an Indemnitee by a person or entity
other than an Indemnitor and which, if prosecuted successfully, would result in
a Loss for which such Indemnitee is entitled to indemnification hereunder.
(f) "Value Per Share" shall mean $20.00 as adjusted as
appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected by WebMD between the
Closing Date and the date such liability is satisfied.
10.2. Agreement of Indemnitor to Indemnify.
Subject to the terms and conditions of this Article 10, Indemnitor
----------
agrees to indemnify and hold harmless Indemnitees, and each of them, from,
against, for and in respect of any and all Losses asserted against, or paid,
suffered or incurred by, an Indemnitee by reason of, based upon, or arising out
of the inaccuracy, untruth, incompleteness or breach of any representation,
warranty, covenant or agreement contained in or made pursuant to this Agreement
by Indemnitor or in any certificate, schedule or exhibit published or delivered
by Indemnitor in connection herewith.
10.3. Procedures for Indemnification.
(a) An Indemnification Claim shall be made by an Indemnitee
against the Indemnitor by delivery of a written notice to the Indemnitor
requesting indemnification and specifying the basis on which indemnification is
sought and, in the case of a Third Party Claim, containing (by attachment or
otherwise) such other information as such Indemnitee shall have concerning such
Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim,
the procedures set forth in Section 10.4 hereof shall be observed by the
------------
Indemnitee and the Indemnitor.
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(c) If the Indemnification Claim involves a matter other than a
Third Party Claim, the Indemnitor shall have thirty (30) days following receipt
of the notice of an Indemnification Claim to object to such Indemnification
Claim by delivery of a written notice of objection to the Indemnitee specifying
in reasonable detail the basis for such objection. Failure to timely so object
shall constitute a final and binding acceptance of the Indemnification Claim by
the Indemnitor, and the Indemnification Claim shall be paid in accordance with
subsection (d) hereof. If any objection is timely interposed by the Indemnitor
and the dispute is not resolved by the Indemnitee and the Indemnitor within
fifteen (15) days from the date the Indemnitee receives such objection, such
dispute shall be resolved by arbitration as provided in Article 10.9 of this
Agreement.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between the Indemnitor and the Indemnitee or by an
arbitration award or by any other final adjudication, the Indemnitor and WebMD
shall cause the Escrow Agent to deliver to WebMD, and WebMD shall cancel and
retire, that number of shares of WebMD Series D Common Stock as equals the
amount of the Indemnification Claim divided by the Value Per Share. The
obligations of indemnity under this Article 10 shall be satisfied solely and
----------
exclusively by means of delivery of the Series D Common Stock held in escrow.
10.4. Third Party Claims.
The obligations and liabilities of the parties hereunder with respect
to a Third Party Claim shall be subject to the following terms and conditions:
(a) The Indemnitee shall give the Indemnitor written notice of
a Third Party Claim promptly after receipt by the Indemnitee of notice thereof.
The failure of the Indemnitee to notify the Indemnitor of such claim shall not
relieve the Indemnitor of any liability that they may have with respect to such
claim except to the extent the Indemnitor demonstrates that the defense of such
claim is prejudiced by such failure. The assumption of the defense, compromise
and settlement of any such Third Party Claim by the Indemnitor shall be an
acknowledgment of the obligation of the Indemnitor to indemnify the Indemnitee
with respect to such claim hereunder. If the Indemnitee desires to participate
in, but not control, any such defense, compromise and settlement, it may do so
at its sole cost and expense. If, however, the Indemnitor fails or refuses to
undertake the defense of such Third Party Claim within ten (10) days after
written notice of such claim has been given to the Indemnitor by the Indemnitee,
the Indemnitee shall undertake the defense, compromise and settlement of such
claim with counsel of its own choosing. In the circumstances described in the
preceding sentence, the Indemnitee shall, promptly upon its assumption of the
defense of such claim, make an Indemnification Claim as specified in Section
-------
10.3 which shall be deemed an Indemnification Claim that is not a Third Party
- ----
Claim for the purposes of the procedures set forth herein.
(b) If, in the reasonable opinion of the Indemnitee, any Third
Party Claim or the litigation or resolution thereof involves an issue or matter
which could have a Material Adverse Effect on the business, operations, assets,
properties or prospects of the Indemnitee (including, without limitation, the
administration of the tax returns and responsibilities under the
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tax laws of the Indemnitee), the Indemnitee shall have the right to control the
defense, compromise and settlement of such Third Party Claim undertaken by the
Indemnitor, and the costs and expenses of the Indemnitee in connection therewith
shall be included as part of the Indemnification Claim. If the Indemnitee shall
elect to exercise such right, the Indemnitor shall have the right to participate
in, but not control, the defense, compromise and settlement of such Third Party
Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of the Indemnitor under this Article 10 shall be made without the
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prior written consent by or on behalf of the Indemnitor, which consent shall not
be unreasonably withheld or delayed. Consent shall be presumed in the case of
settlements of $20,000 or less where the Indemnitor has not responded within
fifteen (15) business days of notice of a proposed settlement. If the Indemnitor
assumes the defense of such a Third Party Claim, (a) no compromise or settlement
thereof may be effected by the Indemnitor without the Indemnitee's consent
(which shall not be unreasonably withheld) unless (i) there is no finding or
admission of any violation of law or any violation of the rights of any person
and no effect on any other claim that may be made against the Indemnitee, (ii)
the sole relief provided is monetary damages that are paid in full by the
Indemnitor, and (iii) the compromise or settlement includes, as an unconditional
term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a
release, in form and substance satisfactory to the Indemnitee, from all
liability in respect of such Third Party Claim, and (b) the Indemnitee shall
have no liability with respect to any compromise or settlement thereof effected
without its consent.
(d) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties to this Agreement shall execute such powers of
attorney as may reasonably be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may reasonably be related to any
such claim or action, shall provide reasonable access to the counsel,
accountants and other representatives of each party during normal business hours
to all properties, personnel, books, tax records, contracts, commitments and all
other business records of such other party and will furnish to such other party
copies of all such documents as may reasonably be requested (certified, if
requested).
10.5. Indemnification by Indemnitor Exclusive Remedy.
If the Closing occurs, except for remedies based upon fraud and except
for equitable remedies (including temporary restraining orders, injunctive
relief and specific performance), the remedies provided in this Article 10 and
in the Escrow Agreement constitute the sole and exclusive remedies for recovery
against the Indemnitor based upon the inaccuracy, untruth, incompleteness or
breach of any representation or warranty of any Indemnitor contained herein or
in any certificate, Schedule or Exhibit furnished by any Indemnitor in
connection herewith, or based upon the failure of Indemnitor or any Indemnitor
to perform any covenant, agreement or undertaking required by the terms hereof
to be performed by Indemnitor or such Indemnitor.
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10.6. Survival.
All representations, warranties and agreements contained in this
Agreement or in any certificate delivered pursuant to this Agreement shall
survive the Closing notwithstanding any investigation conducted with respect
thereto. The representations, warranties, covenants and agreements contained in
or made pursuant to this Agreement by WebMD shall survive for a period of
fifteen (15) months after the Closing Date and no claims based upon or arising
out of the inaccuracy, untruth, incompleteness or breach of such
representations, warranties, covenants or agreements may be made after such
time, and provided that in no event shall any claim made before the expiration
of fifteen (15) months after the Closing Date be barred as a result of the
expiration of any representation, warranty, covenant or agreement. The
representations, warranties, covenants and agreements contained in or made
pursuant to this Agreement by Indemnitor shall survive for a period of fifteen
(15) months after the Closing Date and no claims based upon or arising out of
the inaccuracy, untruth, incompleteness or breach of such representations,
warranties, covenants or agreements may be made after such time, and provided
that in no event shall any claim made before the expiration of fifteen (15)
months after the Closing Date be barred as a result of the expiration of any
representation, warranty, covenant or agreement.
10.7. Limitations.
The Indemnitor will have no liability to the Indemnitees under or in
connection with a breach of any of the representations, warranties, covenants or
agreements made or to be performed by the Indemnitor contained in this Agreement
until the total of all Losses with respect thereto exceeds $50,000 in which
event Indemnitor shall be obligated to indemnify the Indemnitees as provided in
this Article for all such Losses, and unless written notice asserting an
Indemnification Claim based thereon is given to the Indemnitor prior to the date
that is fifteen (15) months following the Closing Date.
10.8. Tax Effect and Insurance.
The liability of the Indemnitor with respect to any Indemnification
Claim shall be reduced by the tax benefit actually realized and any insurance
proceeds received by the Indemnitees as a result of any Losses upon which such
Indemnification Claim is based, and shall include any tax detriment actually
suffered by the Indemnitees as a result of such Losses. The amount of any such
tax benefit or detriment shall be determined by taking into account the effect,
if any and to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such Losses.
Any dispute as to the amount of such tax benefit or detriment shall be resolved
by arbitration as provided in Section 10.9 of this Agreement.
10.9. Arbitration.
All disputes arising under this Article 10 (other than claims in
----------
equity) shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Arbitration shall be
by a single arbitrator experienced in the matters at issue and
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selected by the Indemnitor and Indemnitee in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration shall
be held in such place in Atlanta, Georgia as may be specified by the arbitrator
(or any place agreed to by the Indemnitor, Indemnitee and the arbitrator). The
decision of the arbitrator shall be final and binding as to any matters
submitted under this Article 10; provided, however, if necessary, such decision
----------
and satisfaction procedure may be enforced by either the Indemnitor or
Indemnitee in any court of record having jurisdiction over the subject matter or
over any of the parties to this Agreement. All costs and expenses incurred in
connection with any such arbitration proceeding (including reasonable attorneys
fees) shall be borne by the party against which the decision is rendered, or, if
no decision is rendered, such costs and expenses shall be borne equally by the
Indemnitor as one party and the Indemnitees as the other party. If the
arbitrator's decision is a compromise, the determination of which party or
parties bears the costs and expenses incurred in connection with any such
arbitration proceeding shall be made by the arbitrator on the basis of the
arbitrator's assessment of the relative merits of the parties' positions.
ARTICLE XI.
TERMINATION AND ABANDONMENT
11.1. Termination.
This Agreement may be terminated:
(a) at any time by mutual consent of Nationwide and WebMD;
(b) by either party if such party is not in default hereunder
and the Closing hereunder has not taken place on or before January 28, 1999;
(c) by Nationwide if all the conditions in Sections 8.1 and
8.3 have not been satisfied or waived by the date scheduled for the Closing
pursuant to Section 3.1;
(d) by WebMD if all the conditions set forth in Sections 8.1
and 8.4 have not been satisfied or waived by the date scheduled for the Closing
pursuant to Section 3.1; and
11.2. Procedure and Effect of Termination.
(a) In the event of the termination of this Agreement and
abandonment of the transactions contemplated hereby by any or all of the parties
pursuant to Section 11.1, prompt written notice thereof shall be given to the
other party and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by any of the parties hereto.
If this Agreement is terminated as provided herein:
(i) Except as provided in this Section 11.2, none of the
parties hereto nor any of their partners, directors, officers, shareholders,
employers, agents, or affiliates shall have any liability or further obligation
to the other party or any of its partners, directors, officers, shareholders,
employers, agents, or affiliates pursuant to this Agreement; and
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(ii) All filings, applications and other submissions
relating to the transactions contemplated hereby as to which termination has
occurred shall, to the extent practicable, be withdrawn from the agency or other
person to which made.
(b) Notwithstanding anything to the contrary contained in this
Agreement, if Nationwide or WebMD are in breach of their respective obligations
under this Agreement then and in that event, as appropriate, the non-breaching
party shall have the right to seek all remedies available to it as provided
hereunder or at law or equity, including the remedy of specific performance.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
12.1. Commissions.
Nationwide, on the one hand, and WebMD, on the other hand, each
represent and warrant to the other that, no broker, finder or other person is
entitled to any brokerage fees, commissions or finder's fees in connection with
the transactions contemplated hereby by reason of any action taken by the party
making such representation.
12.2. Further Assurances.
Subject to the terms and conditions of this Agreement, each of the
parties hereto will use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. From time to time after the
Closing Date, without further consideration, Nationwide will, at its expense,
execute and deliver, or cause to be executed and delivered, such documents to
WebMD as WebMD may reasonably request in order to more effectively vest in WebMD
good title to the Nationwide Shares. From time to time after the Closing Date,
without further consideration, WebMD will, at its expense, execute and deliver
such documents to Nationwide and the Nationwide Shareholders as may reasonably
be requested in order more effectively to consummate the sale of the WebMD
Shares and Warrants pursuant to this Agreement.
12.3. Amendment and Modification.
This Agreement may be amended, modified or supplemented only by written
agreement of Nationwide and WebMD.
12.4. Waiver of Compliance; Consents.
Except as otherwise provided in this Agreement, any failure of any of
the parties to comply with any obligation, representation, warranty, covenant,
agreement or condition herein may be waived by the party entitled to the
benefits thereof only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, representation, warranty, covenant, agreement or condition shall not
operate as a
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waiver of, or estoppel with respect to, any subsequent or other failure.
Whenever this Agreement requires or permits consent by or on behalf of any party
hereto, such consent shall be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this Section 12.4.
12.5. Notices.
All notices and other communications hereunder shall be in writing
and shall be deemed given when delivered personally or by facsimile
transmission, or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice, provided
that notices of a change of address shall be effective only upon receipt
thereof):
(a) If to Nationwide, to:
Nationwide Medical Services, Inc.
1150 Hammond Drive, Suite A-1200
Atlanta, GA 30328
Attn.: President
Telephone: (770) 522-1890
Telecopy: (770) 730-2870
Copies to:
Morris, Manning & Martin, L.L.P.
3343 Peachtree Road, NE, Suite 1600
Atlanta, GA 30326
Telephone: (404)504-7786
Telecopy: (404) 365-9532
Attn.: Richard L. Haury, Jr.
(b) If to WebMD, to:
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, NE
Atlanta, Georgia 30326
Facsimile: (404) 479-7603
Attention: Mr. Michael Heekin
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Copies to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telephone: (404) 881-7000
Facsimile: (404) 881-7777
Attention: J. Vaughn Curtis
12.6. Assignment.
This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interest or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party, nor is this Agreement intended to
confer upon any other person except the parties hereto any rights or remedies
hereunder.
12.7. Governing Law.
This Agreement shall be governed by the laws of the State of Georgia as
to all matters, including but not limited to matters of validity, construction,
effect, performance and remedies.
12.8. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
12.9. Interpretation.
The article and section headings contained in this Agreement are solely
for the purpose of reference, are not part of the agreement of the parties and
shall not in any way affect the meaning or interpretation of this Agreement.
12.10. Entire Agreement.
This Agreement, including the Exhibits and Schedules hereto and the
documents delivered pursuant to this Agreement, including without limitation the
Amended and Restated Shareholders Agreement, Escrow Agreement and the Investor
Questionaire executed and delivered on behalf of Nationwide, embody the entire
agreement and understanding of the parties hereto in respect of the transactions
contemplated by this Agreement. The Exhibits and Schedules hereto are an
integral part of this Agreement and are incorporated by reference herein. This
Agreement supersedes all information previously furnished to WebMD and all prior
agreements and understandings between the parties with respect to the
transactions contemplated by this Agreement.
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12.11. Severability.
If any provision of this Agreement or the application thereof to any
person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
12.12. Press-Releases.
No press releases or other public announcements concerning this
Agreement or the transactions contemplated hereby shall be made by any party
hereto without the prior written consent of the other party unless the first
such party is legally compelled to do so, and then only after prior written
notice to and consultation with such other party.
12.13. Arbitration.
All disputes arising under this Agreement (other than claims in equity)
shall be resolved by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Arbitration shall be by a single
arbitrator experienced in the matters at issue and selected by the Indemnitor
and Indemnitee in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The arbitration shall be held in such place in
Atlanta, Georgia as may be specified by the arbitrator (or any place agreed to
by the Indemnitor, Indemnitee and the arbitrator). The decision of the
arbitrator shall be final and binding as to any matters submitted under this
Agreement; provided, however, if necessary, such decision and satisfaction
procedure may be enforced by either the Indemnitor or Indemnitee in any court of
record having jurisdiction over the subject matter or over any of the parties to
this Agreement. All costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys fees) shall be borne by
the party against which the decision is rendered, or, if no decision is
rendered, such costs and expenses shall be borne equally by the Indemnitor as
one party and the Indemnitees as the other party. If the arbitrator's decision
is a compromise, the determination of which party or parties bears the costs and
expenses incurred in connection with any such arbitration proceeding shall be
made by the arbitrator on the basis of the arbitrator's assessment of the
relative merits of the parties' positions.
12.14. Definitions.
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"Affiliate" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with such Person; (ii) any officer,
director, partner, employer, or direct or indirect beneficial owner of any 10%
or greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
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"Agreement" shall mean this Stock Purchase Agreement,
including the Exhibits delivered pursuant hereto and incorporated herein by
reference.
"Assets" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every kind, nature,
character and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such Person, and whether or not owned in the
name of such Person or any Affiliate of such Person and wherever located.
"Closing Date" shall mean the date on which the
Closing occurs.
"Consent" shall mean any consent, approval,
authorization, clearance, exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, commitment, contract, indenture, instrument, lease, obligation,
plan, restriction, understanding or undertaking of any kind or character, or
other document to which any Person is a party or that is binding on any Person
or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of
or default under any Contract, Order or Permit, (ii) any occurrence of any event
that with the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order or Permit, or (iii)
any occurrence of any event that with or without the passage of time or the
giving of notice would give rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate, increase, or impose any
Liability under, any Contract, Order or Permit.
"Environmental Laws" shall mean all Laws relating to
pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata) and which
are administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the environment,
including the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws
relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Exhibits" shall mean the Exhibits so marked, copies
of which are attached to this Agreement. Such Exhibits are hereby incorporated
by reference herein and made a part
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hereof, and may be referred to in this Agreement and any other related
instrument or document without being attached hereto.
"Funded Debt" shall mean any outstanding indebtedness
(including leases required to be capitalized under GAAP) of such party or its
Subsidiaries, except Funded Debt between such parties, representing borrowing,
but excluding trade payables.
"GAAP" shall mean generally accepted accounting
principles, consistently applied during the periods involved.
"Hazardous Substance" shall mean (i) any hazardous
substance, hazardous Material, hazardous waste, regulated substance or toxic
substance (as those terms are defined by any applicable Environmental Laws) and
(ii) any chemicals, pollutants, contaminants, petroleum, petroleum products, or
oil (and specifically shall include asbestos requiring abatement, removal or
encapsulation pursuant to the requirements of Regulatory Authorities and any
polychlorinated biphenyls).
"Intellectual Property" shall mean the copyrights,
patents, trademarks, service marks, service names, tradenames, applications
therefor, technology rights and licenses, computer software (including, without
limitation, any source or object codes therefor or documentation relating
thereto), trade secrets, franchises, know-how, inventions and intellectual
property rights.
"Internal Revenue Code" shall mean the Internal
Revenue Code of 1986, as amended, and the rules and regulations promulgated
thereunder.
"Law" shall mean any code, law, ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities or business, including those promulgated,
interpreted or enforced by any Regulatory Authority.
"Liability" shall mean any direct or indirect,
primary or secondary, liability, indebtedness, obligation, penalty, cost or
expense (including costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements
of notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement,
default of title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation, restriction, security
interest, title retention or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with respect to
any property or property interest, other than (i) Liens for current property
Taxes not yet due and payable and (ii) Liens which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on a Party.
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"Litigation" shall mean any action, arbitration,
cause of action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing, inquiry,
administrative or other proceeding, or notice (written or oral) by any Person
alleging potential Liability or requesting information relating to or affecting
a Party, its business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement.
"Material" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance.
"Material Adverse Effect" on a Party shall mean an
event, change or occurrence which, individually or together with any other
event, change or occurrence, has a Material adverse impact on (i) the financial
position, business, or results of operations of such Party and its Subsidiaries,
taken as a whole, or (ii) the ability of such Party to perform its obligations
under this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that Material Adverse Effect shall not
be deemed to include the impact of (v) the entry by such Party into strategic
alliance or license agreements viewed by management of such Party as in the best
interests of such Party at such time, (w) changes in Laws of general
applicability or interpretations thereof by courts or governmental authorities,
(x) changes in generally accepted accounting principles, (y) the Merger and
compliance with the provisions of this Agreement on the operating performance of
the Parties and (z) continuing net losses by such Party since the date of the
most recent Financial Statements of such Party not in excess of those set forth
in the projections of such Party disclosed to the other party in writing prior
to the date hereof.
"1933 Act" shall mean the Securities Act of 1933, as
amended.
"1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
"Order" shall mean any administrative decision or
award, decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory Authority.
"Party" shall mean either Nationwide or WebMD, and
"Parties" shall mean all of Nationwide and WebMD.
"Permit" shall mean any federal, state, local, and
foreign governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party or
that is or may be binding upon or inure to the benefit of any Person or its
securities, Assets or business.
"Person" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture,
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limited partnership, limited liability company, trust, business association,
group acting in concert, or any person acting in a representative capacity.
"Regulatory Authorities" shall mean, collectively,
all federal and state regulatory and blue sky agencies having jurisdiction over
the Parties and their respective Subsidiaries, including the NASD, and the SEC.
"Nationwide Capital Stock" shall mean the Nationwide
Common Stock and the Nationwide Preferred Stock.
"Nationwide Common Stock" shall mean the Nationwide
common stock.
"Nationwide Preferred Stock" shall mean the
Nationwide Series A Preferred Stock.
"Nationwide Stock Plan" shall mean the existing stock
option plan of Nationwide designated as follows: The Nationwide Medical
Services, Inc. Stock Incentive Plan.
"SEC" shall mean the Securities and Exchange
Commission.
"Securities Laws" shall mean the 1933 Act, the 1934
Act, the Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of any Regulatory Authority promulgated thereunder.
"Subsidiaries" shall mean all those corporations,
partnerships, associations, or other entities of which the entity in question
owns or controls 50% or more of the outstanding equity securities either
directly or through an unbroken chain of entities as to each of which 50% or
more of the outstanding equity securities is owned directly or indirectly by its
parent; provided, there shall not be included any such entity acquired through
foreclosure or any such entity the equity securities of which are owned or
controlled in a fiduciary capacity.
"Tax" or "Taxes" shall mean any federal, state,
county, local, or foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, withholding, excise, occupancy, and other
taxes or governmental assessments, charges, fares, or impositions, including
interest, penalties, and additions imposed thereon or with respect thereto.
"Undisclosed Liabilities" shall mean any liability or
obligation of a Party to this Agreement, whether accrued, liquidated,
unliquidated, absolute, contingent, matured, unmatured or otherwise that is not
fully reflected or reserved against in their respective financial statements or
fully disclosed in a Schedule.
"WebMD Series D Common Stock" shall mean the no par
value Series D Common Stock of WebMD to be issued to Nationwide.
(b) In addition to the terms defined in Section 12.1 (a)
above, the terms set forth below shall have the meanings ascribed thereto in the
referenced sections:
48
<PAGE>
Benefit Plans Section 3.20
Capital Expenditures Section 3.15(c)
Environmental Litigation Section 3.16
ERISA Plan Section 3.20(o)
FASB 5 Section 3.17
Financial Statements Section 3.5
Multiemployer Plan Section 3.20(a)
Nationwide Equity Rights Section 3.3
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
[signatures commence on following page]
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the date first written above.
WEBMD: NATIONWIDE:
WebMD, Inc. Nationwide Medical Services, Inc.
By: /s/ William A. Goldstein
--------------------------------
By: /s/ W. Michael Heekin William A. Goldstein, President
----------------------------------
Name: W. Michael Heekin
--------------------------------
Title: Executive Vice President
-------------------------------
50
<PAGE>
EXHIBIT 9.1
VOTING AGREEMENT
----------------
THIS VOTING AGREEMENT, dated as of January ___, 1999 (this "Agreement"), is
made and entered into by and among WebMD, Inc., a Georgia corporation ("WebMD")
and each party who has executed a signature page hereto (each a "Shareholder").
Preamble
--------
The Shareholder is a shareholder of WebMD as set forth on Schedule 1 to
----------
this Agreement. The Shareholder is executing this Agreement as an inducement to
HBO & Company of Georgia, a Georgia corporation ("HBOC"), to consent to the
filing by WebMD of the Designations of Preferences, Limitations and Relative
Rights of Series B Preferred Stock in connection with the acquisition by WebMD
of Sapient Health Network, Inc. ("SHN") and Direct Medical Knowledge, Inc.
("DMK") and the issuance of shares in connection therewith and in certain other
potential private offerings, which issuances by WebMD will benefit such
Shareholder.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
1. Representations and Warranties. The Shareholder severally and not
jointly represents and warrants to WebMD as follows:
(a) As of the date hereof, the Shareholder is the record owner of the WebMD
capital stock set forth beside his name on Schedule 1 to this Agreement or the
----------
record holder of shares of capital stock of SHN or DMK that will be converted
into the WebMD capital stock set forth beside his name on Schedule 1 to this
----------
Agreement upon the closing of the mergers (the "Mergers") of SHN and DMK into a
subsidiary of WebMD (in each such case, such Shareholder's "Shares").
(b) Such Shareholder's Shares and the certificates representing such Shares
are now and at all times during the term hereof will be held by such
Shareholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever that would interfere with the voting of the Shares or
the granting of any proxy, except for any such encumbrances or proxies arising
hereunder.
2. Voting Agreement. The Shareholder severally agrees with, and covenants
to, WebMD that, during the term of this Agreement, at any meeting of
Shareholders of WebMD at which such Shareholder has the right to vote, or at any
adjournment thereof or in any other circumstances upon which a vote, consent or
other approval is sought and such Shareholder has the right to vote, the
Shareholder shall vote (or cause to be voted) the Shareholder's Shares in favor
of the adoption of the amendment to the Designation of the Preferences,
Limitations and Relative Rights of the Series A Preferred Stock of WebMD set
forth on Exhibit A hereto (the "Amendment"). Shareholder, as a holder of WebMD
---------
capital stock, shall be present in person or by proxy at all meetings of
shareholders of WebMD so that all Shares are counted for purposes of determining
the presence of a quorum at such meetings.
3. Covenants. The Shareholder severally agrees with, and covenants to,
WebMD that prior to the termination of this Agreement, unless all of the
Shareholder's Shares governed hereby continue to be subject to the provisions of
this Agreement or another Agreement identical in terms, the Shareholder shall
not (i) transfer (which term shall include, without limitation, for the purposes
of this Agreement, any sale, gift, pledge, or consent to any transfer of), any
or all of the Shareholder's Shares or any interest therein; (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of such Shares or any interest therein, (iii) grant any
proxy, power of attorney or other authorization in or with respect to such
Shares or (iv) deposit such Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares.
<PAGE>
4. Certain Events. The Shareholder agrees that this Agreement and the
obligations hereunder shall attach to the Shareholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Shareholder's successors or assigns. In the event of any stock
split, stock dividend, merger, reorganization, recapitalization or other change
in the capital structure of WebMD, or the acquisition of additional shares of
WebMD capital stock or other voting securities of WebMD by any Shareholder, the
number of Shares subject to the terms of this Agreement shall be adjusted
appropriately and this Agreement and the obligations hereunder shall attach to
any additional shares of WebMD capital stock or other voting securities of WebMD
issued to or acquired by the Shareholder.
5. Termination. This Agreement, and all rights and obligations of the
parties hereunder shall terminate immediately following the approval by the
shareholders of WebMD of the Amendment in accordance with the Georgia Business
Corporation Code. In addition, notwithstanding the foregoing, in the event the
merger agreement with respect to either of the Mergers is terminated in
accordance with its terms without the closing of such merger, this Agreement
shall terminate with respect to a holder of the shares of either DMK or SHN
that was the subject of such merger agreement.
6. Shareholder Meeting. WebMD shall call a shareholders' meeting to be
held as soon as practicable for the purpose of approving and adopting the
Amendment.
7. Miscellaneous.
(a) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement.
(b) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(c) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Georgia, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
(d) Except as provided in Section 4 above, neither this Agreement nor any
of the rights, interests or obligations under this Agreement shall be assigned,
in whole or in part, by operation of law or otherwise, by any of the parties
without the prior written consent of WebMD. Any assignment in violation of the
foregoing shall be void.
(e) The Shareholder agrees that irreparable damage would occur and that
WebMD would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that WebMD
shall be entitled to an injunction or injunctions to prevent breaches by the
Shareholder of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this being in addition to any other remedy to
which they are entitled at law or in equity.
(f) No amendment, modification or waiver in respect of this Agreement shall
be effective against any party unless it shall be in writing and signed by such
party.
(g) HBOC is expressly intended to be a third party beneficiary to this
Agreement and this Agreement may not be amended or the provisions hereof waived
without HBOC's written consent.
[SIGNATURES ON FOLLOWING PAGE]
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed and delivered
this Voting Agreement as of the day and year first above written.
WEBMD, INC.
By: /s/ Jeffrey T. Arnold
-----------------------------------------
Title: Chief Executive Officer
--------------------------------------
"SHAREHOLDER"
/s/ Each Shareholder Listed on Schedule 1
except K. Robert Draughon and Susan Clymer
--------------------------------------------
[Shareholder Name]
By:_________________________________________
Title (if applicable):______________________
-3-
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Shareholder Name Class Number of Shares Held
- ---------------- ----- ---------------------
<S> <C> <C>
Jeffrey T. Arnold Common Stock 3,000,000
Series D Common 866,666
Finn Partners Series B Common 1,400,000
Series D Common 100,000
Lucius E. Burch Series C Common 1,000,000
J. Rex Fuqua Series D Common 350,000
Fuqua Holdings I, L.P. Series D Common 150,000
K. Robert Draughon Series D Common 50,000
U. Bertram Ellis, Jr. Series D Common 200,000
S. Taylor Glover Series D Common 509,305
Boland T. Jones Series D Common 100,000
Premiere Technologies, Inc. Series E Common 2,100,000
Eucalyptus, Ltd. Series B Preferred 222,079
H&Q Direct Medical Knowledge
Investors, LP Series B Preferred 141,832
HealthMagic, Inc. Series B Preferred 70,916
P. Ryan Phelan Series B Preferred 104,288
Sprout Capital VII, L.P. Series B Preferred
and affiliates
Asset Management Associates 1996, Series B Preferred
L.P. and affiliates
James Kean Series B Preferred
William J. Kelly Series B Preferred
Kristopher Nybakken Series B Preferred
Susan Clymer Series B Preferred
</TABLE>
<PAGE>
EXHIBIT A TO
VOTING AGREEMENT
ARTICLES OF AMENDMENT TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF WEBMD, INC.
In accordance with Section 14-2-1006 of the Georgia Business Corporation
Code (the "Code"), WebMD, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the Code, DOES HEREBY CERTIFY:
1. The name of the Corporation is WebMD, Inc.
2. The following resolution setting forth amendments to the Corporation's
Articles of Incorporation has been duly adopted by the Board of
Directors:
RESOLVED, THAT EXHIBIT A TO THE ARTICLES OF AMENDMENT TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION DATED AUGUST 24, 1998
SETTING FORTH THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE
SERIES A PREFERRED STOCK IS HEREBY AMENDED AS FOLLOWS:
(A) BY ADDING THE FOLLOWING PROVISIONS TO THE END OF THE FIRST
FULL PARAGRAPH OF SECTION (B) THEREOF:
"A Liquidation shall also be deemed to have occurred upon (i) the
acquisition of the Corporation by another entity by means of any
transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation) that results
in the Corporation's shareholders immediately prior to such
transaction not holding (by virtue of such shares or securities issued
solely with respect thereto) at least 50% of the voting power of the
surviving or continuing entity, or (ii) a sale, conveyance or
disposition of all or substantially all of the assets of the
Corporation unless the Corporation's shareholders immediately prior to
such transaction will, as a result of such sale, conveyance or
disposition hold (by virtue of securities issued as consideration for
such sale, conveyance or disposition) at least 50% of the voting power
of the purchasing entity, or (iii) the effectuation by the Corporation
or its shareholders of a transaction or series of related transactions
that results in the Corporation's shareholders immediately prior to
such transaction not holding (by virtue of such shares or securities
issued solely with respect thereto) at least 50% of the voting power
of the Corporation."
and
(B) BY ADDING THE FOLLOWING LANGUAGE TO FOLLOW THE LAST
"PROVIDED, HOWEVER" CLAUSE IN SECTION (C) THEREOF:
"; provided, further, that the voting rights described herein
with respect to a particular holder shall not become effective until
the Corporation and the particular holder of the security shall have
made any filings required under the Hart Scott Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"); provided, further, that if
filings under the HSR Act are required, then before such voting rights
shall become effective, either (1) the parties shall have been granted
early termination of the waiting period under the HSR Act, or (2) the
applicable waiting period shall have expired without any agency having
sought injunctive relief with respect to the effectiveness of such
voting rights."
<PAGE>
3. The foregoing resolution containing the amendment was duly adopted on
_________, by the Corporation's shareholders in accordance with the
provisions of Section 14-2-1003 of the Code.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be signed
by the undersigned duly authorized officer, this ____th day of ________, 1999.
WEBMD, INC.
By:_____________________________________
_____________________________________
_____________________________________
-6-
<PAGE>
EXHIBIT 10.2
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into this 28th
day of January 1999, by and among WebMD, Inc., a Georgia corporation ("WebMD"),
SunTrust Bank, Atlanta, a Georgia banking corporation, as the escrow agent (the
"Escrow Agent") and Nationwide Medical Services, Inc., a Virginia corporation
("Nationwide").
W I T N E S S E T H :
--------------------
WebMD is a party to a Stock Purchase Agreement with Nationwide, dated of
even date herewith (the "Stock Purchase Agreement"), pursuant to which WebMD has
on this date acquired shares of Series A Preferred Stock of Nationwide. Under
the Stock Purchase Agreement, Nationwide received shares of Series D Common
Stock of WebMD ("Series D Common Stock").
In accordance with the Stock Purchase Agreement, a portion of the Series D
Common Stock issuable to Nationwide will be held by the Escrow Agent pursuant to
the terms of this Agreement until termination of this Agreement as provided
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
-----------------------
On this date, WebMD has executed a stock certificate in negotiable form
representing the Escrow Shares and naming the Escrow Agent as the registered
holder for the benefit of Nationwide. The Escrow Agent shall hold the Escrow
Shares on behalf of, and as a convenience to WebMD and Nationwide with the same
force and effect as if such shares had been delivered by WebMD to Nationwide and
subsequently delivered by Nationwide to the Escrow Agent. The Escrow Agent
shall hold the Escrow Shares, together with any and all future cash dividends or
cash income with respect to the Escrow Shares (as provided in Section 5.1
hereof) ("Cash"), for the benefit of WebMD and Nationwide, as the case may be.
Any income or interest realized from the investments made by the Escrow Agent
pursuant hereto shall be included in Cash and paid in accordance with this
Agreement.
ARTICLE 2
INDEMNIFICATION
---------------
2.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
<PAGE>
(a) "Closing Date" shall mean the date of the closing of the transactions
------------
contemplated by the Stock Purchase Agreement.
(b) "Disputed Loss Notice" shall mean a Loss Notice that is disputed by
--------------------
Nationwide by delivery of a Protest Notice.
(c) "Escrow Agent Expenses" shall mean one-half of the expenses of the
---------------------
Escrow Agent which Nationwide is obligated to bear under Section 6.4 hereof, in
an amount up to $5,000, incurred in connection with the obligations of the
Escrow Agent under this Agreement.
(d) "Escrow Shares" shall mean _________ shares of Series D Common Stock
-------------
issued and placed in Escrow.
(e) "Indemnifiable Loss" shall mean any Loss for which an Indemnitee may
------------------
be indemnified pursuant to Section ___ of the Stock Purchase Agreement. The
amount of recovery for an Indemnifiable Loss shall be reduced by any insurance
proceeds received as a result of any such Indemnifiable Loss.
(f) "Indemnitee" shall mean a party entitled to indemnification under
----------
Section 2.2 hereof.
(g) "Loss" shall mean any direct or indirect demand, claim, payment or
----
failure to receive payment, obligation, action or cause of action, assessment,
loss, liability, cost or expense, or the failure to receive appropriate
certificates or documentation supporting an accounting or tax position taken,
including without limitation, penalties, interest on any amount payable to a
third party as a result of the foregoing, and any legal or other expense
reasonably incurred in connection with investigating or defending any claim or
action, whether or not resulting in any liability.
(h) "Loss Notice" shall mean a written notice, as prescribed in Section
-----------
2.3 hereof, provided by an Indemnitee to the Escrow Agent and Nationwide (i)
stating that the Indemnitee has paid or properly accrued or reasonably
anticipates that it will have to pay or accrue an Indemnifiable Loss or
potential Indemnifiable Loss, (ii) setting forth in reasonable detail the
individual items comprising such Indemnifiable Loss, the date each such item was
paid or properly accrued, or the basis for such anticipated liability, and the
nature of the misrepresentation, breach of warranty or covenant to which such
item is related, and (iii) to the extent the amount of the Indemnifiable Loss or
potential Indemnifiable Loss is reasonably calculable, an estimate of the number
of Escrow Shares to be delivered to an Indemnitee with respect to such
Indemnifiable Loss or potential Indemnifiable Loss.
(i) "Protest Notice" shall mean a written notice, as prescribed in Section
--------------
2.3 hereof, provided by Nationwide to an Indemnitee and Escrow Agent if he
disputes any Loss Notice received from an Indemnitee.
-2-
<PAGE>
(j) "Value Per Share" shall mean $ 20.00.
---------------
Capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2.2 Notice of Claim. If an Indemnitee incurs an Indemnifiable Loss, or
---------------
should an Indemnitee negotiate a proposed settlement in satisfaction of a
potential Indemnifiable Loss, it shall promptly provide a Loss Notice to
Nationwide and the Escrow Agent. If Nationwide disputes the amount sought under
any such Loss Notice or otherwise disputes the right of the Indemnitee to be
indemnified hereunder, Nationwide shall provide the Indemnitee and the Escrow
Agent a Protest Notice within thirty (30) days of the date any such Loss Notice
is received by Nationwide. If no Protest Notice is received by the Indemnitee
and the Escrow Agent within thirty (30) days from the date on which any Loss
Notice is received by Nationwide, or if a Protest Notice is received and the
dispute is resolved in favor of the Indemnitee after following the procedures
set forth below, then the Escrow Agent shall cause to be delivered to WebMD and
WebMD shall promptly cancel and retire that number of Escrow Shares as shall
equal the number of Escrow Shares (rounded to the next highest whole number)
that, when multiplied by the Value Per Share, equals the amount sought by or
awarded to the Indemnitee, as the case may be. To the extent that Cash is held
in escrow, at the option of the Indemnitee, the Escrow Agent shall pay any
Indemnifiable Loss, in whole or in part, with such Cash. If the Indemnitee and
the Escrow Agent receive a Protest Notice within such 30-day period, the Escrow
Agent shall not deliver any Escrow Shares until receipt by it of written
instructions (i) signed by a duly authorized officer of Nationwide and a duly
authorized officer of the Indemnitee; or (ii) signed by an arbitration panel
that has considered and resolved such dispute as provided in Section 2.3 below,
which sets forth (i) the number of Escrow Shares, and/or (ii) the amount of
Cash, if any, to be delivered to the Indemnitee in accordance with this
paragraph. After delivery of any Escrow Shares to the Indemnitee in accordance
with this paragraph, the Escrow Agent shall be reissued a certificate in respect
of any remaining Escrow Shares.
2.3 Procedure With Respect to Disputed Indemnifiable Loss. A Disputed
-----------------------------------------------------
Loss Notice may be resolved by the written agreement of Nationwide and the
Indemnitee, in which case written notice of such agreement shall be promptly
provided to the Escrow Agent, together with a statement of the agreed upon
amount to be reimbursed to the Indemnitee. If Nationwide and the Indemnitee are
unable to resolve a Disputed Loss Notice within sixty (60) days of delivery of
the Protest Notice to the Escrow Agent, then such Disputed Loss Notice shall be
submitted to arbitration in accordance with the then-current commercial
arbitration rules of the American Arbitration Association ("AAA"). If a
Disputed Loss Notice is to be arbitrated, Nationwide shall select one
arbitrator, the Indemnitee shall select one arbitrator, and the two arbitrators
so chosen shall select a third. Any decision of the arbitration panel shall
require the vote of at least two (2) of such arbitrators and shall be deemed
conclusive and each party shall be deemed to have waived any rights to appeal
therefrom. In any arbitration pursuant to this Section 2.4, an Indemnitee shall
be deemed to be the prevailing party if the arbitrators award the Indemnitee at
less fifty percent (50%) of the amount in dispute, plus any amounts not in
-3-
<PAGE>
dispute; otherwise, Nationwide shall be deemed to be the prevailing party. The
Escrow Agent shall receive written notice signed by both parties as to the
outcome of the arbitration. The non-prevailing party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative costs of the
arbitration (including the administrative fee of AAA), and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration. That percentage of the reasonable legal and
other expenses incurred by the Indemnitee in the arbitration proceeding as
equals the percentage of the claim sought which is actually awarded, shall be
added to the amount of the Indemnifiable Loss if Indemnitee is the prevailing
party. If resolution of a Disputed Loss Notice is not made within ninety (90)
days of the date of the Protest Notice as provided in this Section 2.4, then the
Escrow Agent may, in its sole discretion, either (i) continue to hold the Escrow
Shares undisbursed until such time as the disputing parties agree in writing as
to a proper disposition of such Escrow Shares, or (ii) if such agreement is not
forthcoming, the Escrow Agent shall be entitled to tender into the registry or
custody of any court of competent jurisdiction all money or property in its hand
under the terms of this Agreement, and, upon the advice of counsel, may take
such other legal action as may be appropriate or necessary, whereupon the
parties hereto agree Escrow Agent shall be discharged from all further duties
under this Agreement. The filing of any such legal proceedings shall not deprive
Escrow Agent of its compensation earned prior to such filing.
2.4 Employment of Counsel. Nationwide may control the defense of any
---------------------
third party claim with respect to which an Indemnifiable Loss has been asserted.
Notwithstanding the foregoing, if the aggregate amount of all such third party
and indemnity claims plus the aggregate good faith estimates of the reasonable
expenses to defend such claims exceed the number of Escrow Shares multiplied by
the Value Per Share, the Indemnitees may control the defense of all such third
party and general indemnity claims which have been brought under this Agreement,
provided that the Indemnitees may not settle a third party claim without the
approval of Nationwide, which approval shall not be unreasonably withheld. When
the Indemnitee is in control of the defense of such a claim, Nationwide may, at
its expense, and when Nationwide is in control of the defense of a claim, the
Indemnitee may, at its expense (which expenses shall not be treated as a Loss
hereunder), participate in the defense of any litigation or claim.
ARTICLE 3
TERM; EXPIRATION; LIMITS
------------------------
3.1 Term - General Indemnity. With respect to the indemnification
------------------------
obligations set forth in Section 2.2 hereof, the term of escrow for the Escrow
Shares shall commence on the Closing Date and shall terminate fifteen (15)
months after the Closing Date. WebMD and Nationwide shall provide written
notice to the Escrow Agent upon expiration of the escrow for the Escrow Shares.
3.2 Expiration of Term - No Claim Pending. If at the expiration of the
-------------------------------------
escrow term provided in Section 3.1 above, either (i) no Loss Notice has been
received with
-4-
<PAGE>
respect to an Indemnifiable Loss; or (ii) any Loss Notice that has been received
has been resolved in accordance with this Agreement; or (iii) no litigation or
claim is pending for which an Indemnitee may be entitled to indemnification
hereunder, the Escrow Agent shall (i) deliver to the transfer agent for Series D
Common Stock for issuance to Nationwide, a certificate representing the number
of shares of Series D Common Stock equal to the aggregate number of the Escrow
Shares subject to the escrow which term is expiring and then remaining in
escrow, and (ii) deliver to Nationwide, any Cash. Nationwide and WebMD shall
provide written notice to the Escrow Agent which sets forth the number of Escrow
Shares to be delivered as provided in the foregoing sentence. Any such delivery
of Series D Common Stock shall be of full shares and any fractional portions
shall be rounded to the nearest whole number by the Escrow Agent.
3.3 Expiration of Term - Claim Pending. If at the expiration of the
----------------------------------
escrow term provided in Section 3.1 above, any claim is pending under Section
2.2 for which a Loss Notice has been delivered to the Escrow Agent prior to such
expiration and for which an Indemnitee would be entitled to indemnification if
such claim were resolved adversely to them, then the Escrow Agent shall retain
in such escrow that number of shares of Series D Common Stock as shall equal the
number of Escrow Shares (rounded to the next highest whole number) that, when
multiplied by the Value Per Share, equals any amount set forth by such
Indemnitee in the Loss Notice with respect to such claims (the "Retained
Shares"). The number of Escrow Shares, less the number of Retained Shares,
shall then be distributed to Nationwide as set forth in Section 3.2 above. Upon
the resolution of any claim for which shares were retained in escrow at the
expiration of the term of this Agreement and receipt of written notice from
WebMD and Nationwide to such effect, the Escrow Agent shall cancel the
appropriate number of Retained Shares (if any) and shall distribute any
remaining Retained Shares to Nationwide as set forth in Section 3.2 above.
3.4 Effect of Final Delivery. Notwithstanding the expiration of the term
------------------------
of the escrow, this Agreement shall continue in full force and effect until the
Escrow Agent has delivered all of the Escrow Shares pursuant to the terms
hereof. After all of such shares have been so delivered, all rights, duties and
obligations of the respective parties hereunder shall terminate. If any cash is
held in escrow at the expiration of the term of the escrow, such cash shall be
distributed pro rata with the Escrow Shares as provided in Sections 3.2 and 3.3
above.
3.5 Maximum Liability and Remedies. If the Closing occurs, except for
------------------------------
remedies based upon fraud and except for equitable remedies (including temporary
restraining orders, injunctive relief and specific performance), the rights of
an Indemnitee to make claims on the Escrow Shares pursuant to this Agreement
shall be the sole and exclusive remedy of an Indemnitee with respect to any
breach of a representation, warranty, covenant or agreement made by Nationwide
under the Stock Purchase Agreement.
ARTICLE 4
ESCROW STOCK CERTIFICATES
-------------------------
-5-
<PAGE>
The Escrow Agent may at any time request the transfer agent for Series D
Common Stock to issue new certificates representing the Escrow Shares in such
denominations as may be necessary or appropriate in carrying out the Escrow
Agent's obligations under this Agreement.
ARTICLE 5
DIVIDENDS; VOTING RIGHTS
------------------------
5.1 Cash Dividends; Voting Rights. Any and all cash dividends or other
-----------------------------
cash income with respect to the Escrow Shares shall be held in escrow with the
Escrow Shares pursuant to the terms of this Agreement. By written notice signed
by Nationwide, Nationwide shall have the right to direct the Escrow Agent as to
the exercise of voting rights with respect to such Escrow Shares held by the
Escrow Agent on behalf of Nationwide, and the Escrow Agent shall comply with
such directions if received from Nationwide at least five (5) days prior to the
date of the meeting at which such vote is to be taken. The Escrow Agreement
shall be under no duty to verify the date of such meeting, but shall rely solely
on such representation in such directions.
5.2 Stock Splits; Stock Dividends. In the event of any stock split, stock
-----------------------------
dividend, recapitalization or similar transaction with respect to Series D
Common Stock that becomes effective during the term of this Agreement, the
additional shares so issued with respect to the Escrow Shares shall be added to
the Escrow Shares and any other references herein to a specific number of shares
of Series D Common Stock and the Value Per Share shall be adjusted accordingly.
ARTICLE 6
THE ESCROW AGENT
----------------
6.1 Liability. In performing any of its duties under this Agreement, or
---------
upon the claimed failure to perform its duties hereunder, Escrow Agent shall not
be liable to anyone for any damages, losses or expenses which they may incur as
a result of the Escrow Agent so acting, or failing to act; provided, however,
that Escrow Agent shall be liable for damages arising out of its willful
misconduct or gross negligence under this Agreement. The parties hereto jointly
and severally agree that in the event any controversy arises under or in
connection with this Agreement or the Escrow Shares, or the Escrow Agent is made
a party to or intervenes in any litigation pertaining to this Agreement or the
Escrow Shares, to pay to the Escrow Agent reasonable compensation for its
extraordinary services and to reimburse the Escrow Agent for all cost and
expenses associated with such controversy or litigation, including, but not
limited to, legal fees and expenses. Accordingly, the Escrow Agent shall not
incur any such liability with respect to (i) any action taken or omitted to be
taken in good faith upon advice of its counsel or counsel for WebMD or
Nationwide given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder; or (ii) any action taken or
omitted to be taken in reliance upon any document, including any written notice
or instructions provided for in this Agreement, not only as to its due execution
and to the validity and effectiveness of its provisions, but also as to the
truth and accuracy of any
-6-
<PAGE>
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed or presented by the purported proper
person or persons and to conform with the provisions of this Agreement. Written
instructions provided to Escrow Agent hereunder by WebMD and/or Nationwide shall
be signed by the "Authorized Representative" as identified on Schedule 1
----------
attached hereto. The limitation of liability provisions of this Section 6.1
shall survive the termination of this Agreement and the resignation or removal
(or effective resignation of the Escrow Agent pursuant to Section 2.3 hereof) of
the Escrow Agent.
6.2 Indemnification of Escrow Agent. WebMD and Nationwide hereby, jointly
-------------------------------
and severally, agree to indemnify and hold harmless the Escrow Agent against any
and all losses, claims, damages, liabilities and expenses, including, without
limitation, reasonable costs of investigation and counsel fees and disbursements
(both at the trial and appellate levels) which may be imposed on Escrow Agent or
incurred by it in connection with its acceptance of this appointment as Escrow
Agent hereunder or the performance of its duties hereunder (except in connection
with the willful misconduct or gross negligence of the Escrow Agent hereunder),
including, without limitation, any litigation arising from this Escrow
Agreement, or involving the subject matter thereof. The indemnity provisions of
this Section 6.2 shall survive the termination of this Agreement and the
resignation or removal of the Escrow Agent.
6.3 Resignation. The Escrow Agent may resign at any time from its
-----------
obligations under this Agreement by providing written notice to the parties
hereto. Such resignation shall be effective not later than sixty (60) days
after such written notice has been given. The Escrow Agent shall have no
responsibility for the appointment of a successor escrow agent. If a successor
escrow agent is not selected within sixty (60) days of the resignation of Escrow
Agent, the Escrow Agent shall have the right to institute a Bill of Interpleader
or other appropriate judicial proceeding in any court of competent jurisdiction,
and shall be entitled to tender into the registry or custody of any court of
competent jurisdiction all money or property in its hand under the terms of this
Agreement, whereupon the parties hereto agree Escrow Agent shall be discharged
from all further duties under this Agreement. The filing of any such legal
proceedings shall not deprive Escrow Agent of its compensation earned prior to
such filing. The Escrow Agent may be removed for cause by WebMD or Nationwide.
The removal of the Escrow Agent shall not deprive the Escrow Agent of its
compensation earned prior to such removal.
6.4 Expenses of Escrow Agent. The Nationwide and WebMD shall share
------------------------
equally the expenses of the Escrow Agent in an amount up to $5,000 each, and
thereafter any remaining expenses of the Escrow Agent shall be borne by WebMD.
Escrow Agent's fees and expenses are set forth on Schedule 2 attached hereto and
----------
made a part hereof and Escrow Agent shall bill WebMD for the amount of such fees
and expenses. WebMD shall pay the amount of its fees and expenses to Escrow
Agent, and the Escrow Agent Expenses. The Escrow Agent Expenses shall
constitute an Indemnifiable Loss pursuant to Section 2.2 hereof. As security
for such Escrow Agent Expenses, Escrow Agent is
-7-
<PAGE>
hereby given a lien upon all assets held by Escrow Agent hereunder, which lien
shall be prior to all other liens or claims against such assets.
6.5 Indemnification and Hold Harmless. WebMD and Nationwide, jointly and
---------------------------------
severally, hereby agree to indemnify and hold the Escrow Agent and its
directors, employees, officers, agents, successors and assigns harmless from and
against any and all losses, claims, damages, liabilities and expenses, including
without limitation, reasonable costs of investigation and counsel fees and
expenses which may be imposed on the Escrow Agent or incurred by it in
connection with any litigation (whether at the trial or appellate levels)
arising from this Agreement or involving the subject matter hereto. The
indemnification provisions contained in Section 6.4 are in addition to any other
rights any of the indemnified parties may have by law or otherwise and shall
survive the termination of this Agreement or the resignation or removal of the
Escrow Agent.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Transferability. The contingent right to receive Escrow Shares shall
---------------
not be transferable by Nationwide otherwise than by will or by the laws of
descent and distribution.
7.2 Notices. Each party shall keep each of the other parties hereto
-------
advised in writing of all transactions pursuant to this Agreement. Any notices
or other communications required or permitted under this Agreement shall be in
writing and shall be sufficiently given if sent by registered or certified mail,
postage prepaid, addressed as follows, or if sent by facsimile to the facsimile
numbers identified below:
If to WebMD:
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, N.E.
Attn: Mr. Michael Heeton
Tel: (404) 479-7600
Facsimile: (404) 479-7603
with a copy to:
Alston & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: J. Vaughan Curtis, Esq.
Tel: (404) 881-7397
Facsimile: (404) 881-4777
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<PAGE>
If to Nationwide:
Nationwide Medical Services, Inc.
819 West 21st Street, Suite 200
Norfolk, Virginia 23417
Attn: William A. Goldstein, President and CEO
Tel:
Facsimile: (757) 624-1829
With a copy to:
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30324
Attn: Richard L. Haury, Esq.
Tel: (404) 233-7000
Facimile: (404) 365-9532
If to Escrow Agent:
SunTrust Bank, Atlanta
Corporate Trust Division
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305-1797
Attn: Rebecca Fischer
Tel: (404) 240-1954
Facsimile (404) 240-2030
or such other person or address as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so mailed.
7.3 Construction. The validity, enforcement and construction of this
------------
Agreement shall be governed by the laws of the State of Georgia, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. In the case of any provisions of this Agreement that are
inconsistent or conflict with the provisions of the Stock Purchase Agreement,
this Agreement shall control.
7.4 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, legatees, assigns and
transferees, as the case may be. Escrow Agent shall be bound only by the terms
of this Agreement and shall not be bound by or incur liability with respect to
the Stock Purchase Agreement or any other agreement or understanding between
WebMD and Nationwide. The Escrow Agent shall not be charged with notice or
knowledge of any such ancillary document, fact
-9-
<PAGE>
or information not specifically set forth herein. The Escrow Agent shall
undertake to perform only such duties as are expressly set forth herein and no
additional or implied duties or obligations shall be read into this Agreement
against the Escrow Agent.
7.5 Separability. If any provision or section of this Agreement is
------------
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain enforceable in accordance with their terms.
7.6 Headings. The headings and subheadings contained in this Agreement
--------
are for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
7.7 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument
7.8 Amendments. This Agreement may be amended from time to time but only
----------
by written agreement signed by all of the parties hereto.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
WEBMD, INC.
By: /s/ W. Michael Heekin
----------------------------------
Title: Executive Vice President
-------------------------------
ESCROW AGENT
SunTrust Bank, Atlanta
By: /s/ Rebecca Fischer
----------------------------------
NATIONWIDE MEDICAL SERVICES, INC.
By: /s/ William A. Goldstein
----------------------------------
Title: President
-------------------------------
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<PAGE>
SCHEDULE 1
----------
Authorized Representatives
--------------------------
WebMD:
_______________, Representative of WebMD
Nationwide:
_______________, Representative of Nationwide
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<PAGE>
SCHEDULE 2
----------
Escrow Agent's Fees and Expenses
- ---------------------------------
$2,500.00 per year
- ------------------
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.6
CO-MARKETING AND INTEGRATION AGREEMENT
--------------------------------------
This Co-Marketing and Integration Agreement (the "Agreement") is entered
into this 15th day of December, 1997, by and between ENDEAVOR TECHNOLOGIES,
INC., a Georgia corporation ("Company"), and PREMIERE COMMUNICATIONS, INC., a
Florida corporation ("Premiere").
WHEREAS, Company is engaged in, among other things, the business of
promoting, selling and providing diagnostic telemedicine applications, including
remote patient monitoring and physician answering services;
WHEREAS, Premiere is engaged, directly and through its affiliates, in the
business of promoting, selling and providing telecommunications services
including those described below;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS:
-----------
(a) Premiere Services: "Premiere Services" for the purposes of this
-----------------
Agreement, shall mean the following (without limitation), as and to the extent
requested and received as part of the Joint Services: mobile long distance or
calling card services; personal assistant services (e.g., "follow me," "call
connect," and/or personal 800 services); voice-mail services; fax mail services;
text to speech services; "Orchestrate" services; services offered in local
markets using seven digit direct inward dialing ("DID") number. Premiere
Services shall include the following (without limitation), as and to the extent
requested and received as part of the Joint Services:
(i) Premiere WorldLink Calling Card: This service offers traditional
calling card services with the following enhanced features: voice-mail, fax
mail, text to speech e-mail, conference calling, and access to content such as
news, weather, and sports.
(ii) Premiere Personal Assistant: This service offers all of the
features included with the WorldLink Calling Card plus the following features:
personal 800 numbers, personalized greetings, call connect, call forwarding,
voice-mail aggregation, live CNN news feeds, and text to speech services.
(iii) Orchestrate: This service offers all of the features of the
Personal Assistant plus the following features: web interface for all voice, fax
and e-mail messages, on-line contact management, fax broadcasting, web and
telephone based conference calling, fax services, and cross media messaging.
<PAGE>
(iv) Voice Mail Services: This service includes local and 800 based
voice-mail, voice-mail distribution services, fax mail, and fax distribution
services.
The Premiere Services may be amended for the purpose of this Agreement, subject
to sixty (60) days' advance notice, to include additional related products or
services and to exclude or discontinue particular Premiere Services from time to
time, provided that in such regard Premiere agrees to make available to Company
and its customers all products or services Premiere offers to other comparable
businesses from time to time, and provided further that Premiere agrees not to
exclude or discontinue Premiere Services in any manner that would disrupt or
interfere with the parties' ability to carry out the basic terms of the Joint
Marketing Plan.
(b) Company Services: "Company Services" shall mean services offered or
----------------
to be offered to customers of the Company as and to the extent requested and
received as part of the Joint Services. Company Services shall include cardiac
event monitoring, holter monitoring, pacemaker follow-up, and physician
answering services, subject to reasonable roll-out considerations. Company
Services may be amended for the purpose of this Agreement, subject to sixty (60)
days' advance notice, to include additional related products or services and to
exclude or discontinue particular Company Services, provided that the Company
agrees not to exclude or discontinue Company Services in any manner that would
disrupt or interfere with the parties' ability to carry out the basic terms of
the Joint Marketing Plan.
(c) Joint Services: "Joint Services" shall mean the product or services
--------------
offered to customers of the Company or of Premiere which are Premiere Services
integrated with Company Services. Joint Services may include Telecommunications
Services.
(d) Joint Marketing Plan: "Joint Marketing Plan" shall mean a plan to be
--------------------
developed and mutually agreed upon by Premiere and the Company within sixty (60)
days of the Effective Date (as defined in paragraph (g) below). Such Plan shall
thereafter be reviewed at least once every six (6) months and amended by the
parties from time to time as necessary to advance the parties' mutual planning
objectives and take account of changes contemplated by this Agreement.
(e) Technical Integration Plan: "Technical Integration Plan" shall mean
--------------------------
a plan for technical integration of the Premiere Services and the Company
Services, as well as delineation of the other matters specified in Section 2
hereof, to be developed and mutually agreed upon by Premiere and the Company
within thirty (30) days of the Effective Date. Such Plan shall thereafter be
reviewed at least once every six (6) months and amended by the parties from time
to time as necessary to advance the parties' mutual planning objectives and take
account of changes contemplated by this Agreement.
(f) Telecommunication Services: "Telecommunications Services" shall mean
--------------------------
mobile telecommunications services such as calling card, voice mail, text to
speech e-mail, conference calling and web-based conference calling, fax services
including e-mail to fax, telephonic delivery of news and information such as
stock quotes, fax, pager, or voice
-2-
<PAGE>
notification of messages, and services included in Premiere's Orchestrate
service. Telecommunications Services may include Premiere Services or Joint
Services.
(g) Effective Date. For purposes of this Agreement, the "Effective Date"
--------------
will be the date of the parties' mutual acknowledgment that the Initial
Investment has been completed as provided in Section 4(e) hereof. This Agreement
will terminate, unless otherwise agreed, in the event that the Effective Date
has not occurred by January 1, 1998.
2. INTEGRATION OF PREMIERE SERVICES AND COMPANY SERVICES: The Technical
-----------------------------------------------------
Integration Plan will address the following issues, as well as the
implementation plan for agreed-upon solutions:
A. Design deliverables to include hard and soft copies of the design document,
and a detailed implementation plan.
B. Integration of the Company's call center with Premiere Services.
C. Design and integration of the Company's Internet/Extranet strategies and
services with the Joint Services.
D. Integration of the Endeavor 2000 platform to work seamlessly with the
Orchestrate system.
The parties acknowledge that Premiere has devoted substantial time and effort
toward the technical development and integration of Company Services with the
Orchestrate platform through the date hereof, and the Company shall pay Premiere
a flat fee of $350,000 for its development and integration services. Such fee
shall be payable on a percentage of completion basis, $250,000 upon execution of
this Agreement, and $100,000 on December 31, 1997.
(a) Premiere Obligations: Premiere shall use all commercially reasonable
--------------------
efforts, in consultation with the Company, to develop an environment, platform
and means by which all existing and new customers of the Company Services are
introduced to and given the opportunity to register for and use the Joint
Services. Pursuant to the Technical Integration Plan and Joint Marketing Plan
(as applicable), Premiere shall:
(i) Registration: Provide technical integration and assistance
required for Company customers to register for the Joint Services on-line and by
telephone, as more fully set forth in the Technical Integration Plan;
(ii) Staffing: Assign engineering and project management staff
reasonably required to create and deliver the Joint Services, as more fully set
forth in the Technical Integration Plan; and
(iii) Equipment: Procure telecommunications, computer or other
equipment required to permit customers of the Company to register for and use
the Joint Services, as more fully set forth in the Technical Integration Plan;
-3-
<PAGE>
(iv) Maintenance: Maintain all equipment and telecommunications
transport facilities, such as T1s, switching facilities, and other equipment
required to reasonably accommodate all traffic generated by the Joint Services,
as more fully set forth in the Technical Integration Plan. Also Premiere will
maintain all equipment, services, databases, internet transport facilities, and
other equipment necessary to reasonably accommodate all traffic generated by the
Joint Services based on reasonable saturation and peak load standards, as more
fully set forth in the Technical Integration Plan;
(v) Customer Service: Staff and train customer service
representatives to register and support customers of the Company who purchase
and use the Joint Services in such instances where the parties have determined
in the Joint Marketing Plan that Premiere is to provide customer support for
telecommunications aspects of the Joint Services;
(vi) Billing and Collection: Bill and collect fees incurred by
customers of the Joint Services in such instances where the parties have
determined in the Joint Marketing Plan that Premiere is responsible for billing
and collection services; and
(vii) Sharing of Data: Provide access to data that the Company
reasonably requests for its business purposes, including (without limitation)
for planning and for its audits of the number of customers who register for the
Joint Services and the charges which are incurred by their use of the Joint
Services.
(b) Company Obligations: The Company shall provide reasonable
-------------------
cooperation to assist Premiere in its obligation hereunder to create and
maintain an environment, platform, and means by which the Joint Services are
introduced to and promoted to all existing and new customers of Company
Services. Pursuant to the Technical Integration Plan and Joint Marketing Plan
(as applicable), the Company shall:
(i) Registration: Cooperate with Premiere's efforts to provide
technical integration and assistance required for Company customers to register
for the Joint Services on-line and by telephone, as more fully set forth in the
Technical Integration Plan;
(ii) Staffing, Equipment and Maintenance: Provide staffing, equipment
and maintenance, as more fully set forth in the Technical Integration Plan. Such
obligation shall include Company's responsibility for the design, development,
installation and maintenance of the Company's Call Center;
(iii) Billing and Collection: Bill and collect fees incurred by
customers of the Company Services and the Joint Services and remit the fees for
services in the amounts specified in Section 4(a) hereof to be paid monthly to
Premiere on a "net 10" basis, as more fully described below and in the Joint
Marketing Plan;
(iv) Customer Service: Staff and train customer service
representatives to support the Joint Services, in such instances where the
parties have determined in the Joint Marketing Plan that the Company is to
provide customer support for the Joint Services; and
-4-
<PAGE>
(v) Sharing of Data: Provide access to data upon Premiere's
reasonable request regarding customers' use of the Joint Services and the
promotion of the Joint Services, such as the number of hits to web pages served
by the Company, data required for billing and collection, and customer profiles
to the extent determined in the Joint Marketing Plan, use of which shall be
limited to carrying out Premiere's responsibilities under this Agreement.
3. MARKETING AND PROMOTION OF THE JOINT SERVICES: Within sixty (60) days of
---------------------------------------------
the Effective Date, the Company and Premiere will create a Joint Marketing Plan
to introduce and promote the Joint Services.
(a) Premiere Obligations: Premiere's rights and responsibilities, as more
--------------------
specifically set forth in the Joint Marketing Plan, shall include, but not be
limited to:
(i) Consultation: Premiere will consult with and advise the Company
regarding strategies for marketing, selling, and supporting the Joint Services,
both directly and through various third party channels;
(ii) Resources: Premiere will make certain marketing and creative
resources, such as professional design and co-branding services, available to
the Company to assist the Company in marketing the Joint Services, provided that
the cost of such resources shall be shared as provided in the Joint Marketing
Agreement; and
(iii) Fulfillment: Premiere shall work with the Company to design
mutually agreeable fulfillment materials and shall bear the cost of designing,
creating and delivering the fulfillment materials which relate to the first
seven months of offering the Joint Services. Premiere and the Company shall
agree on any expenditures before they are incurred.
(b) Company Obligations: The Company's rights and responsibilities, as
-------------------
more specifically set forth in the Joint Marketing Plan, shall include, but not
be limited to:
(i) Channels and Strategies: In consultation with Premiere, the
Company agrees to use commercially reasonable efforts to employ, or to permit
Premiere to employ, the following marketing strategies to promote the Joint
Services:
(1) Direct Sales: Promote the Joint Services with all
------------
appropriate direct and indirect sales personnel deployed in selling the Company
Services and in registering customers for the Company Services;
(2) Web Site: Promote the Joint Services on all appropriate
--------
web sites which describe the Company Services and are used to register customers
for the Company Services;
(3) Direct Mail: Promote the Joint Services using an
-----------
appropriately branded direct mail package, including, in certain cases, a
membership card branded for the Joint Services;
-5-
<PAGE>
(4) Partner Programs: When, and if, commercially reasonable,
----------------
introduce its strategic partners to the Joint Services and the
Telecommunications Services.
(ii) Company Services: If permitted by law, introduce the Joint
Services to all newly acquired and existing customers of the Company Services as
follows:
(1) Newly Acquired Customers: The Company shall introduce and
------------------------
promote the Joint Services to all newly acquired customers (but not necessarily
patients) during the registration process and in any fulfillment information
(either physical or electronic) sent to the customer.
(2) Existing Customers: The Company shall introduce and
------------------
promote the Joint Services to all existing customers of the Company at such time
deemed appropriate by the Company.
4. FINANCIAL ARRANGEMENTS:
----------------------
(a) Company's Obligations:
---------------------
(i) Per Account Charges: Company shall remit to Premiere, a flat
-------------------
monthly rate per active account, as follows. Company will pay Premiere *** US
dollars ($***) per active account per month for fully enhanced services without
local voice mail; *** US dollars ($***) per active account per month for fully
enhanced services to include local voice mail; and ***US dollars ($***) per
active account per month for fully enhanced services to include local voice mail
with decision tree processing capabilities.
(ii) Transaction Charges: Company shall remit to Premiere $*** per
-------------------
minute for each minute of Telecommunications Services to be charged to accounts.
(iii) Ramp-Up Schedule: Premiere shall be entitled to receive
----------------
payment for the above charges subject to minimum payment commitments, which
commitments shall begin ninety (90) days after the Company's move to the Lenox
Building Fourth Floor facilities and shall increase by $10,000 per month to
$80,000 per month in the eighth month to continue at the $80,000 per month level
thereafter.
(iv) General: Company reserves the right to determine actual charges
-------
for customers in its discretion. Premiere shall, if reasonably feasible, make
available all inbound and outbound 800 and other long distance services to be
used by the Company at Premiere's "pass through" cost (plus any required taxes
or regulatory fees). An "active account" for purposes of this Agreement is an
account receiving Joint Services. The Company bears sole risk of collection for
delinquent accounts, except to the extent the delinquency results from
- ----------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
-6-
<PAGE>
service problems caused by Premiere, and provided that the Company can terminate
service for delinquent accounts immediately on request. For accepting such
risk, the Company will receive a concession of 2% of gross charges.
Demonstration, promotional, or reduced rate accounts shall not be subject to the
foregoing minimum account charges provided they are approved in advance in
writing by Premiere. Premiere hereby represents and warrants that the charges
provided for herein are equal to or lower than any rates offered by Premiere to
any other entity serving the same or similar markets as Company with similar
volume and term commitments. If the rates provided for herein, at any time
during the term of this Agreement, exceed any rates offered by Premiere to an
entity providing services to the same or substantially similar markets as
Company, then Premiere shall promptly notify Company of the terms of the
contract containing such lower rates, addressing (A) services provided, (B)
volume commitments, (C) service levels, (D) term, and (E) termination rights.
Company may within thirty (30) days following receipt of notice of such
contract, elect by giving notice to Premiere to have the more favorable rates in
such contract substituted for the rates provided for herein, effective as of the
date of such contract; provided, Company also agrees to substitute the
provisions set forth in items (A) through (E) above in such contract for those
set forth herein.
(b) Payment: Payment of charges as set forth in paragraph (a) above
--------
shall be due within ten (10) days after Company's receipt from Premiere of the
call detail report (CDR) for an applicable service month and a statement from
Premiere setting forth the charges.
(c) Conditions: Prior to the introduction and promotion of a Program (as
----------
defined below), (i) the features of the Joint Services shall be defined to
Premiere's and Company's satisfaction, and (ii) Company's and Premiere's service
delivery capabilities shall meet the minimum operation standards and performance
expectations of both parties. Minimum performance criteria shall be developed
and mutually agreed upon within thirty (30) days of the Effective Date. Such
criteria shall thereafter be reviewed at least once every six (6) months and
amended by the parties from time to time to take account of reasonable industry
standards.
(d) Programs: The parties acknowledge that they intend to test market the
--------
Joint Services through various promotional approaches and channels to be further
described in the Joint Marketing Plan. All service offerings, marketing and
marketing initiatives for the Joint Services provided for in the Joint Marketing
Plan shall be deemed to be a "Program" hereunder. The parties agree to consider
revisions to the Joint Marketing Plan no less frequently than once every six (6)
months. In all events, each party agrees to maintain a level of service and
quality consistent with reasonable and customary industry standards, to be more
specifically addressed in the Joint Marketing Plan and Technical Integration
Plan. All promotional materials (including without limitation, solicitation,
fulfillment, customer service and retention materials) developed by the parties
pursuant to the Joint Marketing Plan are referred to herein as "Promotional
Materials."
(e) Marketing of Joint Services: The Company hereby commits that it shall
---------------------------
spend Seven Hundred Fifty Thousand Dollars ($750,000) to be used for the
promotion of the Joint
-7-
<PAGE>
Services. These funds shall be used for direct sales and marketing,
telemarketing, direct mail, and other marketing or promotion campaigns in
accordance with the Joint Marketing Plan.
(f) Technical Development: The Company shall pay to Premiere One Hundred
---------------------
Thousand Dollars ($100,000) for its services in connection with the technical
and other integration required to permit the promotion, sale, and delivery of
the Joint Services pursuant to the Technical Integration Plan. Premiere shall
provide to Company a privately branded "Endeavor" Orchestrate product by
December 31, 1997. In addition, Premiere shall provide the services necessary
to deliver to the Company by January 31, 1998 a privately branded "Endeavor"
Orchestrate product with a seamless link to the Company's web site with
corresponding IVR voice interface, and decision tree, operator out and call
transfer capabilities. The Company shall separately engage its own engineering
resources to design, develop and install the Company's call center, at Company's
sole expense, in Premiere's current Fourth Floor facilities (the "Call Center").
Premiere will provide the Company access to and use of Premiere's facilities and
support personnel for such purpose when and as reasonably required, on
reasonable notice, during normal business hours. The $100,000 fee shall be paid
upon completion of the material requirements of the Technical Integration Plan.
(g) Real Estate; Call Center: Subject to procurement of required consent
------------------------
of the lessor, Premiere shall sublease to the Company the Fourth Floor of the
Lenox Building at 3399 Peachtree Road NE and shall lease or sublease, as
applicable, to the Company certain furniture, fixtures and equipment for charges
and on the terms and conditions set forth in the Sublease Agreement and
Equipment Lease pertaining thereto. If the lessor's consent is not obtained,
this Agreement shall nevertheless remain in full force and effect.
5. EXCLUSIVITY; NON-SOLICITATION:
-----------------------------
(a) Company: During the term of this Agreement, to the extent Premiere
--------
can reasonably meet the requirements of applicable customers for
Telecommunications Services as determined by market, type of service and
territory, the Company agrees to use Premiere as its exclusive provider of
Telecommunications Services to its customers which utilize the Company Services,
except for wireless communications.
(b) Premiere: For the first six (6) months after the beginning of the
---------
roll-out of the Joint Services, Premiere will not enter into a substantially
similar technical and marketing venture with another company or group of
companies targeting substantially the same healthcare-related market as the
Company is targeting without first giving the Company the right to sponsor the
proposed arrangement. In addition, during the term of this Agreement, Premiere
agrees not to solicit healthcare-related customers of the Company for purposes
of offering Joint Services independent of the Company.
6. LIMITATION OF LIABILITY:
-----------------------
(a) NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT SHALL
EITHER PARTY BE LIABLE, DIRECTLY OR INDIRECTLY, FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, REGARDLESS
-8-
<PAGE>
OF CAUSE OF ACTION, ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
PERFORMANCE THEREOF, EVEN IF THE PARTY WAS AWARE OF AND WAS NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
(b) Accuracy of Data: As part of the Joint Services, each party shall be
-----------------
responsible for the accuracy and completeness of the data and information
submitted by it to the other party and for any errors in and with respect to
data and information submitted to the other party. Each party shall promptly
correct any known errors or inaccuracies in the data or information prepared by
it and submitted to the other party.
(c) Survival: The provisions of this Section shall survive the
---------
termination or expiration of this Agreement.
7. PUBLICITY: Neither party shall refer to or identify the other party, such
---------
other party's parent, subsidiaries or affiliates, or the respective products or
services of any of them, in advertising, promotional activity or publicity
release relating to any Program without securing the prior written consent of
such other party, such consent not to be unreasonably withheld. The foregoing
applies equally to materials whether or not they relate to the Joint Services.
8. CONFIDENTIALITY:
---------------
(a) As used herein, "Confidential Data and Information" shall mean any
information, data, or materials obtained by one party to this Agreement (the
"Receiving Party") from, or disclosed to such party by, the other party or its
customers (the "Disclosing Party"), which information, data, or materials relate
to a Program or to the past, present, or future business activities of the
Disclosing Party or any of its subsidiaries, affiliates, or clients, including
methods, processes, telephone conversations, financial data, systems, customer
names, account numbers, and other customer data, lists, statistics, programs,
and research and development. For such purpose, Confidential Data and
Information of Premiere will include information generally related to Premiere's
telecommunications services and facilities and information pertaining to
customers of Premiere not receiving Company Services; Confidential Data and
Information of Company will include information generally related to the Company
Services and customers receiving the Company Services (alone or integrated as
Joint Services). Confidential Data and Information shall not include, however,
such information as: (i) is previously known to the Receiving Party, free from
any obligation to keep it confidential which Receiving Party can demonstrate
through written records; (ii) is lawfully publicly disclosed either prior to or
subsequent to the Receiving Party's receipt of such information in such manner
as can be readily ascertained by the Receiving Party without substantial effort
and expense; (iii) is lawfully obtained by the Receiving Party from a third
party who, in making such disclosure, breaches no obligation of confidence; or
(iv) is independently developed by the Receiving Party which Receiving Party can
demonstrate through written records.
(b) With respect to each party's access to customer files and related
customer data of the other party (the "Files"), each party specifically
acknowledges the importance of maintaining the security and confidentiality of
the Files, and agrees to take whatever
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<PAGE>
commercially reasonable steps are necessary to prevent the unauthorized
transfer, disclosure to, or use of the Files by any person or entity not a party
to this Agreement.
(c) The Receiving Party shall not disclose, publish, release, transfer, or
otherwise make available Confidential Data and Information of the Disclosing
Party in any form to, or for the use or benefit of, any person or entity without
the Disclosing Party's prior written consent. Each party, however, shall be
permitted to disclose relevant aspects of the other party's Confidential Data
and Information only to its officers, employees, directors, legal counsel,
accountants, financial advisors, lenders and similar professionals on a need to
know basis to the extent that such disclosure is reasonably necessary for the
performance of their duties and obligations under the Agreement and such
recipients; provided, that such party shall take all reasonable measures to
ensure that Confidential Data and Information of the other party is not
disclosed or duplicated in contravention of the provisions of this Agreement by
such recipients. Each party agrees to ensure that the terms and conditions of
this Agreement are strictly adhered to by all of its employees and any third-
party representative. The obligations shall not restrict any disclosure by
either party mandated by any applicable law, or by order of any court or
government agency (provided that the party so disclosing shall give prompt
notice to the other party of such order).
(d) The Receiving Party shall: (i) notify the Disclosing Party promptly
of any material unauthorized possession, use or knowledge, or attempt thereof,
of the Disclosing Party's Confidential Data and Information by any person or
entity which may become known to such Receiving Party and encourage its
employees to do the same, (ii) promptly furnish to the Disclosing Party full
details of the known unauthorized possession, use or knowledge, or known attempt
thereof, and use reasonable efforts to investigate any unauthorized possession,
use or knowledge, or attempt thereof, of Confidential Data and Information,
(iii) use reasonable efforts to cooperate with the Disclosing Party in any
litigation and investigation against third parties deemed necessary by the
Disclosing Party to protect its proprietary rights, and (iv) promptly use all
reasonable efforts to prevent a recurrence of any such unauthorized possession,
use or knowledge of Confidential Data and Information. Each party shall bear the
cost it incurs as a result of compliance with the requirements set forth in
these paragraphs.
(e) Each party reserves the right to monitor access to Confidential Data
and Information to prevent the improper or unauthorized use of such Confidential
Data and Information. Such monitoring may include, but is not limited to, on-
site inspection of the other party's locations providing the Joint Services at
any time during normal business hours.
(f) The Receiving Party agrees that if there is any wrongful disclosure of
the Confidential Data and Information by its employees, it will take reasonable
steps to enforce for the Disclosing Party's benefit through litigation, if
necessary, subject to the Disclosing Party's reasonable instructions, all rights
provided under law to protect the Disclosing Party from such or any additional
disclosure.
(g) The Receiving Party agrees that if it or its officers, employees or
anyone obtaining access to the proprietary information of the Disclosing Party
by, through or under it, breaches any provision of this Section, such other
party would suffer irreparable harm and the
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<PAGE>
total amount of monetary damages for any injury to the Disclosing Party from any
violation of this Section would be impossible to calculate and would therefore
be an inadequate remedy. Accordingly, the Receiving Party agrees that the
Disclosing Party shall be entitled to temporary and permanent injunctive relief
against the breaching party, its officers or employees, and such other rights
and remedies to which the Disclosing Party may be entitled to at law, in equity
and under this Agreement for any violation of this Section.
(h) The provisions of this Section shall survive the termination or
expiration of this Agreement for a period of two years.
9. QUALITY OF CUSTOMER SERVICE: Each party shall have the right, with
----------------------------
reasonable notice, to monitor periodically the quality of the other party's
obligations to provide customer service as set forth herein and in the Joint
Marketing Plan.
10. NOTICES: All notices, consents, requests, instructions, approvals, and
-------
other communications made, required or permitted hereunder (each herein, a
"Notice") shall be given in writing and delivered to the receiving party to its
respective address set forth below (i) by personal delivery to a responsible
officer of such party, (ii) by certified or registered mail (return receipt
requested), (iii) by a nationally recognized courier service or (iv) by
facsimile transmission (such to be confirmed by mail). The effective date of
such Notice shall be deemed to be the date upon which any such Notice is
personally delivered or, if it is given by mail, courier service or facsimile
transmission, the date upon which it is received by the addressee. Any party
hereto may change its address set forth below by written notice to the other
party hereto in accordance with the terms of this Section 10.
If to Premiere:
Premiere Communications, Inc.
3399 Peachtree Road NE
Lenox Building, Suite 400
Atlanta, GA 30326
Attn: Mr. Gregg Freishtat
With a copy to Mr. Patrick G. Jones, Esq., at the same address.
To change, upon occupancy of the Lenox Building by Company, to Suite 700
- ---------
And with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 Peachtree St.
Atlanta, GA 30309-3424
Attn: Ms. Janine Brown, Esq.
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<PAGE>
If to the Company:
ENDEAVOR TECHNOLOGIES, INC.
1100 Lake Hearn Drive, Suite 310
Atlanta, Georgia 30342-1524
Attn: Mr. Jeffrey T. Arnold
To change, upon occupancy of the Lenox Building by Company, to:
- ---------
3399 Peachtree Road, N.E.
Lenox Building, Suite 400
Atlanta, Georgia 30326
Attn: Mr. Jeffrey T. Arnold
With a copy to:
Nelson Mullins Riley & Scarborough, LLP
First Union Plaza, Suite 1400
999 Peachtree St.
Atlanta, GA 30309
Attn: Mr. Glenn W. Sturm, Esq.
Each party may change its address for receiving Notices under this Agreement by
Notice pursuant to this Section.
11. WARRANTIES: Each party represents and warrants that it is under no
----------
obligation or restriction which would prohibit it from entering or performing
this Agreement, or cause it to be in breach of this Agreement. Each party to
this Agreement represents and warrants to the other party that this Agreement,
when signed on behalf of a party, constitutes the legal, valid and binding
obligation of such party enforceable in accordance with its terms.
12. REPORTS: In addition to the reporting requirements set forth elsewhere in
--------
this Agreement, each party shall provide the other party with such other reports
as reasonably requested in order to facilitate each party's obligations under
this Agreement and the Joint Marketing Plan and the Technical Integration Plan.
13. TERM AND TERMINATION:
--------------------
(a) Term; Renewal Term; Third Party Offers: This Agreement shall take
--------------------------------------
effect on the Effective Date, and shall continue until January 31, 2001.
Thereafter, this Agreement shall automatically renew for successive one-year
periods (each, a "Renewal Term") unless either party gives the other written
notice of termination at least one hundred eighty (180) days prior to the
expiration of the Initial Term or Renewal Term then in effect.
(b) Termination for Breach: Upon a material breach of any provision of
----------------------
this Agreement, the non-breaching party shall give notice of such breach to the
breaching party.
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<PAGE>
The breaching party shall have sixty (60) days from the receipt of said notice
to cure the breach described in the notice. If the breach is not cured within
said sixty (60) day period, the non-breaching party shall have the right,
thereafter, to terminate this Agreement by giving written notice thereof to the
breaching party.
(c) Termination on a Change of Control of the Company: In the event of
-------------------------------------------------
a sale or disposition of all or substantially all of the assets of the Company
to, a sale or disposition of sufficient stock (other than pursuant to a public
offering) of the Company to effect a change in control to, or a merger or
consolidation of the Company with, any Premiere Competitor, Premiere may
terminate this Agreement immediately. A "Premiere Competitor" shall mean any
company whose primary business is to provide one or more Telecommunication
Services in competition with Premiere.
(d) Termination for Insolvency: Upon notice, either party may terminate
--------------------------
this Agreement with immediate effect: (1) upon the institution by the other
party of proceedings to be adjudicated a bankrupt or insolvent, or the consent
by the other party to institution of bankruptcy or insolvency proceedings
against it or the filing by the other party of a petition or answer or consent
seeking reorganization or release under the Federal Bankruptcy Act, or any other
applicable Federal or state law, or the consent by the other party to the filing
of any such petition or the appointment of a receiver, liquidator, assignee,
trustee, or other similar official of the other party or of any substantial part
of its property, or the making by the other party of an assignment for the
benefit of creditors; (2) if, within 60 days after the commencement of an action
against the other party seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future law or
regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the other
party stayed, or if the stay of any such order or proceeding shall thereafter be
set aside; or if, within sixty (60) days after the appointment without the
consent or acquiescence of the other party of any trustee receiver or liquidator
or similar official of the other party, or of all or any substantial part of the
property of the other party, such appointment shall not have been vacated.
(e) Cross-Termination: In the event of termination of the Equipment
-----------------
Sublease between the parties, then either party, provided it is not responsible
for a default causing such termination, shall have the right to terminate this
Agreement upon written notice to the other party, which termination shall be
effective on the date on which such other agreement terminates, unless the
parties mutually agree to another effective date. The parties' inability to give
effect to the Equipment Lease and/or Sublease as a result of failure to obtain
the lessor's consent, or the expiration of such agreements in accordance with
their terms shall not be considered a termination for such purpose.
(f) Effect of Termination: Termination or expiration of this Agreement
---------------------
not relieve the parties of any liability which accrued hereunder prior to the
effective date of such termination nor preclude either party from pursuing all
rights and remedies it may have hereunder or at law or in equity with respect to
any breach of this Agreement. In addition, the following provisions shall
survive any termination or expiration of this Agreement: Section 4 (Financial
Agreements), Section 6 (Limitation of Liability), Section 7 (Publicity), Section
8
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<PAGE>
(Confidentiality), Section 14 (Proprietary Rights), and Section 17
(Miscellaneous). Following termination of this Agreement, Premiere shall provide
the Company with reasonable assistance to permit the Company to remove and re-
use Company assets, retrieve copies of files and other Confidential Data and
Information of the Company, and provide technical support for any necessary
transition or cut-over in service, provided that Company shall reimburse
Premiere for its reasonable out-of-pocket expenses. The Company's obligations
under Section 5 shall be abated as necessary to prepare for or effect such
transition; Premiere's obligations under Section 5 shall continue,
notwithstanding termination of this Agreement, until such transition is
complete.
14. PROPRIETARY RIGHTS: For purposes of this Agreement,"Developed Materials"
------------------
mean all inventions, methods, techniques, works or authorship, computer
software, computer upgrades, computer programs, service providers, vendors
information, training materials, telemarketing scripts, computer screens,
reports, data, any other proprietary or confidential information, including
corresponding intellectual property rights, made, created, developed or written
with respect to the subject matter of this Agreement through cooperation,
collaboration or joint efforts of the parties hereto. Whenever possible, the
parties shall agree on their relative ownership and rights with respect to
Developed Materials in connection with joint plans, funding commitments, or
similar cooperative work efforts before they are effected. If not otherwise
agreed, then, in the event Developed Materials do not pertain solely to only one
party's business, then such Developed Materials shall be deemed the joint
property of Premiere and the Company. Developed Materials shall be deemed
Confidential Data and Information of one or both parties in accordance with
their ownership rights therein and shall accordingly be subject to the
confidentiality provisions of this Agreement. Notwithstanding the foregoing, in
all events Files and Confidential Data and Information of the Company shall be
the Company's property.
15. ASSIGNMENTS: This Agreement shall be binding upon and inure solely to the
-----------
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party hereto, provided that either party may,
without the other party's consent, assign this Agreement and all rights and
obligations hereunder to a qualified affiliate or subsidiary.
16. GEORGIA LAW: This Agreement shall be governed by and construed in
-----------
accordance with the laws of the State of Georgia applicable to agreements
entirely made and performed within the State. Company and Premiere hereby
consent to the jurisdiction of the state and federal courts sitting in the State
of Georgia.
17. MISCELLANEOUS:
-------------
(a) No party shall be liable for a delay in the performance of its
obligations and responsibilities under this Agreement due to causes beyond its
control, including, but not limited to, prohibitions or requirements of
applicable laws, failures or delays in transportation or communication, failure
or substitutions of equipment, labor disputes, accidents, shortages of labor,
fuel, raw materials or equipment or technical failures, provided that the
delayed party has taken reasonable measures to notify the other, in writing, of
the delay. The time for
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<PAGE>
completion of any obligation to which this provision applies shall be extended
for a period equivalent to the delay.
(b) No failure or delay (in whole or in part) on the part of any party to
exercise any right or remedy shall operate as a waiver thereof, nor affect any
other right or remedy. All rights and remedies hereunder are cumulative and are
not exclusive of any other rights or remedies provided hereunder or by law.
(c) If any provision contained in this Agreement is or becomes invalid,
illegal, or unenforceable in whole or in part, such invalidity, legality, or
unenforceability shall not affect the remaining provisions and portions of this
Agreement.
(d) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior or
contemporaneous oral or written understanding or agreements among the parties
which relate to the subject matter hereof. No modification or amendment of this
agreement or any of its provisions shall be binding upon any party unless made
in writing and duly executed by authorized representatives of the parties.
(e) This Agreement may be executed in any number of counterparts, each of
which shall constitute an original, but all of which together shall constitute
one instrument notwithstanding that all parties are not signatories to the same
counterparts.
IN WITNESS WHEREOF, Premiere and Company, intending to be legally bound by the
terms of this Agreement, have caused this Agreement to be executed by their duly
authorized representatives.
PREMIERE COMMUNICATIONS, INC.
By: /s/ Patrick G. Jones
------------------------
Name: Patrick G. Jones
------------------------
Title: Senior Vice President
------------------------
ENDEAVOR TECHNOLOGIES, INC.
By: /s/ W. Michael Heekin
------------------------
Name: W. Michael Heekin
------------------------
Title: Chief Operating Officer
------------------------
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<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.7
AMENDMENT 2 to the
------------------
CO-MARKETING & INTEGRATION AGREEMENT
------------------------------------
Between WebMD and Premiere Communications Dated 12/15/97
---------------------------------------------------------
This Amendment 2 ("Amendment") by and between Premiere Technologies, Inc.
("Premiere"), acting primarily through its subsidiary Premiere Communications,
Inc. ("Communications"), and WebMD, Inc. ("WebMD") amends the terms and
conditions of the above referenced agreement (together with its amendments and
exhibits the "Agreement"), as previously amended in the Contract Addendum
document executed by the Communications and WebMD on December 15, 1997
("Amendment 1"). This Amendment concerns the strategic relationship between the
parties involving certain web-integrated, telecommunications services and
products provided by Premiere and web-based healthcare products and services
provided by WebMD. This Amendment shall be effective as of February 17, 1999
("Amendment Effective Date"). Unless otherwise identified in herein,
capitalized terms shall have the meaning assigned to them in the Agreement.
OVERVIEW OF AMENDMENT
---------------------
WebMD, Premiere and Communications hereby amend the Agreement to replace the
existing terms and conditions between WebMD and Communications so as to t
"recognize Premiere as a party; better account for the Web-based toolkit
capabilities of Orchestrate; allow Premiere to secure a position as WebMD's
exclusive, featured provider of certain telecommunications services to WebMD's
community of professional users; and redefine the revenue share and marketing
and development efforts otherwise set forth in the Agreement among the parties
and their affiliates. Generally this is accomplished as follows:
(1) Premiere will purchase, for $***, a four-year right to be the
exclusive, featured provider of enhanced and unified
telecommunications services to WebMd's community of "Professional"
users. Such rights shall include the right to provide such
telecommunications services to "Professional" end users directly
through WebMD and to access such end users through WebMD's direct and
indirect sales and marketing channels and marketing and distribution
partners of WebMD whose efforts are directed at such "Professional"
users. "Professional" users are defined in Section 1 below;
(2) Premiere will also purchase, for $***, certain branding rights for
itself and its products as set forth in Section 4 below;
(3) WebMD will commit, on a "take or pay" basis that is paid over the next
four years, to purchase $*** of Orchestrate services, such services to
take the form of Orchestrate Office accounts offered to WebMD at per
month, subject to usage as described in more detail below and which
WebMD can resell at prices set by it; and
- ----------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
1
<PAGE>
(4) As partial consideration for WebMD's "take or pay" commitment,
Premiere will recognize and market WebMD as its exclusive authorized
direct reseller of Orchestrate services through medical portals during
the four-year period of the "take or pay" commitment.
TERMS
-----
1. Orchestrate's Exclusive Rights to the WebMD Professional Community.
------------------------------------------------------------------
Without limiting the generality of Premiere's existing exclusive rights set
forth in the Agreement, Premiere purchases the right to be the exclusive,
featured provider of Telecommunication Services to "Professionals" who use, or
have access to use, WebMD's portal services, and to be promoted by WebMD through
its sales and marketing channels directed at such Professionals ("Exclusive
Professional Portal Rights"). "Professionals" are defined to include doctors,
nurses, healthcare paraprofessionals, related support personnel, office workers
or other administrators and medical sales personnel supporting the healthcare
industry who use (or are targeted from a sales and marketing perspective to use)
WebMD's healthcare-oriented services for the professional community, whether
such persons are self-employed, members of a physician group, or employed by or
contracted to hospitals, healthcare-related government agencies, insurance
providers, pharmaceutical or equipment vendors, private or non-profit groups, or
other healthcare-related service or product entities and individuals.
Orchestrate's Exclusive Professional Portal Rights includes, without limitation,
(a) featuring of Orchestrate on WebMD sales and promotional materials and Web
portals as its exclusive, preferred Web-based Telecommunication Services partner
and (b) WebMD's "best efforts" commitment to introduce Orchestrate to WebMD's
business partners as WebMD's exclusive and preferred Web-based communications
toolkit for communication-enabling Internet strategies of those partners where
such introductions are deemed mutually appropriate for that partner.
By way of example (and not limitation) of WebMD's "best efforts" commitment,
WebMD shall encourage its other partners (i.e. - iXL, Microsoft, IBM, etc.) to
work with Premiere to integrate Orchestrate with their product offerings and to
introduce E*Trade to Orchestrate for the purpose of creating an integrated stock
trading and communications product to be offered to Professionals through
WebMD's distribution agreements with E*Trade. The intellectual property rights
relating to any such joint development shall be owned by Premiere, with Premiere
shall be entitled to deploy any technology solutions involving Premiere's
intellectual property outside of the medical vertical marketplace, and shall be
licensed back to WebMD as a part of its license to Orchestrate. Premiere will
provide WebMD and its business partners such necessary licenses to enable them
to make developments and sell Orchestrate units as contemplated by this
Amendment.
As stated above, the Exclusive Professional Portal Rights is being purchased by
Premiere for $***, and has a term of four years from the date of execution of
this Amendment. Such amount shall be payable in one installment of $*** due by
April 30, 1999 and then three installments of $***, each due and payable on the
first through third anniversaries of the Amendment Effective Date.
- -----------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
2
<PAGE>
2. WebMD's Commitment and Related Rights.
-------------------------------------
In lieu of the "take or pay" obligations set forth in the Agreement, WebMD
agrees to purchase seats of Orchestrate Office from Premiere at per month, plus
usage, for an aggregate minimum purchase price of $***. Such commitment is a
"take or pay" obligation to purchase at least $*** of Premiere services per year
for a period of four years from the Amendment Effective Date, which is in
addition to amounts accrued but unpaid as of the Amendment Effective Date. Such
amount is payable as follows: (a) $*** due March 1, 1999 ; and (b) $*** on the
first through third anniversaries of the Amendment Effective Date.
Notwithstanding that WebMD's "take or pay" obligation relates to and is phrased
in terms of the Orchestrate Office product, WebMD may satisfy such obligation by
purchasing or reselling, at agreed-upon fees and terms, Orchestrate Office,
Orchestrate Unified Messaging, Orchestrate Personal Assistant or any other
products or services sold by Premiere, including integrated products and
services developed by Premiere through the joint efforts described herein and
from revenue collected from WebMD's customers for telecommunications usage
(exclusive of taxes, universal service fees and other surcharges and exclusive
of amounts paid to WebMD as agency commissions). During the term of this
Amendment, WebMD may resell two (2) types of Orchestrate Office accounts with
the feature set existing as of the Amendment Effective Date. The first shall
obligate WebMD to pay Premiere $*** per month per account ("$*** Accounts") and
the second shall obligate WebMD to pay Premiere $*** per month per account
("$*** Accounts"), both subject to differing agency commissions from WebMD to
Communications for telecommunications services usage associated with each
account type as set forth below.
Through Communications or some other registered rated agent, Premiere shall be
entitled to charge, on a metered basis, (a) with respect to $*** Accounts, for
all telecommunications service usage (i.e. - both local and non-local and
including, but not limited to, all voicemail messaging and recovery), at a rate
not to exceed $*** per minute for domestic traffic and Communications then
standard rate for international traffic (both exclusive of taxes, tariffs and
surcharges for universal service funds and other like or regulatory fees and
charges) and (b) with respect to $*** Accounts, for non-local (e.g., toll only)
telecommunications services at a rate not to exceed $*** per minute for domestic
traffic and Communications then standard rate for international traffic (both
exclusive of taxes, tariffs and surcharges for universal service funds and other
like or regulatory fees and charges). As Premiere's agent with respect to such
metered telecommunications services and billing and collections, Premiere shall
pay WebMD a selling, billing and collection commission of a specified number of
cents per minute from collected net revenue after taxes, tariffs and like
surcharges. As long as the rate charged by Premiere shall be as stated above and
taxes, tariffs and like surcharges do not increase, WebMD's commission with
respect to such amount shall be (1) $*** per minute with respect to tariffed,
metered telecommunications services revenue collected on $*** Accounts or (2)
$*** per minute with respect to tariffed, metered telecommunications services
revenue collected on $*** Accounts. Premiere, Communications and WebMD shall use
their best efforts to ensure that the sales, billing and collection arrangements
entered into with respect to metered telecommunications services do not render
WebMD a regulated telecommunications service provider in any jurisdiction.
In consideration of terms and conditions in this Amendment including the fees
that Premiere is to pay WebMD under it, Premiere recognizes WebMD as its
exclusive authorized direct reseller of Orchestrate services through medical
portals during the four-year period of this Amendment. Additionally, WebMD and
Premiere will use their respective best efforts to provide, integrate and/or
- ------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
3
<PAGE>
make available the features and functionality of the Premiere's products and
services with the Siteman product that WebMD licenses from iXL or whatever other
Web pages and presence that WebMD makes available or promotes to Professionals.
3. Marketing and Promotional Activities.
------------------------------------
WebMD acknowledges and agrees that Communications' $*** marketing and promotion
allowance established under the Agreement has not yet been utilized, and that
such funds shall be used during the first year of the Amendment as follows: (a)
$*** will be used to directly promote Orchestrate as a featured element of the
WebMD product set and (b) $*** to indirectly promote Orchestrate and Premiere,
consistent with WebMD's obligations set forth in Section 1 hereof, on all of its
marketing and promotional materials and Web portal, and to coordinate with
Premiere the opportunity to cross promote its products with those of the other
vendors of WebMD. Premiere's marketing and promotional credit shall be used
proportionately, relative to other partners of WebMD who also benefit from such
promotion, for advertising in which all of WebMD's partners (including Premiere)
are mentioned. Aside from the parties' use of this allowance or as otherwise
set forth in the detailed amendment, each party shall be responsible for its own
marketing and sales programs and costs.
4. Orchestrate Branding of WebMD Products.
--------------------------------------
Premiere purchases from WebMD for $*** the license and development right
("Branding Rights") to have all WebMD products and services that make available
or use Premiere provided products and services to be promptly, notoriously and
conspicuously branded by WebMD with the "tag" labeled "Orchestrate" or "Powered
by Orchestrate", or such other branding term as Premiere may select from time to
time provided that changes by Premiere to its branding does not occur with
unreasonable frequency. Such Branding Rights include having WebMD make such tag
appear wherever product descriptions (i.e. - "Virtual Receptionist", "OnCall",
etc.) are used from time to time now or in the future with regard accessing or
using Premiere provided products or services, and to have "Orchestrate" or
"Powered by Orchestrate" appear in WebMD's "Communications Center" and in the
message counter space on any page that includes such space. WebMD agrees to work
with Premiere with respect to the placement of such tag in WebMD's advertising
and branding efforts and promotions to assure that the branding of Premiere's
products and services is consistent with Premiere's overall branding efforts and
is reasonably satisfactory to Premiere. Upon the Amendment Effective Date, $***
will be due for such Branding Rights, which shall be payable by Premiere to
WebMD on March 1, 1999.
5. Product Performance.
-------------------
WebMD and Premiere acknowledge and agree that they will each use commercially
reasonable efforts under the circumstances to maintain the overall network
quality of the products and services that each provide to WebMD Professional
customers. Additionally, each party agrees that the quality of the products and
services that it provides shall be consistent with common industry standards,
government regulation, its commercially reasonable business judgement, such
service as it provides its other like customers, and the terms set forth in the
attached Exhibit A.
- -------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
4
<PAGE>
6. Innovation and Customization to Orchestrate.
-------------------------------------------
With regard to development fees payable to Premiere by WebMD, which are in
addition to other amounts payable to Premiere, commencing on the Amendment
Effective Date through the next months of this Amendment, WebMD shall pay
Premiere a monthly fee ("Monthly Fee") of $*** per month. Payment of the Monthly
Fee shall be due on first day of each month. Unless expressly agreed to in
writing by an authorized representative of each party, this obligation shall
survive termination of the Agreement or this Amendment.
Within forty-five (45) days of the effective date of this Amendment, WebMD and
Premiere agree to provide, either directly or through its agents, a forecast to
one another regarding its desires or plans for product enhancements (including
scalability, functionality, reliability), customers usage, and relationships
with other entities affiliated with WebMD or its product and service offerings.
Additionally, if during the term of the Agreement WebMD desires specific changes
or enhancement to the Premiere provided products and services, WebMD may submit
such change request to Premiere, in writing, and Premiere will promptly respond
to WebMD with its assessment of the feasibility and cost of such change.
Neither party shall be obligated to perform or pay for such change or
enhancement until such time as it expressly agrees to do so in a writing signed
by an authorized representative of it. WebMD recognizes that enhancement,
support and customization of the Orchestrate platform for the communications
aspects of WebMD's products is now being provided by Intellivoice
Communications, Inc. and various other vendors to Premiere. In order to allow
Premiere to appropriately cover its engineering, support and development costs,
WebMD agrees to pay, at Premiere's cost, any amounts necessary for such services
and work to ready the product for licensing by WebMD. Any such charges to WebMD
will be identified in advance of development, subject to the advance approval of
WebMD and will be reconciled on a monthly basis as costs are expended.
7. Miscellaneous.
-------------
By way of this Amendment, the parties expressly terminate and delete all
provisions in Amendment 1. Except as expressly amended herein, all other terms
and conditions of the Agreement shall continue in full force and effect. In the
event of a conflict between this Amendment 2 and the Agreement, this Amendment
shall have precedence. Without limiting the generality of the foregoing, the
parties specifically acknowledge that the "take or pay" arrangement set forth in
Section 4 of the Agreement between the parties (as amended) shall be superceded
by the "take or pay" commitment set forth in this Amendment. This Amendment
shall commence on the Amendment Effective Date and shall continue, along with
all relevant terms and conditions in the Agreement, for four years from such
date unless canceled or terminated earlier in accordance with the Agreement as
amended. The term for other provisions in the Agreement shall expire per the
original term of the Agreement unless canceled or terminated earlier in
accordance with the Agreement as amended.
- -------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
5
<PAGE>
By signing below, the parties represent their agreement with this Amendment and
agree to be bound by it.
Premiere Technologies, Inc.* WebMD, Inc.
By: /s/ Boland T. Jones By: /s/ Jeffrey T. Arnold
------------------------ ------------------------
Name: Boland T. Jones Name: Jeffrey T. Arnold
------------------------ ------------------------
Title: Chief Executive Officer Title: Chief Executive Officer
------------------------ ------------------------
Date: February 17, 1999 Date: February 17, 1999
------------------------ ------------------------
* On behalf of itself and Premiere Communications, Inc.
- -------------------------------------------------------
6
<PAGE>
EXHIBIT A
PERFORMANCE CRITERIA
The performance criteria set forth below shall be applicable to the products and
services provided by each party and shall be implemented in four (4) phases with
controlling dates as defined below:
Phase 1 - Amendment 2 Effective Date through 4/30/99
Phase 2 - 5/1/99 through 7/31/99
Phase 3 - 8/1/99 through 12/31/99
Phase 4 - 1/1/00 through the 12/31/02
1. Performance
a) Service response time for ***% of subscriber service requests (telephony,
web access or otherwise). This measures server response time only, not
network transmission time. For Premiere provided services, this only applies
for subscribers who have less than 50 messages (voice, fax and/or e-mail) in
their message boxes. This guarantee does not include the telephony
networking delays in services utilizing telephony interfaces internal to the
service operation (e.g., the call connect feature).
Phase 1: Each party guarantees an average response time of less than
*** seconds.
Phase 2: Each party guarantees an average response time of less than
*** seconds.
Phase 3: Each party guarantees an average response time of less than
*** seconds.
Phase 4: Each party guarantees an average response time of less than
*** seconds.
b) Average platform, service and feature up time, including without
limitation, portal access, availability of all partner provided services and
products, enrollment, provisioning and billing/CDR files. This is exclusive
of regularly scheduled maintenance, updates and upgrades. Scheduled
maintenance is defined as maintenance for which reasonable advance notice
has been given for the required down time. Platform up time is defined as
hardware, operating system and application process up time, not the
availability of feature function or service.
Phase 1: None.
Phase 2: Each party guarantees an average platform up time of ***%.
Phase 3: Each party guarantees an average platform up time of ***%.
Phase 4: Each party guarantees an average service up time of ***%.
c) Post a mutually-acceptable message in the event of a system outage. The
web service shall respond with a standard error message that basically
states that the server is not responding or is not available. The telephony
service shall respond with a standard error message that basically states
that the service you have requested is unavailable at this time.
d) Performance will be measured against the foregoing criteria on a monthly
basis using existing and forecasted measurement tools.
Phase 1: No measurement will be required.
- ------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
7
<PAGE>
Phase 2: Measurement is based on either platform logging and alarming
reports or external automated server and process up time
tools.
Phase 3: Measurement is based on external automated server and process
up time tools.
Phase 4: Measurement is based on either platform generated reporting
and statistics or external automated server and process up-
time tools.
e) Provide scalability of the products in proportion to the number of WebMD
subscribers utilizing the products. This performance metric is dependent
upon the delivery of accurate subscriber and traffic forecasts from
WebMD at least 4 months prior to the expected capacity ramp
requirements.
2. Monitoring/Reporting
a) Provide details on the method used to monitor performance times.
Phase 1: No Measurement is required.
Phase 2: Measurement is based on platform logging and alarming
reports or external automated server and process up time
tools.
Phase 3: Measurement is based on external automated server and
process up time tools.
Phase 4: Measurement is based on either platform generated reporting
and statistics or external automated server and process up
time tools.
b) Provide quarterly reporting which details server up-time with the
following details per period. This information is dependent upon the
granularity of the measurement procedures available during that Phase.
(1) average response time;
(2) actual daily response time detail;
(3) average server up time;
(4) actual daily server up time; and
(5) for all outages, include:
(i) the cause of the problem;
(ii) method used to correct the problem; and
(iii) measures to be taken to prevent further occurrences.
c) This information will be exchanged by the parties between the
appropriate contact for each party on the fifth business day of each
quarter for the previous quarter's activity.
3. Outage Notification Procedures
a) A party becoming aware of a service outage shall promptly notify the
other via e-mail of such outage:
b) If a service outage lasts greater than 30 minutes, the responsible party
shall promptly thereafter notify the other of the following information:
i) reason for the outage; and
ii) ETA for service restoration.
8
<PAGE>
c) If a service outage persists for greater than 30 minutes, the
responsible party shall continue to notify the other with updated status
for the duration of the outage at least every hour.
4. Dispute Resolution Process & Penalties
In the event that either party believes that it has been harmed or damaged
as a result of the other party's failure to meet the above stated
performance criteria (a "Dispute"), the party alleging the Dispute shall
provide written notice to the other party that describes in reasonable
detail the harm suffered. This process for Disputes shall be in lieu of the
breach, notice and cure provisions in the Agreement. Upon receipt of such
notice the alleged wrongdoer may at its option either (1) cure such alleged
harm within thirty (30) days ("Dispute Cure Period"), or (2) request a
meeting between the project leaders for each party to discuss the alleged
harm and seek a mutually acceptable resolution. In the event that (1) a cure
has not been reached by the end of the Dispute Cure Period or the mutually
acceptable resolution period, or (2) a resolution has not been agreed to and
memorialized in a document signed by an authorized representative of each
party within 30 days of the notice having been provided, either party may
require that the Dispute be escalated to representative of each party who
has direct authority to negotiate and bind the party. Those individuals
shall meet and have fifteen (15) days to arrive at a mutually agreeable
resolution, which if reached shall be memorialized as described above. In
the event that those individuals cannot reach resolution by the end of
fifteen (15) days, either party may pursue whatever rights it has under the
Agreement (including termination) and legal action it deems appropriate.
Additionally,
(a) In the event that Premiere fails to meet the performance objectives
defined herein and WebMD refunds or credits its customer for the inactive
service, WebMD receive a credit on next month's bill equal to the lesser
of the (1) the amount of the refund and (2) the fees (excluding usage) it
paid to Premiere for the Services for each customer who was given a refund
that previous month.
(b) In the event that WebMD fails to meet the performance objective
defined herein and as a result WebMD fails to collect fees from its
customers equal to or greater than the average fees such customers had
paid during the previous three (3) months of service, WebMD will pay
Premier not only the amount owed for actual usage but also an amount equal
the difference between the three (3) month average usage and the actual
usage from that just concluded month.
6. Force Majeure.
Notwithstanding anything to the contrary in the Agreement, if a party's
performance of, or any obligation under, this Amendment, including without
limitation the performance criteria, is prevented, restricted, inhibited or
interfered with by causes beyond its reasonable control including, but not
limited to, acts of God, fire, explosion, storms, ice, heat, cold, water, wind,
earth, vandalism, cable or line cuts, any law, regulation, order, ordinance,
direction; acts or omissions by any government agency, court, bureau,
commission, department, corporation or other like government instrument or
entity regardless of form (including, but limited to, foreign, federal, state or
local); civil or military authority; lockout, work stoppage, strike or other
like labor issue; emergency; war; riot; insurrection; problems or shortages of
suppliers, vendors, licensors or other like entities, then such party shall be
excused from performance during the entire time of, and to the extent of ,such
restriction, inhabitation or interference.
9
<PAGE>
EXHIBIT 10.13
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into this ____
---------
day of January 1999, by and among WebMD, Inc., a Georgia corporation ("WebMD"),
-----
SunTrust Bank, Atlanta, a Georgia banking corporation, as the escrow agent (the
"Escrow Agent"), the shareholders ("Shareholders") of Direct Medical Knowledge,
------------- ------------
Inc., a California corporation ("DMK"), identified on the signature pages
---
hereto, and Kemp Battle, as representative (the "Indemnitor Representative").
-------------------------
W I T N E S S E T H :
--------------------
WebMD is a party to an Agreement and Plan of Merger with SHN Merger Corp.,
a Georgia corporation ("Merger Corp"), DMK, the Shareholders and the Indemnitor
-----------
Representative, dated January __, 1999 (the "Merger Agreement"), pursuant to
----------------
which DMK has on this date merged with and into Merger Corp., with Merger Corp.
being the surviving corporation of the Merger. Under the Merger Agreement, the
Shareholders received contingent rights to receive, in the aggregate, shares of
series B convertible preferred stock of WebMD ("Preferred Stock") as provided in
---------------
Sections 3.1 and 4.3 of the Merger Agreement.
- --------------------
In accordance with the Merger Agreement, a portion of the Preferred Stock
issuable to the Shareholders will be held by the Escrow Agent hereunder until
termination of this Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
-----------------------
On this date, WebMD has executed a stock certificate in negotiable form
representing the Escrow Shares and naming the Escrow Agent as the registered
holder for the benefit of the Shareholders. Schedule 1 to this Agreement shows
----------
for each Shareholder (i) the respective percentage interest (the "Percentage
----------
Interest") of each such Shareholder in the Escrow Shares, and (ii) the
- --------
corresponding aggregate maximum number of shares of Preferred Stock issuable to
each Shareholder, subject to the adjustments provided herein. The Escrow Agent
shall hold the Escrow Shares on behalf of, and as a convenience to WebMD and the
Shareholders with the same force and effect as if such shares had been delivered
by WebMD to each Shareholder and subsequently delivered by such Shareholder to
the Escrow Agent. The Escrow Agent shall hold the Escrow Shares, together with
any and all future cash dividends or cash income with respect to the Escrow
Shares (as provided in Section 5.1 hereof) ("Cash"), for the benefit of WebMD
----------- ----
and the Shareholders, as the case may be. Any income or interest realized from
the investments made by the Escrow Agent pursuant hereto shall be included in
Cash and paid in accordance with this Agreement.
ARTICLE 2
INDEMNIFICATION
---------------
2.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
(a) "Closing Date" shall mean the date of the closing of the
------------
transactions contemplated by the Merger, which shall be the date on which the
Effective Time occurs.
<PAGE>
(b) "Effective Time" shall mean the time that the Articles of Merger
--------------
reflecting the Merger becomes effective with the Secretary of State of the State
of California and the Secretary of State of the State of Georgia.
(c) "Escrow Agent Expenses" shall mean one-half of the expenses of the
---------------------
Escrow Agent which the Indemnitor Representative is obligated to bear under
Section 6.4 hereof, in an amount up to $5,000, incurred in connection with the
- -----------
obligations of the Escrow Agent under this Agreement.
(d) "Escrow Shares" shall mean __________ shares of Preferred Stock
-------------
issued and placed in escrow hereunder.
(e) "Indemnifiable Loss" shall mean any Loss for which an Indemnitee
------------------
may be indemnified pursuant to the Merger Agreement.
(f) "Indemnitee" is defined in Section 2.2 hereof.
---------- -----------
(g) "Indemnitor Representative" is defined in the preamble above.
-------------------------
(h) "Losses" shall mean any and all demands, claims, actions or causes
------
of action, assessments, losses, diminution in value, damages (including special
and consequential damages), liabilities, costs and expenses, including, without
limitation, interest, penalties, cost of investigation and defense and
reasonable attorneys' and other professional fees and expenses.
(i) "Loss Notice" shall mean a written notice, as prescribed in
-----------
Section 2.2 hereof, provided by an Indemnitee to the Escrow Agent and the
- -----------
Indemnitor Representative (i) stating that the Indemnitee has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue an
Indemnifiable Loss or potential Indemnifiable Loss, (ii) setting forth in
reasonable detail the individual items comprising such Indemnifiable Loss, the
date each such item was paid or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related, (iii) to the extent the
amount of the Indemnifiable Loss or potential Indemnifiable Loss is reasonably
calculable, an estimate of the number of Escrow Shares to be delivered to an
Indemnitee with respect to such Indemnifiable Loss and (iv) certifying that such
Indemnitee reasonably believes that such Indemnifiable Loss constitutes a Loss
for which indemnification may be sought pursuant to the Merger Agreement, taking
into account, without limitation, Section 11.8 thereof.
------------
(j) "Protest Notice" shall mean a written notice, as prescribed in
--------------
Section 2.3 hereof, provided by the Indemnitor Representative to an Indemnitee
- -----------
and the Escrow Agent if he disputes any Loss Notice received from an Indemnitee.
(k) "Shareholders" is defined in the preamble above.
------------
(l) "Value Per Share" shall mean $20.00, as adjusted as appropriate to
---------------
reflect any stock split, reverse stock split, stock dividend, recapitalization
or other similar transaction effected by WebMD between the Effective Time and
the date such liability is satisfied.
2.2 Notice of Claim. If an Indemnitee incurs an Indemnifiable Loss, or
---------------
should an Indemnitee negotiate a proposed written settlement in satisfaction of
a potential Indemnifiable Loss, it shall promptly provide a Loss Notice to the
Indemnitor Representative and the Escrow Agent. If the Indemnitor
Representative disputes the amount sought under any such Loss Notice or
otherwise disputes the right of the Indemnitee to be indemnified hereunder, he
shall provide the Indemnitee and the Escrow Agent a Protest Notice within thirty
(30) days of the date any such Loss Notice is received by the Indemnitor
Representative. If no Protest Notice is received by the Indemnitee and the
Escrow Agent within thirty (30) days from the date on which any Loss Notice is
received by the Indemnitor Representative, or if a Protest Notice is received
and the dispute is resolved in favor of the Indemnitee after following the
procedures set forth below, then the Escrow Agent shall deliver to WebMD and
WebMD shall promptly cancel and retire that number of Escrow Shares as shall
equal the number of Escrow Shares (rounded to the next highest
-2-
<PAGE>
whole number) that, when multiplied by the Value Per Share, equals the amount of
the Indemnifiable Loss. To the extent that Cash is held in escrow, at the option
of the Indemnitee, the Escrow Agent shall pay any Indemnifiable Loss, in whole
or in part, with such Cash. If the Indemnitee and the Escrow Agent receive a
Protest Notice within such 30-day period, the Escrow Agent shall not deliver any
Escrow Shares until receipt by it of written instructions (i) signed by the
Indemnitor Representative and a duly authorized officer of the Indemnitee; or
(ii) signed by an arbitration panel that has considered and resolved such
dispute as provided in Section 2.3 below, which sets forth (i) the number of
-----------
Escrow Shares, and/or (ii) the amount of Cash, if any, to be delivered to the
Indemnitee in accordance with this paragraph. After delivery of any Escrow
Shares to the Indemnitee in accordance with this paragraph, the Escrow Agent
shall be reissued a certificate in respect of any remaining Escrow Shares.
2.3 Procedure With Respect to Disputed Indemnifiable Loss. A Protest
-----------------------------------------------------
Notice may be resolved by the agreement of the Indemnitor Representative and the
Indemnitee, in which case written notice of such agreement shall be promptly
provided to the Escrow Agent, together with a statement of the agreed upon
amount to be reimbursed to the Indemnitee. If the Indemnitor Representative and
the Indemnitee are unable to resolve a Protest Notice within sixty (60) days of
delivery of the Protest Notice to the Escrow Agent, then such Protest Notice
shall be submitted to arbitration in accordance with the then-current commercial
arbitration rules of the American Arbitration Association ("AAA"). If a Protest
---
Notice is to be arbitrated, the Indemnitor Representative shall select one
arbitrator, the Indemnitee shall select one arbitrator, and the two arbitrators
so chosen shall select a third. Any decision of the arbitration panel shall
require the vote of at least two (2) of such arbitrators and shall be deemed
conclusive and each party shall be deemed to have waived any rights to appeal
therefrom. In any arbitration pursuant to this Section 2.3, an Indemnitee shall
-----------
be deemed to be the prevailing party if the arbitrators award the Indemnitee at
least fifty percent (50%) of the amount in dispute, plus any amounts not in
dispute; otherwise, the Shareholders shall be deemed to be the prevailing party.
The non-prevailing party to an arbitration shall pay its own expenses, the fees
of each arbitrator, the administrative costs of the arbitration (including the
administrative fee of AAA), and the expenses, including without limitation,
reasonable attorneys' fees and costs, incurred by the other party to the
arbitration. That percentage of the reasonable legal and other expenses
incurred by the Indemnitee in the arbitration proceeding as equals the
percentage of the claim sought which is actually awarded, shall be added to the
amount of the Indemnifiable Loss. If resolution of a Protest Notice is not made
within ninety (90) days of the date of the Protest Notice as provided in this
Section 2.4, then the Escrow Agent may, in its sole discretion, either (i)
- -----------
continue to hold the Escrow Shares undisbursed until such time as the disputing
parties agree in writing as to a proper disposition of such Escrow Shares, or
(ii) if such agreement is not forthcoming, the Escrow Agent shall be entitled to
tender into the registry or custody of any court of competent jurisdiction all
money or property in its hand under the terms of this Agreement, and, upon the
advice of counsel, may take such other legal action as may be appropriate or
necessary, whereupon the parties hereto agree Escrow Agent shall be discharged
from all further duties under this Agreement. The filing of any such legal
proceedings shall not deprive Escrow Agent of its compensation earned prior to
such filing.
2.4 Employment of Counsel. Notwithstanding anything herein or in the
---------------------
Merger Agreement to the contrary, if the aggregate amount of all third party
claims plus the aggregate good faith estimates of the reasonable expenses to
defend such claims exceed the number of Escrow Shares multiplied by the Value
Per Share, the Indemnitees may control the defense of all such third party
claims which have been brought under this Agreement, provided that the
Indemnitees may not settle a third party claim without the approval of the
Indemnitor Representative, which approval shall not be unreasonably withheld or
delayed. Consent shall be presumed in the case of settlements of $20,000 or
less where the Indemnitor Representative has not responded within fifteen
business days of notice of a proposed settlement.
-3-
<PAGE>
ARTICLE 3
TERM; EXPIRATION; LIMITS
------------------------
3.1 Term - General Indemnity. The term of escrow for the Escrow Shares
------------------------
shall commence on the date hereof and shall terminate at the time all Escrow
Shares have been distributed to the Shareholders or canceled pursuant to the
terms of this Agreement.
3.2 Six Month Anniversary.
----------------------
(a) No Claim Pending and No Claim Previously Made. If, as of midnight,
---------------------------------------------
Pacific Time, on the date that is the six (6) month anniversary of the date
hereof, no Loss Notice has been received with respect to an Indemnifiable Loss
and no Loss Notice has been previously resolved, the Escrow Agent shall deliver
to WebMD for issuance to each Shareholder a certificate representing the number
of shares of Preferred Stock equal to one-half of the Escrow Shares multiplied
by the Percentage Interest for such Shareholder. The Indemnitor Representative
and WebMD shall provide written notice to the Escrow Agent which sets forth the
number of Escrow Shares to be delivered as provided in the foregoing sentence.
Such notice shall specify the number of shares of Preferred Stock to be
delivered, which number of shares shall be of full shares and any fractional
portions shall be rounded to a whole number by the Escrow Agent so that the
number of shares to be delivered will be fully allocated among such
Shareholders.
(b) No Claim Pending and Claim Previously Made. If, as of midnight,
-------------------------------------------
Pacific Time, on the date that is the six (6) month anniversary of the date
hereof, no Loss Notice has been received with respect to an Indemnifiable Loss
and a Loss Notice that has been previously received has been resolved in
accordance with this Agreement and has resulted in the delivery of some of the
Escrow Shares to WebMD for cancellation (the "Canceled Shares"), the Escrow
---------------
Agent shall deliver to WebMD for issuance to each Shareholder a certificate
representing the number of shares of Preferred Stock equal to (i) one half of
the original number of Escrow Shares as of the date hereof minus (ii) the
Canceled Shares, multiplied by the Percentage Interest for such Shareholder.
The Indemnitor Representative and WebMD shall provide written notice to the
Escrow Agent which sets forth the number of Escrow Shares to be delivered as
provided in the foregoing sentence. Such notice shall specify the number of
shares of Preferred Stock to be delivered, which number of shares shall be of
full shares and any fractional portions shall be rounded to a whole number by
the Escrow Agent so that the number of shares to be delivered will be fully
allocated among such Shareholders.
(c) Claim Pending. If, as of midnight, Pacific Time, on the date that
--------------
is the six (6) month anniversary of the date hereof, a Loss Notice has been
received which has not been resolved in accordance herewith, the Escrow Agent
shall deliver to WebMD for issuance to each Shareholder a certificate
representing the number of shares of Preferred Stock equal to (i) one half of
the original number of Escrow Shares as of the date hereof (minus the Canceled
Shares, if any) minus (ii) the number of Escrow Shares (rounded to the next
highest whole number) that, when multiplied by the Value Per Share, equals any
amount set forth by such Indemnitee in the Loss Notice(s) with respect to such
claims (the "Interim Retained Shares"), multiplied by the Percentage Interest
-----------------------
for such Shareholder. Upon the resolution of any such claim and receipt of
written notice from WebMD and the Indemnitor Representative to such effect, the
Escrow Agent shall deliver to WebMD for cancellation the appropriate number of
Interim Retained Shares (if any) and shall distribute any remaining Interim
Retained Shares to the Shareholders as set forth in this Section 3.2. The
-----------
Indemnitor Representative and WebMD shall provide written notice to the Escrow
Agent which sets forth the number of Escrow Shares to be delivered as provided
in the foregoing sentence. Such notice shall specify the number of shares of
Preferred Stock to be delivered, which number of shares shall be of full shares
and any fractional portions shall be rounded to a whole number by the Escrow
Agent so that the number of shares to be delivered will be fully allocated among
such Shareholders.
For purposes of this Agreement, if any anniversary of the date hereof does not
fall on a business day, then such date shall be moved to the next succeeding
business day.
3.3 Expiration of Term - No Claim Pending. If as of midnight, Pacific Time,
-------------------------------------
on the fifteen (15) month anniversary of the date hereof, either (i) no Loss
Notice has been received with respect to an
-4-
<PAGE>
Indemnifiable Loss or (ii) any Loss Notice that has been received has been
resolved in accordance with this Agreement, the Escrow Agent shall (i) deliver
to WebMD for issuance to each Shareholder, a certificate representing the number
of shares of Preferred Stock equal to the aggregate number of the Escrow Shares
then remaining in escrow multiplied by the Percentage Interest for such
Shareholder, and (ii) deliver to each Shareholder, any Cash multiplied by the
Percentage Interest for such Shareholder. The Indemnitor Representative and
WebMD shall provide written notice to the Escrow Agent which sets forth the
number of Escrow Shares to be delivered as provided in the foregoing sentence.
Such notice shall specify the number of shares of Preferred Stock to be
delivered, which number of shares shall be of full shares and any fractional
portions shall be rounded to a whole number by the Escrow Agent so that the
number of shares to be delivered will be fully allocated among such
Shareholders.
3.4 Expiration of Term - Claim Pending. If as of midnight, Pacific Time, on
----------------------------------
the fifteen (15) month anniversary of the date hereof, any claim is pending
under Section 2.2 of the Merger Agreement for which any Loss Notice has been
-----------
delivered to the Escrow Agent prior to such expiration then the Escrow Agent
shall retain in such escrow that number of shares of Preferred Stock as shall
equal the number of Escrow Shares (rounded to the next highest whole number)
that, when multiplied by the Value Per Share, equals any amount set forth by
such Indemnitee in the Loss Notice(s) with respect to such claims (the "Retained
--------
Shares"). The number of Escrow Shares, less the number of Retained Shares,
- ------
shall then be distributed to the Shareholders as set forth in Section 3.3 above.
-----------
Upon the resolution of any such claim and receipt of written notice from WebMD
and the Indemnitor Representative to such effect, the Escrow Agent shall deliver
to WebMD for cancellation the appropriate number of Retained Shares (if any) and
shall distribute any remaining Retained Shares to the Shareholders as set forth
in Section 3.3.
-----------
3.5 Effect of Final Delivery. Notwithstanding the expiration of the term of
------------------------
the escrow, this Agreement shall continue in full force and effect until the
Escrow Agent has delivered all of the Escrow Shares pursuant to the terms
hereof. After all of such shares have been so delivered, all rights, duties and
obligations of the respective parties hereunder shall terminate. If any cash is
held in escrow at the expiration of the term of the escrow, such cash shall be
distributed pro rata with the Escrow Shares as provided in Sections 3.3 and 3.4
--------------------
above.
3.6 Maximum Liability and Remedies. If the Closing occurs, except for
------------------------------
remedies based upon fraud and except for equitable remedies (including temporary
restraining orders, injunctive relief and specific performance), the rights of
an Indemnitee to make claims on the Escrow Shares pursuant to this Agreement
shall be the sole and exclusive remedy of an Indemnitee with respect to any
breach of a representation, warranty, covenant or agreement under the Merger
Agreement.
ARTICLE 4
ESCROW STOCK CERTIFICATES
-------------------------
The Escrow Agent may at any time request the transfer agent (if any is
designated by WebMD) for the Preferred Stock to issue new certificates
representing the Escrow Shares in such denominations as may be necessary or
appropriate in carrying out the Escrow Agent's obligations under this Agreement.
ARTICLE 5
DIVIDENDS; VOTING RIGHTS
------------------------
5.1 Cash Dividends; Voting Rights. The Escrow Agent shall retain all cash
-----------------------------
paid with respect to the Escrow Shares. By written notice signed by the
Indemnitor Representative, the Indemnitor Representative shall have the right to
direct the Escrow Agent as to the exercise of voting rights with respect to such
Escrow Shares held by the Escrow Agent on behalf of the Shareholders, and the
Escrow Agent shall comply with such directions if received from the Indemnitor
Representative at least five (5) days prior to the date of the meeting at which
such vote is to be taken.
-5-
<PAGE>
5.2 Stock Splits; Stock Dividends. In the event of any stock split, stock
-----------------------------
dividend, recapitalization or similar transaction with respect to the Preferred
Stock that becomes effective during the term of this Agreement, the additional
shares so issued with respect to the Escrow Shares shall be added to the Escrow
Shares and any other references herein to a specific number of shares of
Preferred Stock and the Value Per Share shall be adjusted in accordance with a
notice to the Escrow Agent and the Indemnitor Representative from WebMD.
ARTICLE 6
THE ESCROW AGENT
----------------
6.1 Liability. In performing any of its duties under this Agreement, or upon
---------
the claimed failure to perform its duties hereunder, the Escrow Agent shall not
be liable to anyone for any damages, losses or expenses which they may incur as
a result of so acting, or failing to act; provided, however, that the Escrow
Agent shall be liable for damages arising out of its willful misconduct or gross
negligence under this Agreement. Accordingly, the Escrow Agent shall not incur
any such liability with respect to (i) any action taken or omitted to be taken
in good faith upon advice of its counsel or counsel for WebMD or the Indemnitor
Representative given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder; or (ii) any action taken or
omitted to be taken in reliance upon any document, including any written notice
or instructions provided for in this Agreement, not only as to its due execution
and to the validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which the Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the purported proper person or persons and to conform with the provisions of
this Agreement. Written instructions provided to Escrow Agent hereunder by
WebMD and/or the Indemnitor Representative shall be signed by the President,
Chief Executive Officer, Chief Operating Officer or Chief Financial Officer for
WebMD and/or the Indemnitor Representative. The limitation of liability
provisions of this Section 6.1 shall survive the termination of this Agreement
-----------
and the resignation or removal of the Escrow Agent.
6.2 Indemnification of Escrow Agent. WebMD and the Shareholders, hereby,
-------------------------------
jointly and severally, agree to indemnify and hold harmless the Escrow Agent and
its directors, employees, officers, agents, successors and assigns against any
and all losses, claims, damages, liabilities and expenses, including, without
limitation, reasonable compensation for its extraordinary service, reasonable
costs of investigation and reasonable counsel fees and disbursements (both at
the trial and appellate levels) which may be imposed on or incurred by the
Escrow Agent in connection with its acceptance of this appointment as Escrow
Agent hereunder or the performance of its duties hereunder (except in connection
with the willful misconduct or gross negligence of the Escrow Agent hereunder),
including, without limitation, any litigation arising under or in connection
with this Agreement or the Escrow Shares, or involving the subject matter
thereof, or in the event that the Escrow Agent is made a party to or intervenes
in any litigation pertaining to this Agreement. The indemnity provisions of
this Section 6.2 are in addition to any other rights any of the indemnified
-----------
parties may have by law or otherwise and shall survive the termination of this
Agreement and the resignation or removal of the Escrow Agent.
6.3 Resignation. The Escrow Agent may resign at any time from its
-----------
obligations under this Agreement by providing written notice to WebMD and the
Indemnitor Representative. Such resignation shall be effective no earlier than
sixty (60) days after such written notice has been given. The Escrow Agent
shall have no responsibility for the appointment of a successor escrow agent.
If a successor escrow agent is not selected within sixty (60) days of the
resignation of Escrow Agent, the Escrow Agent shall have the right to institute
a Bill of Interpleader or other appropriate judicial proceeding in any court of
competent jurisdiction, and shall be entitled to tender into the registry or
custody of any court of competent jurisdiction all money or property in its hand
under the terms of this Agreement, whereupon the parties hereto agree Escrow
Agent shall be discharged from all further duties under this Agreement. The
filing of any such legal proceedings shall not deprive the Escrow Agent of its
compensation earned prior to such filing. The Escrow Agent may be removed for
cause by WebMD or the Indemnitor Representative upon
-6-
<PAGE>
notice to the Escrow Agent. The removal of the Escrow Agent shall not deprive
the Escrow Agent of its compensation earned prior to the date of such act or
omission which constitutes "cause".
6.4 Expenses of Escrow Agent. The Indemnitor Representative (on behalf of
------------------------
the Shareholders and out of the Escrow Shares, but not personally) and WebMD
shall share equally the expenses of the Escrow Agent in an amount up to $5,000
each, and thereafter any remaining expenses of the Escrow Agent shall be borne
by WebMD. The Escrow Agent's fees and expenses are set forth on Schedule 2
----------
attached hereto and made a part hereof, and the Escrow Agent acknowledges
receipt as of the date hereof of the first year's fees set forth on Schedules 2.
-----------
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Transferability. The contingent right to receive Escrow Shares shall not
---------------
be transferable by the Shareholders otherwise than by will or by the laws of
descent and distribution.
7.2 Notices. Each party shall keep each of the other parties hereto advised
-------
in writing of all actions required to be taken by such party pursuant to this
Agreement. Any notices or other communications required or permitted under this
Agreement shall be in writing and shall be sufficiently given if sent by
registered or certified mail, postage prepaid, addressed as follows, or if sent
by facsimile to the facsimile numbers identified below:
If to WebMD or Merger Corp.:
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, N.E.
Attn: Mr. Michael Heekin
Telecopy: (404) 479-7603
Phone: (404) 479-7600
Tax ID No:_________
with a copy to:
Alston & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: J. Vaughan Curtis, Esq.
Tel: (404) 881-7397
Facsimile: (404) 881-4777
If to Indemnitor Representative:
Kemp Battle
Tucker Capital
One Palmer Square #315
----------------------
Princeton, NJ 08542
--------------------
Tel:
----------------
Fax:
----------------
-7-
<PAGE>
With a copy to:
----------------------
----------------------
----------------------
Tel:
----------------
Fax:
----------------
If to Escrow Agent:
SunTrust Bank, Atlanta
Corporate Trust Department
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305-1727
Attn: Ronald C. Painter
Tel: 404-240-1932
Fax: 404-240-2030
or such other person or address as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so mailed.
7.3 Construction. The validity, enforcement and construction of this
------------
Agreement shall be governed by the laws of the State of Georgia, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
7.4 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, legatees, assigns and
transferees, as the case may be. Escrow Agent shall be bound only by the terms
of this Agreement and shall not be bound by or incur liability with respect to
the Merger Agreement or any other agreement or understanding between WebMD and
the Shareholders. The Escrow Agent shall not be charged with notice or
knowledge of any such ancillary document, fact or information not specifically
set forth herein. The Escrow Agent shall undertake to perform only such duties
as are expressly set forth herein and no additional or implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
7.5 Separability. If any provision or section of this Agreement is
------------
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain enforceable in accordance with their terms.
7.6 Headings. The headings and subheadings contained in this Agreement are
--------
for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
7.7 Execution in Counterparts. This Agreement may be executed in any number
-------------------------
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument
7.8 Amendments. This Agreement may be amended from time to time but only by
----------
written agreement signed by all of the parties hereto.
7.9 Third-Party Beneficiaries. DMK, Merger Corp. and the former shareholders
-------------------------
of DMK are expressly intended to be third-party beneficiaries of the indemnities
and obligations of the Indemnitor Representative as if they were parties to this
Agreement.
-8-
<PAGE>
7.10 Indemnitor Representative Expenses. The Shareholders shall pay any
----------------------------------
expenses of the Indemnitor Representative.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the day and year first above written.
WEBMD, INC.
By: /s/ W. Michael Heekin
------------------------------
Title: Executive Vice President
--------------------------
ESCROW AGENT
SUNTRUST BANK, ATLANTA
By: /s/ Rebecca Fischer
------------------------------
"INDEMNITOR REPRESENTATIVE"
/s/ Kemp Battle
---------------------------------
EUCALYPTUS, LTD.
By: /s/ Le Ngoc Saulnier
------------------------------
Title: Attorney-in-Fact
-------------------------
H&Q DIRECT MEDICAL KNOWLEDGE
INVESTORS, LP
By: /s/ Jackie Berterretche
------------------------------
Title: Attorney-in-Fact
--------------------------
HEALTHMAGIC, INC.
By: /s/
------------------------------
Title:
---------------------------
-10-
<PAGE>
/s/ P. Ryan Phelan
---------------------------------
P. Ryan Phelan
/s/ Daniel Hillis
---------------------------------
Daniel Hillis
/s/ Kemp Battle
---------------------------------
Kemp Battle
-11-
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Maximum
Name of Shareholder Percentage Interest Escrow Shares
<S> <C> <C>
Eucalyptus, Ltd. 30% 28,142
H&Q Direct Medical Knowledge
Investors, LP 30.25% 28,366
HealthMagic, Inc. 15.1% 14,183
P. Ryan Phelan 22.25% 20,857
Daniel Hillis 1.2% 1,127
Kemp Battle 1.2% 1,127
Total 100% 93,802
- ----- --- ------
</TABLE>
<PAGE>
SCHEDULE 2
----------
Escrow Agent's Fees and Expenses
--------------------------------
$2,500.00 per year.
<PAGE>
EXHIBIT 10.37
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
this 25/th/ day of January 1999, by and among WebMD, Inc., a Georgia corporation
("WebMD"), SunTrust Bank, Atlanta, a Georgia banking corporation, as the escrow
agent (the "Escrow Agent") and Philippe Chambon, as representative (the
"Representative") appointed by the shareholders ("Shareholders") of Sapient
Health Network, Inc., an Oregon corporation ("Sapient"). As used herein, the
term Corporation shall include Sapient and its Subsidiaries and terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement (as defined below).
W I T N E S S E T H :
--------------------
WebMD is a party to an Agreement and Plan of Merger with Sapient, dated
January 4, 1999 (the "Merger Agreement"), pursuant to which Sapient has as of
this date merged with and into SHN Merger Corp., a Georgia corporation and
wholly owned subsidiary of WebMD ("Merger Corp."), with Merger Corp. being the
surviving corporation of the Merger. Under the Merger Agreement, a copy of
which is attached, an escrow fund (the "Escrow Fund") will be established
consisting of shares of Series B Preferred Stock of WebMD ("WebMD Series B
Preferred Stock") as provided in Sections 12.1 and 12.8 of the Merger Agreement
to compensate and indemnify WebMD and Merger Corp. and their respective
officers, directors, employees, representatives, agents, shareholders,
controlling persons and affiliates (each an "Indemnitee") against and for any
Loss suffered or incurred by an Indemnitee, as and when due, which arises out of
or results from a breach of any of the representations, warranties, covenants or
agreements of Sapient set forth in the Merger Agreement.
In accordance with the Merger Agreement, the shares of WebMD Series B
Preferred Stock that will constitute the Escrow Fund shall deposited with and
held by the Escrow Agent pursuant to the terms of this Agreement until
termination of this Agreement as provided herein.
NOW, THEREFORE, in c consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
-----------------------
On this date, WebMD has executed a stock certificate in negotiable form
representing the Escrow Shares and naming the Escrow Agent as the registered
holder for the benefit of the Shareholders. Schedule 1 to this Agreement shows
----------
for each Shareholder (i) the respective percentage interest (the "Percentage
Interest") of each such Shareholder in the Escrow Shares, and (ii) the
corresponding aggregate maximum number of shares of WebMD Series B Preferred
Stock issuable to each Shareholder, subject to the adjustments provided herein.
The Escrow Agent shall hold the Escrow Shares on behalf of, and as a convenience
to WebMD and the Shareholders with the same force and effect as if such shares
had been delivered by WebMD to each Shareholder and subsequently delivered by
such Shareholder to the Escrow Agent. The Escrow Agent shall hold the Escrow
Shares for the benefit of WebMD and the Shareholders, as the case may be. Any
and all future cash dividends on the Escrow Shares shall be paid in accordance
with this Agreement. From and after the Effective Time, the Escrow Fund shall
be available to compensate and indemnify an Indemnitee against and for any Loss
suffered or incurred by an Indemnitee, as and when due, which arises out of or
results from a breach of any of the representations, warranties, covenants or
agreements of Sapient set forth in the Merger Agreement or in any certificate or
schedule delivered by Sapient pursuant to the Merger Agreement. WebMD shall
promptly provide written notice to Escrow Agent of the Effective Time. An
Indemnitee may not receive any shares from the Escrow Fund unless and until a
Loss Notice or Loss Notices (as defined below) identifying Indemnifiable Losses,
the aggregate amount of which exceed $50,000, have been delivered to the Escrow
Agent pursuant to the terms
<PAGE>
hereof; in such case, an Indemnitee may recover from the Escrow Fund its Losses
in excess of $50,000 in accordance with the terms and provisions hereof.
ARTICLE 2
DEFINITIONS
-----------
2.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
(a) "Closing Date" shall mean the date of the closing of the
------------
transactions contemplated by the Merger, which shall be the date on which the
Effective Time occurs.
(b) "Effective Time" shall mean the time that the Articles of Merger
--------------
reflecting the Merger become effective with the Secretary of State of the State
of Oregon and the Secretary of State of the State of Georgia.
(c) "Disputed Loss Notice" shall mean a Loss Notice that is disputed
--------------------
by the Representative by delivery of a Protest Notice.
(d) "Escrow Shares" shall mean 161,866 shares of WebMD Series B
-------------
Preferred Stock resulting from the issuance of WebMD Series B Preferred Stock
for the outstanding shares of Sapient Capital Stock issued and placed in the
Escrow Fund (plus any additional shares as may be issued upon any stock split,
stock dividend or recapitalization and any WebMD Common Stock issued upon
conversion of the Series B Preferred Stock held in the Escrow Fund).
(e) "Indemnifiable Loss" shall mean any Loss for which an Indemnitee
------------------
may be indemnified pursuant to Section 12.1 of the Merger Agreement. The amount
of recovery for an Indemnifiable Loss shall be reduced by any insurance proceeds
received as a result of any such Indemnifiable Loss.
(f) "Indemnitee" shall mean each of WebMD and Merger Corp. and their
----------
respective officers, directors, employees, representatives, agents,
shareholders, controlling persons and affiliates.
(g) "Loss" shall mean any direct or indirect demand, claim, assessment,
----
loss, liability, damage, cost or expense, including without limitation,
penalties, fines or interest on any amount payable to a third party as a result
of the foregoing, and any legal or other expense reasonably incurred in
connection with investigating or defending any claim or action, whether or not
resulting in any liability.
(h) "Loss Notice" shall mean a written notice, as prescribed in Section
-----------
12.3 of the Merger Agreement, provided by WebMD on behalf of an Indemnitee to
the Escrow Agent and the Representative (i) stating the Indemnitee has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue an
Indemnifiable Loss or potential Indemnifiable Loss, (ii) setting forth in
reasonable detail the individual items comprising such Indemnifiable Loss, the
date each such item was paid or properly accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related, and (iii) to the extent the
amount of the Indemnifiable Loss or potential Indemnifiable Loss is reasonably
calculable, an estimate of the number of Escrow Shares to be delivered to an
Indemnitee with respect to such Indemnifiable Loss or potential Indemnifiable
Loss.
(i) "Representative Expenses" shall mean expenses, including reasonable
-----------------------
attorneys fees and other expenses, of the Representative, in an amount up to
$10,000, incurred in connection with his obligations under this Agreement and
the Merger Agreement.
(j) "Protest Notice" shall mean a written notice, as prescribed in
--------------
Section 2.3 hereof, provided by the Representative to an Indemnitee and the
Escrow Agent if he disputes any Loss Notice received from an Indemnitee.
<PAGE>
(k) "Shareholders" shall mean the former holders of the issued and
------------
outstanding shares of capital stock of Sapient.
(l) "Value Per Share" shall mean the Series B Price as determined in
---------------
accordance with the Merger Agreement. If the Series B Price as determined in
accordance with the Merger Agreement is not $20.00 per share, WebMD and the
Representative shall give written notice to the Escrow Agent of the Series B
Price by January 31, 1999 or written notice that the Series B Price is still
being determined. If the Series B Price is not determined by January 31, 1999,
the Representative and WebMD shall give notice to the Escrow Agent of the Series
B Price promptly after such price is determined in accordance with the Merger
Agreement.
ARTICLE 3
NOTICE OF CLAIMS; DISPUTED LOSS
-------------------------------
3.1 Notice of Claim. If an Indemnitee incurs an Indemnifiable Loss, or
---------------
should an Indemnitee negotiate a proposed settlement in satisfaction of a
potential Indemnifiable Loss, it shall promptly provide a Loss Notice to the
Representative and the Escrow Agent. If the Representative disputes the amount
sought under any such Loss Notice or otherwise disputes the right of the
Indemnitee to be indemnified hereunder, he shall provide the Indemnitee and the
Escrow Agent a Protest Notice within thirty (30) days of the date any such Loss
Notice is received by the Representative. If no Protest Notice is received by
the Indemnitee and the Escrow Agent within thirty (30) days from the date on
which any Loss Notice is received by the Representative, or if a Protest Notice
is received and the dispute is resolved in favor of the Indemnitee after
following the procedures set forth below, then the Escrow Agent shall cause to
be delivered to WebMD and WebMD shall promptly cancel and retire that number of
Escrow Shares as shall equal the number of Escrow Shares (rounded to the next
highest whole number) that, when multiplied by the Value Per Share, equals the
amount of Indemnifiable Loss sought by or awarded to the Indemnitee. If the
Indemnitee and the Escrow Agent receive a Protest Notice within such 30-day
period, the Escrow Agent shall not deliver any Escrow Shares until receipt by it
of written instructions (i) signed by the Representative and a duly authorized
officer of the Indemnitee; or (ii) signed by an arbitration panel that has
considered and resolved such dispute as provided in Section 3.2 below, which
sets forth (i) the number of Escrow Shares, and/or (ii) the amount of cash, if
any, to be delivered to the Indemnitee in accordance with this paragraph. After
delivery of any Escrow Shares to the Indemnitee in accordance with this
paragraph, the Escrow Agent shall be reissued a certificate in respect of any
remaining Escrow Shares.
3.2 Procedure With Respect to Disputed Indemnifiable Loss. A Disputed
-----------------------------------------------------
Loss Notice may be resolved by the agreement of the Representative and the
Indemnitee, in which case written notice of such agreement shall be promptly
provided to the Escrow Agent, together with a statement of the agreed upon
amount to be reimbursed to the Indemnitee. If the Representative and the
Indemnitee are unable to resolve a Disputed Loss Notice within sixty (60) days
of delivery of the Protest Notice to the Escrow Agent, then either of WebMD or
the Representative shall give written notice to the Escrow Agent of that fact
and such Disputed Loss Notice shall be submitted to arbitration in accordance
with the then-current commercial arbitration rules of the American Arbitration
Association ("AAA"). If a Disputed Loss Notice is to be arbitrated, the
Representative shall select one arbitrator, the Indemnitee shall select one
arbitrator, and the two arbitrators so chosen shall select a third. Any
decision of the arbitration panel shall require the vote of at least two (2) of
such arbitrators, shall be specified in a written notice delivered to WebMD, the
Representative and the Escrow Agent and shall be deemed conclusive and each
party shall be deemed to have waived any rights to appeal therefrom. In any
arbitration pursuant to this Section 3.2, an Indemnitee shall be deemed to be
the prevailing party if the arbitrators award the Indemnitee at least fifty
percent (50%) of the amount in dispute, plus any amounts not in dispute;
otherwise, the Shareholders shall be deemed to be the prevailing party. The
non-prevailing party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative costs of the arbitration (including the
administrative fee of AAA), and the expenses, including without limitation,
reasonable attorneys' fees and costs, incurred by the other party to the
arbitration. If resolution of a Disputed Loss Notice is not made within ninety
(90) days of the date of the Protest Notice as provided in this Section 3.2,
then the Escrow Agent may, in its sole discretion, either (i) continue to hold
the Escrow Shares undisbursed until such time as the disputing parties
<PAGE>
agree in writing as to a proper disposition of such Escrow Shares, or (ii) if
such agreement is not forthcoming, the Escrow Agent shall be entitled to tender
into the registry or custody of any court of competent jurisdiction all money or
property in its hand under the terms of this Agreement, and, upon the advice of
counsel, may take such other legal action as may be appropriate or necessary,
whereupon the parties hereto agree Escrow Agent shall be discharged from all
further duties under this Agreement. The filing of any such legal proceedings
shall not deprive Escrow Agent of its compensation earned prior to such filing.
ARTICLE 4
DUTIES; TERM; EXPIRATION; LIMITS
--------------------------------
4.1 Rights and Obligations of the Parties. The Escrow Agent shall be
-------------------------------------
entitled to such rights and shall perform such duties of the escrow agent as set
forth herein (collectively, the "Duties"), in accordance with the terms and
------
conditions of this Agreement. WebMD, Merger Corp. and the Representative shall
be entitled to their respective rights and shall perform their respective duties
and obligations as set forth herein and in Article 12 of the Merger Agreement,
in accordance with the terms hereof and thereof. Except as to the Duties of the
Escrow Agent, in the event that the terms of this Agreement conflict in any way
with the provisions of Article 12 of the Merger Agreement, Article 12 of the
Merger Agreement shall control.
4.2 Escrow Term - General Indemnity. The term of escrow for the Escrow
-------------------------------
Shares shall commence on the Closing Date of the Merger and shall terminate upon
the occurrence of (i) the publication by WebMD of audited consolidated financial
statements covering an accounting period after the Closing Date for those items
that would be expected to be encountered in the audit process or (ii) one (1)
year after the Closing Date for all other items. WebMD shall give prompt
written notice to the Escrow Agent of the Closing Date. WebMD and the
Representative shall also provide written notice to the Escrow Agent upon
expiration of the escrow for the Escrow Shares.
4.3 Expiration of Term - No Claim Pending. If at the expiration of the
-------------------------------------
escrow term provided in Section 4.2 above, either (i) no Loss Notice has been
received with respect to an Indemnifiable Loss; or (ii) any Loss Notice that has
been received has been resolved in accordance with this Agreement; or (iii) no
litigation or claim is pending for which an Indemnitee may be entitled to
indemnification hereunder, the Escrow Agent shall deliver to the transfer agent
for WebMD Series B Preferred Stock for issuance to each Shareholder, a
certificate representing the number of shares of WebMD Series B Preferred Stock
equal to the aggregate number of the Escrow Shares subject to the escrow which
term is expiring and then remaining in escrow times the Percentage Interest for
such Shareholder, and deliver to each Shareholder, any cash or other assets
distributed as a dividend or other distribution with respect to the Escrow
Shares and held by the Escrow Agent at the expiration of the escrow term times
the Percentage Interest for such Shareholder. The Representative and WebMD
shall provide written notice to the Escrow Agent which sets forth the number of
Escrow Shares to be delivered as provided in the foregoing sentence. WebMD
shall notify Escrow Agent of the name and address of the transfer agent and
provide instructions regarding the legends, if any, that should be placed on the
certificates for such shares. Any such delivery of WebMD Series B Preferred
Stock shall be of full shares and any fractional portions shall be rounded to
the nearest whole number by the Escrow Agent so that the number of shares
remaining in escrow to be delivered will be fully allocated among such
Shareholders.
4.4 Expiration of Term - Claim Pending. If at the expiration of the
----------------------------------
escrow term provided in Section 4.2 above, any claim is pending for which a Loss
Notice has been delivered to the Escrow Agent prior to such expiration and for
which an Indemnitee would be entitled to indemnification if such claim were
resolved adversely to them, then the Escrow Agent shall retain in such escrow
that number of shares of WebMD Series B Preferred Stock as shall equal the
number of Escrow Shares (rounded to the next highest whole number) that, when
multiplied by the Value Per Share, equals any amount set forth by such
Indemnitee in the Loss Notice with respect to such claims (the "Retained
Shares"). The number of Escrow Shares, less the number of Retained Shares,
shall then be distributed to the Shareholders as set forth in Section 4.3 above.
Upon the resolution of any claim for which shares were retained in escrow at the
<PAGE>
expiration of the term of this Agreement and receipt of written notice from
WebMD and the Representative to such effect (with a copy to Escrow Agent), the
Escrow Agent shall cancel the appropriate number of Retained Shares (if any) and
shall distribute any remaining Retained Shares to the Shareholders as set forth
in Section 4.3 above.
4.5 Effect of Final Delivery. Notwithstanding the expiration of the term
------------------------
of the escrow, this Agreement shall continue in full force and effect until the
Escrow Agent has delivered all of the Escrow Shares pursuant to the terms
hereof. After all of such shares have been so delivered, all rights, duties and
obligations of the respective parties hereunder shall terminate. If any cash is
held in escrow at the expiration of the term of the escrow, such cash shall be
distributed pro rata with the Escrow Shares as provided in Sections 4.3 and 4.4
above.
ARTICLE 4
ESCROW STOCK CERTIFICATES
-------------------------
The Escrow Agent may at any time request the transfer agent for WebMD
Series B Preferred Stock to issue new certificates representing the Escrow
Shares in such denominations as may be necessary or appropriate in carrying out
the Escrow Agent's obligations under this Agreement.
ARTICLE 5
DIVIDENDS; VOTING RIGHTS
------------------------
5.1 Cash Dividends; Voting Rights. The Escrow Agent shall distribute
-----------------------------
promptly any and all cash dividends or other cash income with respect to the
Escrow Shares to the Shareholders at their addresses of record provided to the
Escrow Agent by WebMD and in accordance with their Percentage Interest in the
Escrow Fund (which amounts shall also be allocable to the Shareholders for tax
reporting purposes); provided, however, that Escrow Agent shall not be required
to distribute such amounts to any of the Shareholders who have not provided tax
identification numbers in the form (including any necessary certifications or
representations thereto) reasonably requested by Escrow Agent. By written
notice signed by the Representative, the Representative shall have the right to
direct the Escrow Agent as to the exercise of any voting rights with respect to
such Escrow Shares held by the Escrow Agent on behalf of the Shareholders, and
the Escrow Agent shall comply with such directions if received from the
Representative at least five (5) days prior to the date of the meeting at which
such vote is to be taken, which meeting date shall be set forth in such
directions from the Representative.
5.2 Stock Splits; Stock Dividends. In the event of any stock split, stock
-----------------------------
dividend, recapitalization or similar transaction with respect to WebMD Series B
Preferred Stock that becomes effective during the term of this Agreement
(including any conversion into WebMD Common Stock), the additional shares so
issued with respect to the Escrow Shares shall be added to the Escrow Shares and
any other references herein to a specific number of shares of WebMD Series B
Preferred Stock and the Value Per Share shall be adjusted accordingly.
ARTICLE 6
THE ESCROW AGENT
----------------
6.1 Liability. In performing any of its duties under this Agreement , or
---------
upon the claimed failure to perform its duties hereunder , Escrow Agent shall
not be liable to anyone for any damages, losses or expenses which they may incur
as a result of the Escrow Agent so acting, or failing to act; provided, however,
that Escrow Agent shall be liable for damages arising out of its willful
misconduct or gross negligence under this Agreement. WebMD agrees that in the
event any controversy arises under or in connection with this Agreement or the
Escrow Shares, or the Escrow Agent is made a party to or intervenes in any
litigation pertaining to this Agreement or the Escrow Shares, to pay to the
Escrow Agent reasonable compensation for its extraordinary services and to
reimburse the Escrow Agent for all cost and expenses associated with such
controversy or litigation, including, but not limited to, legal fees and
expenses. Accordingly, the Escrow Agent shall not incur any such liability with
respect to (i) any action taken or omitted to be taken in good faith upon advice
of its counsel or counsel for WebMD or the Representative given with respect to
any questions relating to the duties and responsibilities of the Escrow Agent
<PAGE>
hereunder; or (ii) any action taken or omitted to be taken in reliance upon any
document, including any written notice or instructions provided for in this
Agreement, not only as to its due execution and to the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein, which the Escrow Agent shall in good faith
believe to be genuine, to have been signed or presented by the purported proper
person or persons and to conform with the provisions of this Agreement. Written
instructions provided to Escrow Agent hereunder by WebMD and/or the
Representative shall be signed by the "Authorized Representative" as identified
on Schedule 2 attached hereto. The limitation of liability provisions of this
----------
Section 6.1 shall survive the termination of this Agreement and the resignation
or removal of the Escrow Agent.
6.2 Resignation. The Escrow Agent may resign at any time from its
-----------
obligations under this Agreement by providing written notice to the parties
hereto. Such resignation shall be effective not later than thirty (30) days
after such written notice has been given. The Escrow Agent shall have no
responsibility for the appointment of a successor escrow agent. If a successor
escrow agent is not selected within thirty (30) days of the resignation of
Escrow Agent, the Escrow Agent shall have the right to institute a Bill of
Interpleader or other appropriate judicial proceeding in any court of competent
jurisdiction, and shall be entitled to tender into the registry or custody of
any court of competent jurisdiction all money or property in its hand under the
terms of this Agreement, whereupon the parties hereto agree Escrow Agent shall
be discharged from all further duties under this Agreement. The filing of any
such legal proceedings shall not deprive Escrow Agent of its compensation earned
prior to such filing. The Escrow Agent may be removed for cause by WebMD or the
Representative. The removal of the Escrow Agent shall not deprive the Escrow
Agent of its compensation earned prior to such removal.
6.3 Expenses of Escrow Agent. WebMD shall be liable for the fees and
------------------------
expenses of the Escrow Agent. Escrow Agent's fees and expenses are $2,500 per
year and Escrow Agent shall bill WebMD for the amount of such fees and expenses,
of which $2,500 will be due upon the execution of this Agreement. WebMD shall
pay the amount of Escrow Agent's fees and expenses to Escrow Agent.
6.4 Indemnification and Hold Harmless. WebMD hereby agrees to indemnify
---------------------------------
and hold the Escrow Agent and its directors, employees, officers, agents,
successors and assigns harmless from and against any and all losses, claims,
damages, liabilities and expenses, including without limitation, reasonable
costs of investigation and counsel fees and expenses which may be imposed on the
Escrow Agent or incurred by it in connection with its acceptance of this
appointment as the Escrow Agent hereunder or the performance of its duties
hereunder; provided, however, that Escrow Agent shall be liable for damages
arising out of its willful misconduct or gross negligence. Such indemnity
includes, without limitation, all losses, damages, liabilities and expenses
(including counsel fees and expenses) incurred in connection with any litigation
(whether at the trial or appellate levels) arising from this Agreement or
involving the subject matter hereof. The indemnification provisions contained
in this Section 6.4 are in addition to any other rights any of the indemnified
parties may have by law or otherwise and shall survive the termination of this
Agreement or the resignation or removal of the Escrow Agent.
ARTICLE 7
REPRESENTATIVE
--------------
7.1 Power and Authority. The Representative shall have full power and
-------------------
authority to represent the Shareholders and their successors with respect to all
matters arising under this Agreement, and all action taken by the Representative
hereunder shall be binding upon such Shareholders and their successors as if
expressly ratified and confirmed in writing by each of them. Without limiting
the generality of the foregoing, the Representative shall have full power and
authority, on behalf of all the Shareholders and their successors, to interpret
all the terms and provisions of this Agreement, to dispute or fail to dispute
any claim of Indemnifiable Loss against the Escrow Shares made by an Indemnitee,
to negotiate and compromise any dispute which may arise under this Agreement, to
sign any releases or other documents with respect to any such dispute, and to
authorize delivery of Escrow Shares in satisfaction (partial or otherwise) of
any claim by an Indemnitee or any other payments to be made with respect
thereto. All determinations of the Representative shall be decided by a
majority thereof if there is more than one Representative.
<PAGE>
7.2 Resignation; Successors. The Representative, or any successor
-----------------------
hereafter appointed, may resign and shall be discharged of his duties hereunder
upon the appointment of a successor Representative as hereinafter provided. In
case of such resignation, or in the event of the death or inability to act of
the Representative, a successor shall be named from among the Sapient
Shareholders by a majority of the members of the Board of Directors of Sapient
who served on such board prior to the Merger, which successor shall give written
notice to the Escrow Agent and WebMD certifying that such person is the
successor to the Representative and specifying the name and address of such
successor Representative. Each such successor Representative shall have all the
power, authority, rights and privileges hereby conferred upon the original
Representative, and the term "Representative" as used herein shall be deemed to
include such successor Representative. Escrow Agent shall receive written
notice of any change of Representative.
7.3 Liability. In performing any of his duties under this Agreement, or
---------
upon the claimed failure to perform his duties hereunder, the Representative
shall not be liable to the Shareholders or anyone else for any damages, losses
or expenses which they may incur as a result of any act, or failure to act under
this Agreement; provided, however, that the Representative shall be liable for
damages arising out of actions or omissions that both (i) were taken or omitted
not in good faith and (ii) constituted willful default or gross negligence under
this Agreement. Accordingly, the Representative shall not incur any such
liability with respect to (i) any action taken or omitted to be taken in good
faith upon advice of his counsel given with respect to any questions relating to
the duties and responsibilities of the Representative hereunder; or (ii) any
action taken or omitted to be taken in reliance upon any document, including any
written notice or instructions provided for in this Agreement, not only as to
its due execution and to the validity and effectiveness of its provisions, but
also as to the truth and accuracy of any information contained therein, which
the Representative shall in good faith believe to be genuine, to have been
signed or presented by the purported proper person or persons and to conform
with the provisions of this Agreement. The limitation of liability provisions
of this Section 7.2 shall survive the termination of this Agreement and the
resignation of the Representative.
7.4 Representative Expenses. WebMD shall pay Representative Expenses in
-----------------------
amount up to $10,000.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Transferability. The contingent right to receive Escrow Shares shall
---------------
not be transferable by the Shareholders otherwise than by will or by the laws of
descent and distribution.
8.2 Notices. Each party shall keep each of the other parties hereto
-------
advised in writing of all transactions pursuant to this Agreement. Any notices
or other communications required or permitted under this Agreement shall be in
writing and shall be sufficiently given if sent by registered or certified mail,
postage prepaid, addressed as follows, or if sent by facsimile to the facsimile
numbers identified below:
If to WebMD or Merger Corp.:
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road, N.E.
Attn: Ms. L. Scott Askins
Atlanta, Georgia 30326
Telecopy: (404) 479-7603
Telephone: (404) 479-7706
<PAGE>
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: J. Vaughan Curtis, Esq.
Tel: (404) 881-7397
Facsimile: (404) 881-4777
If to Representative:
Philippe Chambon
c/o The Sprout Group
3000 Sand Hill Road, Bldg. 3 Suite 170
Menlo Park, California
Tel: (650) 234-2760
Facsimile: (650) 234-2779
With a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Telecopy Number: (650) 321-2800
Attention: Scott C. Dettmer, Esq.
If to Escrow Agent:
SunTrust Bank, Atlanta
Corporate Trust Division
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305-1727
Tel: (404) 240-1954
Fax: (404) 240-2030
or such other person or address as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so mailed.
8.3 Construction. The validity, enforcement and construction of this
------------
Agreement shall be governed by the laws of the State of Georgia, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
8.4 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective heirs, legatees, assigns and
transferees, as the case may be. Escrow Agent shall be bound only by the terms
of this Agreement and shall not be bound by or incur liability with respect to
the Merger Agreement or any other agreement or understanding between WebMD and
the Shareholders. The Escrow Agent shall not be charged with notice or
knowledge of any such ancillary document, fact or information not specifically
set forth herein. The Escrow Agent shall undertake to perform only such duties
as are expressly set forth herein and no additional or implied duties or
obligations shall be read into this Agreement against the Escrow Agent.
8.5 Separability. If any provision or section of this Agreement is
------------
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain enforceable in accordance with their terms.
<PAGE>
8.6 Headings. The headings and subheadings contained in this Agreement
--------
are for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
8.7 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument
8.8 Amendments. This Agreement may be amended from time to time but only
----------
by written agreement signed by all of the parties hereto.
8.9 Third-Party Beneficiaries. Sapient, Merger Corp. and the former
-------------------------
shareholders of Sapient are expressly intended to be third-party beneficiaries
of the indemnities and obligations of the Representative as if they were parties
to this Agreement.
[Remainder of Page Left Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
WEBMD, INC.
By: /s/ W. Michael Heekin
----------------------------------------
Title: Executive Vice President
-------------------------------------
"ESCROW AGENT"
SUNTRUST BANK, ATLANTA
By: /s/ Rebecca Fischer
----------------------------------------
"REPRESENTATIVE"
/s/ Philippe Chambon
-------------------------------------------
Philippe Chambon
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
APPROXIMATE MAXIMUM
----------- -------
NAME OF SHAREHOLDER PERCENTAGE INTEREST ESCROW SHARES
------------------- ------------------- -------------
<S> <C> <C>
Altschul Investment Group 0.507% 820
Asset Management Associates 1996 LP 28.708% 46,468
Barbee, Roy 0.077% 124
Barrow, Carrell 0.030% 48
Barrow, Margaret 0.030% 48
Bergstrom, Jason 0.001% 2
Bleoaja, Cornel 0.014% 22
Brown, Kenneth 0.007% 12
Bryson, Vaughn 0.077% 124
Budinich, John 0.071% 115
Budinich, Richard 0.532% 861
Burke, Scott 0.138% 223
Burtis, Nancy 0.016% 26
Calhoun, John 0.197% 319
Clymer, Susan 1.105% 1,788
Coleman, Deborah 0.231% 374
Coleman, Kevin C. 0.035% 56
Collins, Mark R. 0.345% 558
Cook, Joe 0.095% 154
Davenport, Craig 0.301% 487
Dimmler, Charles 0.118% 191
DLJ Capital Corporation 0.537% 869
DLJ First ESC LLC 2.684% 4,345
Donaldson, Matina 0.003% 5
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Ebel, Benjamin 0.092% 149
Glenn, Paul F. Revocable Trust 1.011% 1,636
Goulston, Adam 0.001% 1
Griffith, John 0.124% 201
Haack, Kimberly 0.012% 19
Hamid, Kamal 0.231% 374
Hamm, Terry and Joyce 0.138% 224
Harrison, Seth 0.197% 319
Hayes, Sasha 0.006% 9
Hennings, Zachary 0.006% 9
Hertik, Phil 0.232% 375
Hicks, James D. 1.417% 2,294
Hunt, Michael 0.270% 437
Kean, Anya 0.006% 9
Kean, James R. 3.318% 5,370
Kean, Justin 0.006% 9
Kean, Katya 0.006% 9
Kean, Elizabeth 0.030% 48
Kean, Robert 0.030% 48
Kean, Whitney 0.006% 9
Kelly, David W. 0.059% 96
Kelly, Douglas A. 0.059% 96
Kelly, Michael C. 0.059% 96
Kelly, Patrick B. 0.059% 96
Kelly, William J. 2.949% 4,773
Kelly, The Phyllis Kelly Living Trust 0.151% 245
Kienlen, Erika 0.006% 9
Lombardo, Thomas G. 0.157% 254
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Margraf, Timothy 0.231% 374
McCall, Ernest 0.394% 638
Metcalf, Brock 0.197% 319
MFL Limited Partnership 0.308% 498
Muller, Roger 0.358% 580
Nagle, Rick (Frederick) 0.508% 823
New, Don 0.098% 159
Reed, Cindy 0.098% 159
Rhea, Cynthia 0.006% 9
Nybakken, Kristopher 3.269% 5,291
Oregon Growth Account (OR) 2.585% 4,184
Oregon Life Sciences 0.615% 995
(ORTDF)/Cascadia Pacific Mgmt 0.455% 737
Pacific Horizon Partners II, L.P. 0.059% 96
Perlman, Louis 0.197% 319
Pfromer, Edward 0.339% 549
Powell, Michael 0.848% 1,372
Silicon Valley Bank 0.216% 350
Smith, Corey 0.276% 446
Sonnenschein, Edward 0.162% 262
Sonnenschein, Paul 0.116% 187
Sprout Capital VII LP 23.361% 37,813
Sprout CEO Fund, LP 0.271% 438
Synetic Inc. 18.037% 29,195
Von Reis, Siri 0.507% 820
</TABLE>
<PAGE>
SCHEDULE 2
----------
AUTHORIZED REPRESENTATIVES
--------------------------
WebMD: Robert Draughon or L. Scott Askins, or any person designated in
writing in a notice delivered to Escrow Agent signed by either of
them.
Shareholders: Philippe Chambon, Representative of the Shareholders
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.46
January 20, 1999
Jeffrey T. Arnold
Chairman and Chief Executive Officer
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
RE: DISTRIBUTION AGREEMENT
Dear Mr. Arnold:
Reference is made to that certain Investment Agreement (the "Investment
Agreement") of even date herewith between WebMD, Inc. ("WEBMD") and HBO &
Company of Georgia ("HBOCG"). Pursuant to the Investment Agreement, HBOCG has
agreed to purchase and WebMD has agreed to issue and sell to HBOCG 650,000
shares of WebMD's Series B Preferred Stock (the "SHARES") for an aggregate
purchase price of $13 million. HBOCG is a wholly owned subsidiary of McKesson
HBOC, Inc. (MCK/HBOC"). As a material inducement to McK/HBOC to cause HBOCG to
enter into the Investment Agreement and to purchase the Shares thereunder, WebMD
hereby agrees with McK/HBOC as follows:
1. WebMD hereby appoints McK/HBOC as distributor of its WebMD service and
related products (including WebRN and other similar products now existing or
proposed to be developed by WebMD) the "WEBMD PRODUCTS") to integrated delivery
networks, acute care hospitals, long-term and alternate site care facilities,
physician offices, retail and institutional pharmacies, pharmaceutical and
biotechnology companies, and manufacturers of medical/surgical supplies (the
"MCK/HBOC MARKET"). McK/HBOC agrees to market the WebMD Products within the
McK/HBOC Market. McK/HBOC shall be the co-exclusive (with WebMD) distributor of
WebMD Products to integrated delivery networks. WebMD agrees to pay McK/HBOC,
as a distribution service fee, $*** per month per subscription to the WebMD
service placed by McK/HBOC, but will not apply to subscriptions purchased by
McK/HBOC until such subscriptions are resold to and activated by end-user
subscribers. Such distribution fee shall be payable for every month during which
the subscriber remains a subscriber to the WebMD service, including any
extensions or renewals, whether or not McK/HBOC was involved in soliciting such
extension or renewal. In the event WebMD offers additional WebMD Products during
the term of this agreement, or raises the subscription rate for its WebMD
service, WebMD will pay McK/HBOC a monthly distribution service fee on the same
terms described above, at a rate calculated as ***% of the monthly subscription
fee payable by the subscriber. In the event WebMD pays any distributor a service
fee for
_____________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE>
distribution services at a higher rate than that determined in accordance with
the preceding paragraph, the fee payable to McK/HBOC shall automatically be
adjusted to such higher rate.
2. McK/HBOC agrees to place or purchase, at WebMD's current pricing as to the
date hereof, a minimum of *** three-year Basic Subscriptions to WebMD, within
twelve (12) months following the Live Date (as hereinafter defined), of which a
minimum of *** shall be placed or purchased within the first three (3) months
following the Live Date, an aggregate minimum of *** shall be placed or
purchased within the first six (6) months, and an aggregate minimum of *** shall
be placed or purchased within the first nine (9) months. Such three-year Basic
Subscriptions shall include a termination provision allowing the subscriber (or,
with respect to subscriptions purchased by McK/HBOC, McK/HBOC), to terminate the
subscription, without cost to the subscriber or McK/HBOC, after the initial
twelve months of the subscription, provided that such termination right must be
exercised no later than 30 days following the end of such initial twelve months.
(For purposes of certainty, McK/HBOC's obligation with respect to Basic
Subscriptions it purchases (i.e., rather than places) shall be to pay the
equivalent of one-year's subscription fees per subscription purchased, plus
accrued usage fees, if any, for Virtual Receptionist or other special features.)
In connection with the first *** such subscriptions placed during such twelve-
month period, McK/HBOC shall be entitled to offer to subscribers a credit of
$*** towards purchases of medical/surgical supplies made through WebMD from
McKesson General Medical, Inc. WebMD will rebate to McK/HBOC $*** for each
subscription placed by McK/HBOC in achieving McK/HBOC's minimum obligations, as
well as any subscriptions purchased by McK/HBOC in achieving such obligations.
WebMD agrees that it will provide a promotional incentive reasonably acceptable
to McK/HBOC, to be offered by McK/HBOC in conjunction with subscriptions placed
in excess of the subscriptions placed or purchased to satisfy McK/HBOC's minimum
obligations. WebMD agrees to meet with McK/HBOC in timely fashion in order to
negotiate in good faith the terms of such promotional incentive.
Notwithstanding the foregoing to the contrary,
(a) The number of subscriptions required to be placed or purchased by
McK/HBOC hereunder or under the Prior Agreement shall in no event be
greater than (i) the number of paid subscriptions to WebMD (excluding
subscribers through McK/HBOC) or (ii) the number of additional subscribers
capable of being reasonably supported by WebMD's hardware, software and
technical support services; and
(b) McK/HBOC shall be relieved of any further obligation to place or
purchase subscriptions under this agreement and the Prior Agreement (as
hereinafter defined) if WebMD enters into "take or pay" arrangements with
distributors bringing the total number of subscriptions subject to such
arrangements above *** (including the *** subscriptions subject to such
arrangements under this agreement and the Prior Agreement).
_____________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
2
<PAGE>
3. (a) In consideration of McK/HBOC's services as a distributor within the
McK/HBOC Market, WebMD agrees to feature direct and seamless Web-enabled access
to McK/HBOC Products and Services, and to constitute McK/HBOC as the exclusive
gateway for electronic commerce transactions with respect to products and
services within the Exclusive Categories (as defined in Section (f), below).
(b) WebMD will provide McK/HBOC with a minimum of $*** in WebMD's research and
development services, research and development funding, or third-party
contractor development services to develop web-enabled McK/HBOC sites in
mutually agreed and prioritized product and service areas representing the full
spectrum of the McK/HBOC Exclusive Categories (including without limitation
developing order entry functionality). Such commitment shall be allocated among
funding, WebMD development and third-party development by WebMD in its
reasonable discretion, after consultation with McK/HBOC. To the extent the
foregoing commitment is fulfilled in the form of WebMD or third party services,
the value of such services shall be determined by agreement of the parties based
on a comparison to comparable commercially available services. The parties will
use their diligent efforts to achieve such seamless Web-enabled access so as to
allow, at a minimum, *** from McK/HBOC no later than July 1, 1999. The initial
focus of such effort shall be on developing ***; thereafter, the development
effort shall be directed toward web-enabling those other McK/HBOC Products and
Services determined by mutual prioritization. The date upon which the parties
agree that *** is industry competitive and reasonably available for use by
McK/HBOC customers is referred to herein as the "LIVE DATE." The parties agree
to meet within thirty (30) days following the execution of this letter and
negotiate in good faith functional standards and tests to be used to determine
the Live Date.
(c) During the term of this agreement, for so long as McK/HBOC is satisfying
the Performance Criteria (as defined in Section 4(c), below), the access
described in this Section 3 shall be exclusive to McK/HBOC within the Exclusive
Categories; that is, no WebMD Product shall provide access (including access
through any search engine accessible through the WebMD website, except as
provided in Section 3(e)(ii)), to any product or service to customers in the
McK/HBOC Market within the Exclusive Categories other than McK/HBOC Products and
Services.
(d) WebMD represents and warrants to McK/HBOC that it has terminated, or has
given notice of termination of (effective within no more than ninety (90) days
of the date hereof), any contractual obligation with any third party that is
inconsistent with the terms of this letter, including without limitation the
exclusivity described in this Section 3, it being understood that the agreements
identified in Section 3(h), below, shall not be deemed inconsistent with the
terms of this letter.
(e) Notwithstanding anything in this Section 3 to the contrary, (i) unframed
links to websites of companies providing such products or services may be
included as part of a comprehensive
_____________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
3
<PAGE>
alphabetical listing of healthcare companies in the VPM Industry Directory in
substantially the form of such directory as of the date of this letter and (ii)
WebMD shall not be obligated to restrict the listing of such companies in search
results obtained through use of any general purpose, third-party search engine
accessible on WebMD's website.
(f) For purposes of this agreement, "MCK/HBOC PRODUCTS OR SERVICES" shall mean
all products or services currently or hereafter offered by McK/HBOC, within the
following categories (the "EXCLUSIVE CATEGORIES"):
*** and
the following category, upon negotiation of an agreement between WebMD and *** a
subsidiary of McK/HBOC, that is mutually and reasonably satisfactory to the
parties,
*** and
those areas within the following categories as to which the parties shall agree
pursuant to paragraph (g), below:
***
g) Within 60 days following the date hereof, the parties shall meet and
negotiate in good faith the scope of McK/HBOC's exclusivity with respect to
categories (v)-(vii), above and appropriate mechanisms for adjusting such scope
as McK/HBOC develops additional capabilities within those categories.
h) McK/HBOC acknowledges that WebMD has agreements with *** which may provide
access for products and services within the Exclusive Categories. To the extent
this agreement would otherwise require WebMD to provide exclusive access for
such products and services to McK/HBOC, WebMD shall provide access to McKesson
on a co-exclusive basis with such other entity for the remaining term (exclusive
of any renewal or extension term requiring WebMD's consent) of such other
entity's agreement, except in the
- -----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
4
<PAGE>
case of ***, to the extent such agreement provides for exclusivity to ***.
Thereafter, WebMD shall provide such access to McKesson alone on an exclusive
basis.
i) During the term of this agreement, for so long as WebMD continues to satisfy
the Performance Criteria, McK/HBOC will not enter an agreement with any Material
Competitor of WebMD to establish *** on a website operated by such Material
Competitor. For purposes of this provision, a "MATERIAL COMPETITOR" of WebMD
shall mean any national provider of web-based access to the McK/HBOC Market that
provides healthcare-related (i) content, community or services; (ii)
connectivity and communications, and (iii) e-commerce in competition with WebMD.
Nothing in this provision shall prevent McK/HBOC from ***.
4. a) The term of this agreement shall be for five (5) years beginning on the
Live Date. This agreement shall be automatically extended for an additional
five (5) year term, unless either party shall have failed to satisfy the
Performance Criteria, as hereinafter defined. Thereafter, this agreement shall
be automatically extended for an unlimited number of additional one-year
extension terms, unless either party gives written notice of termination at
least 180 days prior to the end of the then current term or extension term. If
either party shall fail to satisfy the applicable Performance Criteria, then the
other party, by written notice given no later than 90 days' prior to the
expiration of the initial five year term, may cause this agreement to terminate
without extension at the end of such initial term.
b) This agreement may only be terminated by a party upon a material breach of
any of the provisions hereof by the other party, if such breach has not been
cured within thirty (30) days following receipt of written notice thereof.
c) Within sixty (60) days following the date hereof, the parties shall agree
upon specific measurements to be applied to the parties' performance of their
respective obligations hereunder (the "PERFORMANCE CRITERIA"). The Performance
Criteria applicable to McK/HBOC shall be designed to evaluate McK/HBOC's
relative commercial competitiveness as a web-based distributor and provider of
products and services within the Exclusive Categories to the McK/HBOC Market;
the Performance Criteria applicable to WebMD shall be designed to evaluate
WebMD's relative commercial competitiveness among providers of web-based access
targeted at the McK/HBOC Market.
5. Notwithstanding any provision of this agreement to the contrary, the existing
distribution agreements between HBOCG and WebMD (collectively, the ""PRIOR
AGREEMENT") shall remain in full force and effect, provided that subscriptions
placed or purchased by McK/HBOC may be allocated, at McK/HBOC's option, to
satisfy the respective targets set forth in either agreement and to enjoy the
benefits of the respective incentives set forth in either agreement. The
parties agree to continue to negotiate in good faith to enter into a definitive
strategic
- -----------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
5
<PAGE>
alliance agreement containing terms and conditions consistent with the foregoing
provisions and such other terms and conditions as the parties shall agree in
order to effect the intent of the foregoing provisions (the "Definitive
Agreement"). Notwithstanding the foregoing, the absence of a Definitive
Agreement shall not impair the effectiveness of the agreements set forth in this
letter. Prior to execution of a Definitive Agreement, this letter, the
Investment Agreement, and the Prior Agreement shall represent the complete
agreement of the parties regarding the subject matter hereof.
6. Neither party will issue any press release, or make any other public
statement with respect to the subject matter of this agreement without the
consent of the other party, which consent shall not be unreasonably withheld.
Please indicate your agreement to the foregoing by executing a copy of this
letter and returning it to me at the above address. This letter shall become
effective upon our receipt of your executed copy.
Sincerely,
McKesson HBOC, INC.
By: /s/
-------------------------
Title: Vice President
AGREED:
WEBMD,INC.
By: /s/ W. Michael Heekin
-------------------------
Title: Executive Vice President, Strategic Relations
Date: January 20, 1999
6
<PAGE>
EXHIBIT 10.53
FIRST AMENDMENT TO SHAREHOLDERS' AGREEMENT
THIS FIRST AMENDMENT TO SHAREHOLDERS' AGREEMENT (this "Agreement"), made as
of the 28th day of January, 1999, by and among Jeffrey T. Arnold ("Arnold"), T.
Blake Whitney ("Whitney"), K. Robert Draughon ("Draughon"), W. Michael Heekin
("Heekin"), and Bruce A. Springer ("Springer"); together with Arnold, Whitney,
Draughon, and Heekin being collectively referred to hereinafter as the
"Managers" and individually as a "Manager"; HBO & Company of Georgia, a
Delaware corporation (the "Purchaser"; the Purchaser and the Managers being
referred to hereinafter collectively as the "Shareholders"); and WEBMD, INC., a
Georgia corporation, formerly known as Endeavor Technologies, Inc. (the
"Company");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Shareholders and the Company did enter into a certain
Shareholders' Agreement dated August 24, 1998 (the "Original Agreement"),
whereby the Managers granted the Purchaser certain rights of co-sale regarding
any series of common stock of the Company owned by them as of the date thereof,
issuable to them upon exercise of options or otherwise subsequently acquired by
them and addressing certain matters relating to the governance of the Company;
WHEREAS, the Purchaser and the Company have entered into a certain
Investment Agreement dated January 28, 1999 (the "Series B Investment
Agreement"), pursuant to which the Purchaser has agreed to purchase a total of
650,000 shares of Series B Preferred Stock, no par value per share of the
Company ("Series B Preferred Stock");
WHEREAS, it is a condition of the Purchaser's obligation to invest in the
Company under the terms of the Series B Investment Agreement that the parties
enter into this amendment to the Original Agreement to take account of the
shares of Series B Preferred Stock that will be owned by the Purchasers after
the closing contemplated by the Series B Investment Agreement in connection with
any exercise of the Rights of Co-Sale granted to Purchaser under the Original
Agreement;
NOW, THEREFORE, in consideration of mutual covenants herein contained, to
induce the Purchaser to enter into the Series B Investment Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Shareholders do hereby agree as
follows:
1. Amendments.
----------
1.1 The fourth clause beginning with word "WHEREAS," on the first
page of the Original Agreement is hereby amended by substituting for the words
"('Preferred Stock')" at the end thereof the words "('Series A Preferred
Stock')".
<PAGE>
1.2 Section 2.3 of the Original Agreement is hereby amended by
deleting the words "Preferred Stock" wherever they appear in the first sentence
thereof substituting instead the words "Series A Preferred Stock" and by
inserting after the words "the designations thereof" within such sentence the
words "or in accordance with the terms of that certain Investment Agreement
dated January 12, 1999, between the Purchaser and the Company".
1.3 Section 2.3 is hereby amended by inserting in the parenthetical
in the third sentence thereof which defines the term "Co-Sale Number") after the
words "upon conversion of any" the words "Series A Preferred Stock or Series B
Preferred Stock, no par value per share, of the Company ['Series B Preferred
Stock'; the Series A Preferred Stock and the Series B Preferred Stock being
referred to hereinafter collectively as the 'Preferred Stock']."
1.4 Except as amended hereby, the terms of the Original Agreement
shall remain in full force and effect without change.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Shareholders' Agreement either themselves or by their duly authorized
representatives as of the day and year first written above.
/s/ Jeffrey T. Arnold
------------------------------------------
JEFFREY T. ARNOLD, individually
T. Blake Whitney
------------------------------------------
T. BLAKE WHITNEY, individually
/s/ K. Robert Draughon
------------------------------------------
K. ROBERT DRAUGHON, individually
/s/ W. Michael Heekin
------------------------------------------
W. MICHAEL HEEKIN, individually
/s/ Bruce A. Springer
------------------------------------------
BRUCE A. SPRINGER, individually
2
<PAGE>
HBO & COMPANY OF GEORGIA
By: /s/ Albert J Bergonzi
---------------------------------------
Name: Albert J. Bergonzi
Title: President
WEBMD, INC.
By: Jeffrey T. Arnold
---------------------------------------
Name: Jeffrey T. Arnold
Title: Chief Executive Officer
3
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.54
[WEBMD LOGO]
December 31, 1998
VIA FACSIMILE TO: (770) 804-2970
- --------------------------------
Mr. Albert J. Bergonzi
President
HBO & Company of Georgia
301 Perimeter Center North
Atlanta, GA 30346
Dear Mr. Bergonzi:
This letter states the terms of our agreement through which HBO & Company
of Georgia and WebMD, Inc. will market *** subscriptions to WebMD.
HBOC agrees to sponsor three-year WebMD subscriptions for *** physicians
who will be selected by HBOC, originating *** of the subscriptions on January 1,
1999, *** on April 1, 1999, and *** each on July 1, 1999 and October 1, 1999.
HBOC will pay WebMD the subscription sponsorship fee of $29.95 per subscriber
per month in arrears on a monthly basis, with the first payment due on January
31, 1999. The commissions specified in the Strategic Distribution Alliance
Agreement between the parties dated October 23, 1998 will be paid to HBOC on
those subscriptions. HBOC may cancel any subscription it sponsors hereunder
within 30 days after the first anniversary of such subscription, by providing
written notice of cancellation to WebMD, in which case the subscription will
terminate as of the first anniversary date. Similarly, WebMD may cancel the
obligation to pay an annual maintenance fee which would be due otherwise under
the Contract Supplement to the License Agreement between the parties, both dated
December 31, 1998.
___________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE>
If these terms are satisfactory, please sign in the space provided below
and return a copy to us via facsimile at (404) 479-7603. We look forward in
1999 to mutual success in our partnership with HBO & Company.
Sincerely,
/s/ Jeffrey T. Arnold
Jeffrey T. Arnold
Chairman and Chief Executive Officer
cc: Mr. K. Robert Draughon
Mr. Jay P. Gilbertson
Mr. W. Michael Heekin
On behalf of HBO & Company of Georgia, the undersigned consents to the agreement
described above.
By: /s/ Albert J. Bergonzi
------------------------------
Albert J. Bergonzi
President
Dated: 12/31/98
---------------------------
<PAGE>
Contract No. C9801611
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement"), dated the 31 day of December, 1998,
by and between HBO & Company of Georgia ("HBOC") with offices at 301 Perimeter
Center North, Atlanta, Georgia 30346 and Web MD ("Customer") with offices at 400
Lenox Building, Atlanta, Georgia 30326. For all Software licensed under this
License Agreement, the applicable Contract Supplement ("CS") or Attachment shall
specify: (i) the Software, (ii) the Equipment, (iii) the Services, (iv) the
Fees, (v) the number of active User ID's; (vi) the Facility(ies); and (vii) such
other mutually agreed upon information, if any.
1. LICENSE.
1.1. HBOC hereby grants to Customer a perpetual, non-exclusive, non-
transferable license to use the object code version of the Software on the
Equipment located at Customer's Facility (i) solely for the benefit of persons
and entities located at Customer's Facility and (ii) if applicable, by the
number of Active User ID's, regardless of location, provided that such access
and use of the Software is relevant to the business relationship with Customer,
and in a manner consistent with Customer's own internal business purposes. In
this Agreement (a) "Documentation" means user guides, and operating manuals,
whether in print or machine readable media, in effect as of the date of
shipment, (b) "Facility" means the health facilities owned or operated by or
associated with Customer that are listed on the CS or Attachment, (c) "Active
User ID" means a unique identifier, issued by Customer, for each authorized user
to access software and includes physicians and other caregivers who have
privileges at a Facility, and (d) "Software" means such computer programs listed
on a CS or an Attachment.
1.2. The Software may be transferred temporarily to a backup computer if the
Equipment is inoperative. Customer may make and use the additional copies of
Software and Documentation as reasonably necessary to use the Software and for
testing, disaster recovery, back-up, or archival purposes. Customer shall not
rent, lease or provide remote computer services or distribute the Software, or
permit the use of the Software by an outsource or facility management service to
any third party, without the prior written consent of HBOC. The Software or
Documentation may not be copied or used other than as permitted by this
Agreement.
1.3. As soon as practicable after signing the applicable CS or Attachment, HBOC
shall deliver the Software and one copy of Documentation to the designated site.
2. SOFTWARE MAINTENANCE.
2.1. Software Maintenance shall include, for the two (2) most current releases
of the Software corrections of Software or Documentation due to defects in the
Software or Documentation, as applicable, and improvements to existing
functionality provided by HBOC after the Software Delivery Date but not
otherwise separately priced or marketed by HBOC. HBOC and Customer shall comply
with HBOC's written Software Maintenance procedures as contained in the HBOC
Support Manual incorporated herein by reference, as may be
1
<PAGE>
reasonably modified from time to time. In addition, HBOC shall provide the
services set forth on a CS or an Attachment with respect to the particular
Software licensed, if any. The license granted to Customer under Section 1 shall
extend to each update, correction, and enhancement release received from HBOC.
2.2. HBOC shall provide, and Customer shall pay for, Software Maintenance for a
period of five (5) years (the "Term"), beginning one (1) year from execution of
the applicable CS or Attachment. Software Maintenance Fees are set forth on the
CS or Attachment and shall be payable on January 1 of each year. The first
annual Software Maintenance Fee shall be due one (1) year from the execution of
the applicable CS or Attachment, and be prorated on a daily basis using a 365-
day year. HBOC may, effective as of the date the first full annual Software
Maintenance Fee is due, increase the Annual Software Maintenance Fee for any
Software once a year by up to *** percent (***%). Upon expiration of the Term,
Software Maintenance shall automatically renew for successive one (1) year
periods unless discontinued under the provisions set forth below. Annual
Software Maintenance Fees during any renewal term shall be subject to an
increase for any Software once a year by the percentage increase in the CPI.
HBOC may (i) suspend Software Maintenance for nonpayment of any sums owed to
HBOC which are undisputed and ninety (90) days or more past due and (ii)
subsequent to the expiration of the Term, discontinue Software Maintenance as to
any Software by written notice given to Customer not less than six (6) months
prior to the date the next annual Software Maintenance Fee would otherwise be
due. Subsequent to expiration of the Term, Customer may discontinue Software
Maintenance as to any Software by notice given to HBOC not later than sixty (60)
days prior to the date the next annual Software Maintenance Fee would otherwise
be due.
2.3. Customer may have source code for Generally Available HBOC-owned Software
escrowed at an impartial third party for their security at Customer's expense.
In the event HBOC ceases to maintain the Software(s) for any reason whatsoever,
Customer shall have a right to obtain access to a copy of such source code;
provided Customer is on Software Maintenance to enable Customer to operate said
Software solely in accordance with the terms of this Agreement.
3. CONFIDENTIALITY; PROPRIETARY RIGHTS.
3.1. Customer and HBOC acknowledge that both parties will become familiar with
proprietary or trade secret information of the other concerning the other's
business affairs, property, methods of operation, processing system or other
information, including Customer's patient and financial data ("Confidential
Information"). Customer and HBOC hereby agree to maintain the confidentiality
of this Agreement and of such information using at least the degree of care and
security as each uses to maintain the confidentiality of its own Confidential
Information. Customer and HBOC acknowledge that their disclosure of any of the
other's Confidential Information without the other's prior written consent,
which consent shall not be unreasonably withheld, may give rise to continuing
irreparable injury to the non-disclosing party, that, therefore, will be
inadequately compensable in damages at law. Accordingly, the non-disclosing
party shall be entitled to obtain immediate injunctive relief against the breach
or
______________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
2
<PAGE>
threatened breach by the disclosing party of any of the foregoing undertakings,
in addition to any other legal remedies which may be available, and the
disclosing party hereby consents to the obtaining of such injunctive relief.
3.2. All Software and Documentation, and any modifications or copies thereof,
are proprietary and protected by copyright and/or trade secret law and no
ownership rights are transferred by this Agreement. All proprietary notices
incorporated in, marked on, or affixed to a Software or other Confidential
Information by HBOC or its suppliers shall be duplicated by Customer on all
copies of all or any part of the Software and shall not be altered, removed or
obliterated. Customer shall not reverse reengineer, reverse assemble or reverse
compile any Software or part thereof. All changes, modifications or
improvements made or developed with regard to the Software by HBOC shall remain
the property of HBOC.
4. WARRANTY.
4.1. HBOC warrants that (a) for a minimum of twelve (12) months from the
execution of a CS or an Attachment, and thereafter, as long as all Fees for that
Software have been paid in full when due, the Software (excluding any
programming changes made by Customer), when operating on the Equipment, will
perform in accordance with the Documentation provided to Customer as a part of
the Software; (b) as of delivery to Customer, the Software does not contain and
will not receive from any HBOC data transmission via modem or other HBOC medium
any virus, worm, trap door, back door, timer or clock that would erase data or
programming or otherwise cause the Software or Equipment to become inoperable or
incapable of being used in accordance with its Documentation, and (c) effective
September 30, 1998, the occurrence in or use by the Software of dates on or
after January 1, 2000 (the "Millenial Dates") will not adversely affect the
performance of the Software with respect to date-dependent data, computations,
output or other functions (including, without limitation, calculating, computing
or sequencing), and the Software will create, store and generate output data
related to or including the Millenial Dates without errors or omissions.
4.2. Customer's sole and exclusive remedy for breach of any of the foregoing
warranties shall be either repair or replacement of the defective materials.
4.3. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, HBOC MAKES NO OTHER
WARRANTY OF ANY KIND WHATEVER, EXPRESS OR IMPLIED, AND ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY
HBOC AND EXCLUDED FROM THIS AGREEMENT.
5. INFRINGEMENT INDEMNITY.
HBOC agrees to indemnify, defend and hold harmless Customer from and against any
claim asserted or suit or proceeding brought against Customer alleging that any
Software infringes a patent, trademark, copyright or trade secret of a third
party, provided HBOC is given prompt written notice of, and full and complete
authority, information and assistance in the defense of, such claim, suit or
proceeding. HBOC shall not be responsible for the cost of any settlement of any
such claim, suit or proceeding made without the written consent of HBOC. In
addition, and at the option and expense of HBOC, HBOC may, at any time after any
such claim has
3
<PAGE>
been asserted, and shall, in the event any Software is held to constitute an
infringement, either procure for Customer the right to continue using that
Software, or replace or modify that Software so that it becomes non-infringing,
provided that such replacement or modified Software has the same functional
characteristics as the infringing Software, or, if the prior two remedies are
commercially impractical, refund to Customer all Fees paid by Customer to HBOC
for that Software and any other Software reasonably rendered ineffective as the
result of said infringement. Customer may engage its own counsel, at its own
expense, to advise Customer in connection with any such claim, suit or
proceeding. HBOC shall not be liable to Customer under the terms of this
paragraph or otherwise if any infringement or claim is based upon the use of any
Software in violation of this Agreement, or in combination with any software
other than programs licensed by HBOC to Customer for such use, or arises from a
Software customization performed by HBOC for Customer based upon Customer's
ideas, designs, or specifications. The foregoing provisions state the full
extent of HBOC's responsibility with respect to the indemnity set forth herein.
6. LIMITATION OF LIABILITY.
Except (i) as provided in Section 5 and (ii) in the event of death or personal
injury not as a result of a Software defect, HBOC's CUMULATIVE LIABILITY TO
CUSTOMER FOR ANY BREACH OF THIS AGREEMENT FOR ANY AND ALL CLAIMS, REGARDLESS OF
THE FORM OF ACTION, RELATING TO THE USE OF OR THE INABILITY TO USE THE DEFECTIVE
SOFTWARE SHALL NOT EXCEED THE TOTAL AMOUNT OF THE LICENSE FEE PAID BY CUSTOMER
TO HBOC FOR SAID SOFTWARE, AND ANY OTHER SOFTWARE REASONABLY RENDERED
INEFFECTIVE AS THE RESULT OF SAID DEFECT; PROVIDED, HOWEVER, THAT FOR A PERIOD
OF ONE (1) YEAR AFTER THE LIVE DATE, SAID AMOUNT SHALL BE THE TOTAL OF ALL FEES
PAID BY CUSTOMER TO HBOC UNDER THIS AGREEMENT. UNDER NO CIRCUMSTANCES SHALL
HBOC HAVE ANY LIABILITY TO CUSTOMER FOR ANY CONSEQUENTIAL, EXEMPLARY,
INCIDENTAL, INDIRECT OR SPECIAL DAMAGES OR COSTS, INCLUDING, BUT NOT LIMITED TO,
LOST PROFITS OR LOSS OF GOODWILL, RESULTING FROM ANY VIOLATION OF THIS AGREEMENT
EVEN IF HBOC HAS BEEN ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY
THEREOF. Customer acknowledges that the foregoing limitations of liability and
remedies represent bargained for allocations of risk, and that HBOC's Fees,
charges and costs hereunder represent the allocations of such risk.
7. GENERAL.
7.1. Neither this Agreement nor any license hereunder may be assigned by
Customer (whether by operation of law or otherwise) without HBOC's prior written
consent.
7.2. HBOC may from time to time perform an audit to determine compliance with
the terms of this Agreement upon reasonable notice. If the number of copies or
users is found to be greater than that contracted for on any CS or Attachment,
HBOC may charge Customer the applicable current list prices therefor. If the
resulting adjustments to the license fees owing by Customer are greater than 5%
of the license fees previously paid by Customer to HBOC, HBOC may also charge
Customer the reasonable expenses associated with such audit.
4
<PAGE>
7.3. All fees shall be paid within thirty (30) days after the invoice date.
Customer shall pay all applicable shipping charges and sales, use, personal
property or similar taxes, other than HBOC's income and corporate franchise
taxes. Customer shall reimburse HBOC for all reasonable travel and living
expense incurred by HBOC in rendering services. Customer shall reimburse HBOC
for all reasonable costs incurred (including reasonable attorneys' fees) in
collecting past due amounts owed by Customer.
7.4. On termination of any license granted pursuant to this Agreement, Customer
shall cease using the Software and Documentation and Customer shall certify to
HBOC in writing that all copies (in any form or media) of the Software and
Documentation, whether or not modified or incorporated into new materials, have
been destroyed or returned to HBOC. Termination of this Agreement or any license
shall not relieve Customer's obligation to pay all fees incurred prior to such
termination and shall not limit either party from pursuing any other remedies
available to it. Each party's obligations under Section 3 hereof shall survive
termination of any license or this Agreement.
7.5. Third party Software ("Business Partner Software") sublicensed or
distributed by HBOC to Customer, if any, is identified on the applicable CS or
Attachment. To the extent that the terms or conditions under which HBOC
sublicenses or distributes any such software to Customer differ from the terms
and conditions otherwise stated in this Agreement, said differences are stated
on such CS or Attachment or in shrinkwrap agreements provided with such software
and such differences shall control. In the event that HBOC can reasonably
demonstrate the need to replace or substitute any Business Partner Software, the
parties agree to negotiate in good faith as to the terms and conditions for
Customer to obtain reasonably comparable software or to retain the Business
Partner Software initially licensed.
7.6. This Agreement is subject to any governmental laws, orders or other
restrictions on the export of Software and related information and Documentation
that may be imposed by governmental authorities. Customer shall comply with any
governmental laws, orders or other restrictions on the export and re-export of
Software (including technical data and any related information and
Documentation) which may be imposed from time to time by the governments of the
United States and any country to which any Software is shipped.
7.7. If either party materially breaches any of its obligations hereunder and
fails to remedy such breach within forty-five (45) days of written notice of
such breach, the other party may terminate any license or this Agreement. All
notices relating to termination or default under this Agreement shall be in
writing and delivered by overnight delivery service or certified mail return
receipt requested, to the address of such party specified above (addressed in
the case of HBOC to the attention of the General Counsel) or specified by such
party in accordance with this Section.
7.8. HBOC and Customer agree to make available upon the written request of the
Secretary of Health and Human Services or the Comptroller General, or their
representatives, this Agreement and such books, documents and records as may be
necessary to verify the nature and extent of the costs of the services rendered
hereunder to the full extent required by the Health Care Financing
Administration implementing Section 352 of the Omnibus
5
<PAGE>
Reconciliation Act of 1980, modified at 42 U.S.C. Section 1396x(v)(1)(l), or by
any other applicable federal or state authority.
7.9. This Agreement shall be governed by and construed in accordance with the
laws in the state in which the Customer is located, exclusive of its rules
governing choice of law and conflict of laws.
7.10. Any action of any kind arising out of or in any way connected with this
Agreement must be commenced within one year of the date upon which the cause of
action accrued (or, if one year is shorter than the minimum period allowed by
law, then the minimum period allowed by law).
7.11. This Agreement, together with the exhibits and addenda hereto, and CSs or
Attachments issued hereunder, constitutes the entire agreement of the parties
and supersedes all previous and contemporaneous communications, representations,
understandings or agreements related to the subject matter hereof. This
Agreement may be modified only in a writing signed by both parties. Customer
may issue a purchase order in lieu of a CS or an Attachment if confirmed by a
HBOC invoice or other HBOC confirming document. Purchase orders shall be
binding upon HBOC only with respect to terms required to be set forth on a CS or
an Attachment. Pre-printed terms and conditions on or attached to any such
purchase order shall be of no force or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date set forth above.
CUSTOMER: HBO & Company of Georgia
By: /s/ W. Michael Heekin By: /s/ Albert J. Bergonzi
------------------------------ -------------------------------
Name Printed: W. Michael Heekin Name Printed:
-------------------- ------------------------------
Title: Executive Vice President Title:____________________________
---------------------------
Date: 12/31/98 Date:_____________________________
----------------------------
6
<PAGE>
HBOC CONTRACT SUPPLEMENT CS# P9801571
CUST# _________
Ship To: Bill To:
Web MD Web MD
400 Lenox Building 400 Lenox Building
Atlanta, GA 30326 Atlanta, GA 30326
Telephone:____________________
Facsimile:____________________
Contract Supplement to HBOC Agreement #___C9801611____ dated ___12/31/98________
THIS CONTRACT SUPPLEMENT, including all Exhibits, Schedules, and Attachments
hereto and incorporated herein (this "Contract Supplement") amends HBO & Company
Information System Agreement identified above including all Exhibits, Schedules,
and Attachments thereto, and as amended (the "Agreement"). To the extent that
the terms, conditions and definitions set forth in this Contract Supplement
differ or conflict with the terms and conditions set forth in the Agreement,
such differences are stated below and on the attachment(s) hereto and shall
control. Where not different or in conflict with the terms, conditions and
definitions of this Contract Supplement, all applicable terms, conditions, and
definitions set forth in the Agreement are incorporated within this Contract
Supplement as if set forth herein.
SOFTWARE: Software INSTALL/ ANNUAL
ESTIMATED SOFTWARE INSTALLATION DATE: TBD LICENSE EDUCATION MAINTENANCE
FEE FEES
Connect 2000 Lisc. Upgrades *** users $*** 0 $***
TOTAL $*** 0 $***
Payment Terms: Software:
100% due 90 days after delivery
Maintenance starts 12 month from execution of agreement.
<TABLE>
<CAPTION>
<S> <C>
Customer Signature: /s/ Jeffrey T. Arnold HBOC Signature:____________________________________
-------------------------
Printed Name: /s/ Jeffrey T. Arnold Printed Name:______________________________________
------------------------------
Title/Position: CEO Title/Position:____________________________________
-----------------------------
Customer PO#:_______________________________ Date:______________________________________________
Date:_______________________________________
Accepted on Behalf of HBO &
Company of Georgia at Atlanta, Georgia
By: /s/ Albert J. Bergonzi
------------------------------------------------
Title: President
--------------------------------------------
</TABLE>
THANK YOU FOR YOUR BUSINESS
______________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
7
<PAGE>
HBOC Information Systems Agreement WebMD
PROPRIETARY AND CONFIDENTIAL TO HBO & COMPANY PB-911985
HBO & COMPANY
AGREEMENT
WITH
WebMD
-----
SOFTWARE TRANSFER AGREEMENT
---------------------------
The Software (as that term is defined in the Agreement between HBO &
Company and the undersigned Customer dated 12/31, 1998 is hereby received by
customer on 12/31, 1998, effected by delivery to Web MD, Atlanta, GA.
DATED this 31 day of December, 1998.
HBO & Company WebMD
By: /s/ Albert J. Bergonzi By: /s/ W. Michael Heekin
------------------------------ ------------------------------
Title: President Title: Executive Vice President
-------------------------- ---------------------------
8
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.55
MEDIRISK(SM)
DATA LICENSE AND PRODUCT REMARKETER AGREEMENT
THIS AGREEMENT is made and entered into the 31st day of December 1998, by
and between MEDIRISK, INC., a Delaware corporation ("Licensor"), and WEBMD,
INC., a Georgia corporation ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor and/or its wholly-owned subsidiaries have developed one
or more databases, the compilation and format of which are proprietary to
Licensor and/or such subsidiaries, and which, among other things, (i) may be
used to formulate reimbursement schedules for claims submitted to healthcare
providers (or other providers of healthcare-related services) and/or to evaluate
physician fee schedules or other physician reimbursement schedules; (ii) consist
of demographic data, population-based models of the incidence of diseases by
category, and estimates of the demand for healthcare services (e.g., inpatient,
outpatient, physician services, etc.); (iii) consist of physician credentials
information; and/or (iv) consist of the results of satisfaction surveys
conducted with members of various managed care health plans with respect to such
plans (collectively, the "Database"); and
WHEREAS, Licensee markets information elated to hospitals, health plans,
physicians and other healthcare providers by means of the Internet to its
customers who have authorized access to its Internet site, and desires to
utilize applicable portions of the Database (the "Data," as such term is more
specifically defined below) in providing such services;
WHEREAS, Licensor is willing to allow Licensee to so utilize the Data on
the terms hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual undertakings of the
parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1.0 DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings given thereto:
1.1 CAREDATA INFORMATION. The term "CareData Information" shall refer to
that portion of the Data that consists of the results of satisfaction
surveys conducted with members of various management care health plans with
respect to such plans.
<PAGE>
1.2 DATA. The term "Data" shall collectively refer to those components of
the Database listed on Exhibit "A" attached hereto.
1.3 END-USER. The term "End-User" shall refer to any entity to which
Licensee permits access to the Data for its own use and not for further
licensing or redistribution.
1.4 PRODUCTS. The term "Products" shall refer to all products being sold
or licensed by Licensor or its subsidiaries on the date hereof, in the
versions in which such items exist on the date hereof, including without
limitation those set forth on Exhibit "B" attached hereto. The term
"Products" shall not include service offerings of Licensor.
1.5 PRODUCT CUSTOMERS. The term "Product Customers" shall refer to the
end-users for those Products which have been licensed to such end-users
pursuant to Licensee's remarketing efforts as set forth in Section 2.2(b)
hereof.
2.0 LICENSE.
2.1 GRANT OF LICENSE AND EXCLUSIVE USAGE RIGHTS.
(a) Licensor hereby grants to Licensee a limited, nontransferable
and, except as set forth herein, nonexclusive license to use the Data
for the license fees and upon the terms hereinafter set forth.
(b) Subject to any agreements in effect as of the date hereof between
Licensor and parties other than Licensee pursuant to which such
parties have rights to utilize, remarket and/or relicense the Data or
portions thereof (including without limitation through any existing
Internet-related distribution channels), Licensor agrees that during
the term of this Agreement Licensor will neither (i) enter into
arrangements with any other parties allowing them to incorporate the
Data into their Internet-based services for their subscribers' inquiry
purposes via the Internet, nor (ii) enter into arrangements with any
third parties who offer Internet-related distribution channels to
market the Products through such parties or channels; provided,
however, that such restriction shall not prohibit Licensor from (y)
directly marketing or otherwise making available the Data and/or its
products and services on the Internet, or (z) allowing references or
"hotlinks" on third-party Web sites to Licensor's Web site(s) for such
products or services.
(c) Solely with respect to the immediately preceding clause (i), the
term "Data" shall not include Licensor's physician credentials
information, and, for purposes of both the immediately preceding
clause (ii) and Section 2.2(b) below, Licensor's products therein
referred to shall not include Licensor's physician credentials
products.
2.2 SCOPE OF LICENSE.
(a) LICENSE OF DATA. Licensee may incorporate the Data into
Licensee's restricted-access Internet-based services solely for its
paying and/or otherwise
-2-
<PAGE>
qualified subscribers' inquiry purposes via the Internet. Licensee may also
incorporate the CareData Information into Licensee's non-restricted access
Internet-based services for its patrons' inquiry purposes via the Internet.
Licensee further understands and agrees that neither it nor any End-User
may otherwise rent, sublicense, lease, sell, loan or otherwise transfer to
any third party any of the Data, and may not use the Data for purposes of
credential verification to satisfy independent accreditation requirements.
Upon Licensee becoming aware of any such violations by an End-User (whether
on its own accord or after being notified of such violation by Licensor),
Licensee shall, at its own cost, take all reasonable steps (including, if
necessary, seeking injunctive relief) to cure such violations as soon as
practicable and, provided that Licensee does perform such obligations,
Licensee shall not be liable to Licensor for monetary damages resulting
from such violations. Nothing herein shall be deemed to convey to Licensee
any copyright, trademark or other proprietary rights with respect to the
Data.
(b) REMARKETING OF PRODUCTS. Licensee may remarket the Products for
license solely through its Internet-related distribution channels. The
price at which Licensee makes Products available to third parties via its
Internet distribution methods shall be subject to prior written agreement
with Licensor. Any licenses for such Products shall be entered into between
Licensor and the customer therefor, provided that Licensee shall be
entitled to receive a commission for such remarketing efforts as more
particularly set forth in Section 4.1(b) hereof. Subject to the exceptions
set forth in Section 2.1(b) and 2.1(c) above, with respect to Licensor's
future product offerings, Licensor shall first offer to Licensee the right
to be the exclusive Internet-related remarketer of such future products
through Licensee's Internet-related distribution channels upon terms
mutually acceptable to Licensor and Licensee.
2.3 DUTY NOT TO DISCLOSE. Except as necessary to effect the incorporation of
the Data into Licensee's products and/or remarket the Products as set forth
above, Licensee understands and agrees that it and its employees and agents may
not distribute, copy, duplicate, or otherwise disseminate or reproduce any of
the Data. Notwithstanding the foregoing, Licensee may make up to two (2) back-up
copies of the Data for archival purposes only, provided that all such copies of
the Data include all copyright and proprietary notices that appear in or on the
original Data received from Licensor.
2.4 ASSIGNMENT. Licensee may not assign, transfer, sell, donate, pledge as
security, license or sublicense this Agreement or any of its rights or
obligations hereunder, in whole or in part, without the prior written consent of
Licensor.
2.5 SURVIVABILITY OF CERTAIN OBLIGATIONS. The obligations of Licensee under
Sections 2.3 and 2.4 hereof shall survive and remain binding upon Licensee after
the termination of this Agreement.
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<PAGE>
2.6 PROTECTION OF LICENSOR. Licensee acknowledges that Licensor will not be
entering into any direct contractual relationship with any End-User with respect
to the access to the Data contemplated hereunder, and that the only
documentation which an End-User will be entering into with respect to such End-
User's access to, and permitted usage of, the Data will be the agreement between
End-User and Licensee concerning the relationship in question (collectively, an
"End-User Agreement"). Licensee further acknowledges that in order for Licensor
to have the benefit of those provisions herein granting or reserving rights to
Licensor (including without limitation those provisions concerning scope of
license, duties of nondisclosure, assignment, survivability, limitation and
disclaimer of warranties, remedies, limitations of liability, taxes,
termination, force majeure, choice of law and attorneys' fees), Licensee will
have to incorporate substantially similar provisions into the End-User Agreement
with each End-User. Accordingly, Licensee agrees that (i) it shall incorporate
such substantially similar provisions into each End-User Agreement, (ii)
Licensor shall have no direct liability to any End-User under this Agreement or
any End-User Agreement, and (iii) Licensee shall indemnify, defend and hold
harmless Licensor from any claim asserted, or liability alleged, by any End-User
against Licensor with respect to this Agreement or any End-User Agreement. The
parties acknowledge and agree that an End-User Agreement does not have to be in
executed documentary form, but may be in the form of an on-line "click"
agreement or other applicable interactive format, so that each End-User is
required to confirm acceptance of such terms and conditions before obtaining
access to any Data, by clicking or keying in such confirmation.
2.7 SOURCE ACKNOWLEDGMENT. Licensee shall ensure that the following language
appears in a conspicuous location on the web site from which the Data will be
accessible by End-Users:
"Information available at this site pertaining to healthcare fees and
reimbursement, demographic data, population-based models of the incidence
of diseases by category, estimates of the demand for healthcare services,
physician credentialing and verification-related data, and the results of
satisfaction surveys conducted with members of various managed care health
plans with respect to such plans, is proprietary to Medirisk, Inc., and is
made available to you under separate agreement with Medirisk, which retains
and reserves all applicable rights of any type with respect to such data,
including without limitation all copyright, trademark and other proprietary
rights with respect thereto. Such data may not be used by you for purposes
of credential verification to satisfy independent accreditation
requirements (e.g., JCAHO or NCQA). WebMD has selected Medirisk as a
preferred provider of such types of information."
On any Web site from which Licensee permits access to the Data, Licensee shall
also appropriately identify the components of the Data as to their respective
sources (by name of Licensor's applicable division or subsidiary, such as
Healthdemographics or Care Data Reports) and age.
-4-
<PAGE>
2.8 PRIMARY CONTENT PROVIDER. With respect to those Internet products of
Licensee referred to in Section 2.2 hereof, and any replacements thereof,
Licensee agrees that Licensor shall be a preferred provider to Licensee of
information of the type contained in the Data. Licensee shall identify
Licensor to Licensee's customers as a preferred provider of such
information to Licensee in Licensee's applicable marketing materials and as
set forth in Section 2.7 hereof.
3.0 TERM AND TERMINATION.
3.1 TERM. Unless earlier terminated as set forth in Section 10.0 hereof,
this Agreement shall have a term commencing upon the data first set forth
above and expiring 30 June 2000, without the requirement of any further
notice of expiration .
3.2 RETURN OF LICENSED ITEMS. Upon the expiration of this Agreement, or
earlier termination hereof for any reason, Licensee shall return all Data
(including all copies thereof) to Licensor within ten (10) days after the
date of expiration or termination, without further notice or request from
Licensor. In lieu thereof, Licensor will accept from Licensee its written
certification that all such items have been destroyed and that Licensee
does not retain any of such materials or copies thereof; in such event,
such certification for such End-User Agreement shall be made upon the
expiration or earlier termination of such End-User Agreement.
4.0 FEES AND OTHER PAYMENTS.
4.1 FEES.
(a) LICENSE FEES. Licensee agrees to pay to Licensor the license and
other fees for the exclusive usage rights set forth herein, the items
licensed hereunder as set forth in Exhibit "C" attached hereto. Such
obligation to pay shall be independent of Licensee being paid for
services by any pertinent End-User.
(b) PAYMENTS FOR PRODUCT REMARKETING. As additional consideration to
Licensee for remarketing Products as set forth in Section 2.2(b)
above, Licensee shall receive commissions equal to *** (***%) percent
of the total first year's license fees actually collected by Licensor
from the Product Customers in the aggregate on a term-quarterly basis.
Commissions shall be payable in arrears within forty-five (45) days
after the close of each term-quarter hereof.
4.2 SHIPPING CHARGES. In the event that electronic transmission of the
Data to Licensee is not feasible, Licensor shall ship the Data to Licensee
at no additional charge for standard delivery (i.e., second-day express
delivery). Whenever possible, Licensee requests for nonstandard delivery
will be honored, but Licensee shall be invoiced for the costs of such
nonstandard delivery.
________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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<PAGE>
4.3 TAXES. Any sales or excise tax due on the provision of the items
licensed hereunder to Licensee (and, as between Licensors and Licensee,
data sublicensed to End-Users by Licensee) shall be the sole responsibility
of the Licensee.
5.0 LIMITED WARRANTY AND REMEDIES. Licensor warrants that it either owns the
Data, has secured any licenses or other rights necessary to grant Licensee the
license to use the Data as set forth herein, and/or that the information
contained in the Data (but not the compilation methodology or format thereof) is
part of the public domain. Licensor shall defend any action, suit or proceeding
brought against Licensee or any of its officers, directors or employees based on
a claim that the Data or any access thereto permitted hereunder infringes any
proprietary rights of any third party (including without limitation any patent,
copyright or trade secret) provided Licensor is promptly notified by Licensee of
the action, is given authority to handle any such claim and is given information
and assistance at Licensor's expense for the defense of such action. If the
Data or any component or part or portion thereof is by competent judicial or
administrative authority held to infringe the proprietary rights of any third
party, Licensor shall, at its sole option and expense, (i) replace or modify the
Data and any component or part or portion thereof to abate the infringement,
(ii) procure for the benefit of Licensee from the holders of such proprietary
rights infringed or alleged to be infringed, the right to continue use of the
Data and any component or part or portion thereof, or (iii) reimburse to
Licensee a prorated portion of the License Fees with respect thereto paid by the
Licensee to Licensor under this Agreement, based upon straight-line depreciation
and an assumed life (solely for purposes of this Section) equal to twelve (12)
months. Licensor shall also pay all damages and costs finally awarded against
Licensee, if any, arising out of such action. Licensor does not warrant that
the Data will be error-free. Licensor's sole liability, and Licensee's (and
End-User's) sole remedy regarding defective Data is, at Licensor's sole
election, to either: (i) replace defective Data at no charge to Licensee,
provided that Licensee returns such Data to Licensor within ninety (90) days of
receipt of the Data by Licensee with proof of the date of original receipt of
such Data by Licensee; or (ii) return to Licensee the License Fee for the
defective Data. Licensor shall have no responsibility or liability whatsoever
for any loss or damage caused by errors in the Data or by delay in replacing
defective Data.
6.0 DISCLAIMER OF CERTAIN WARRANTIES. Licensee recognizes and acknowledges that
the information contained in the Data is collected from sources believed to be
reliable, and that, although Licensor believes the information to be accurate,
and except as otherwise herein specifically set forth, Licensor MAKES NO
WARRANTIES OR REPRESENTATIONS OF ANY TYPE CONCERNING THE DATA, ITS CONSTITUENT
PARTS OR ANY OTHER PRODUCTS OR SERVICES OFFERED HEREUNDER, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
7.0 LIMITATION OF LIABILITIES. Except for the defense and indemnification
obligation set forth in Section 5.0 hereof, in no event shall Licensor'
liability for any damages to Licensee, regardless of the form of action, exceed
the fee paid by Licensee hereunder. Under no circumstances shall Licensor be
liable for incidental, consequential, special or
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<PAGE>
exemplary damages of any kind, or for lost profits arising out of the use or
inability to use the Data, even if such damages were foreseeable at the time of
execution of this Agreement.
8.0 DELIVERY AND FORMAT OF LICENSED ITEMS. Licensor will compile and deliver
the Data to Licensee by 31 December 1998. The standard format for the Data
shall be tab-delimited ASCII. The standard transmission medium shall be an
online download of the Data directly to Licensee; provided, however, that if
such method of transmission is not feasible, the form of transmission shall be
by CD-ROM or other medium as necessary, shipped as set forth in Section 4.2
above.
9.0 CERTAIN DUTIES OF LICENSEE. Licensee and/or End-Users are responsible for
securing all hardware and software necessary to use the Data in Licensee's
and/or End-Users' respective environments. Licensee represents and agrees that
its and End-Users' use of the Data shall be in accord with all restrictions and
limitations set forth in this Agreement.
10.0 DEFAULT. In the event of a material breach of this Agreement by Licensee
(or of an applicable material breach by an End-User of its End-User Agreement),
and the failure of such party to remedy such breach within sixty (60) days after
written notice thereof from Licensor (or Licensee, as the case may be), the
licenses granted hereunder to Licensee with respect to the Data in question (and
the corresponding End-User Agreement) shall immediately terminate upon further
written notice by Licensor to such party. In the event of a material breach of
this Agreement by Licensor, and the failure of Licensor to remedy such breach
within sixty (60) days after written notice thereof from Licensee, Licensee may
immediately terminate this Agreement upon written notice to Licensor.
11.0 GENERAL.
11.1 REFERENCES. Titles and paragraph headings herein are for reference
purposes only. This Agreement contains the entire agreement of both parties
hereto, and supersedes any and all previous oral and written communications
and agreements with respect to the subject matter hereof. This Agreement
shall not be modified or amended without the written consent of both
parties hereto. In the event of any conflict between the terms and
conditions of this Agreement and any other writing of Licensee, the terms
of this Agreement shall control.
11.2 WAIVER. No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any prior, concurrent or subsequent breach of
the same or any other provision hereof and no waiver shall be effective
unless made in writing. In the event that any provisions of this Agreement
shall be held invalid or otherwise unenforceable, such provision shall be
severed and the remaining provisions of this Agreement shall continue in
full force.
11.3 NOTICE. All notices, demands, requests, or other communications which
may be or are required to be given, served, or sent by either party to the
other party pursuant to this Agreement shall be in writing and shall be
hand delivered (including delivery by courier so long as a receipt or
confirmation of delivery is obtained), sent by Federal
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<PAGE>
Express or other recognized overnight delivery service, mailed by first class,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by facsimile transmission (followed by delivery of the original of
such document), addressed as set forth below. Either party hereto may designate
by notice, in the manner herein above provided, a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication which shall be mailed,
delivered, or transmitted in the manner described above shall be deemed
sufficiently given, served, sent and received for all purposes at such time as
it is delivered to the addressee (with the return receipt, the delivery receipt,
the affidavit of messenger or (with respect to a facsimile transmission) the
answer back being deemed conclusive evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
11.4 FORCE MAJEURE. If Licensor is unable to perform any of its obligations
hereunder, or Licensee is unable to enjoy a benefit hereunder (including without
limitation loss of or failure to provide the Data or Documentation), due to any
event beyond the reasonable control of Licensor, including without limitation
weather and all other Acts of God, war, fire, heat, cold, explosion, flood,
power or telephone failures, acts or omissions of any government or agency
thereof, compliance with requirements, rules, regulations or orders of any
governmental authority or instrumentality thereof, labor difficulty, supplier
failure or delay, civil disorder, or breakdown or malfunction of machinery,
transportation facilities or other equipment of any nature, then Licensor'
performance shall be excused for the pendency of such event, but Licensor shall
use its best efforts to limit the duration of any such delay.
11.5 GOVERNING LAW. This Agreement is entered into in, and shall be governed
by and construed under, the laws of the State of Georgia, without regard to its
conflict of law rules.
11.6 ATTORNEYS' FEES. If any sums due and owing under this Agreement are
collected by or with the assistance of legal counsel, or if any party brings
suit of any type against another arising from this Agreement and prevails in
such action, then the losing party shall be liable to the prevailing party, and
shall promptly remit to the prevailing party upon demand, all of the prevailing
party's reasonable costs and expenses incurred with respect thereto, including
without limitation court costs and reasonable attorneys' fees.
11.7 INDEPENDENT CONTRACTOR. The relationship between the parties established
in this Agreement shall be solely that of independent contractors and does not
designate either party as the agent, legal representative, partner or joint
venturer of the other party for any purpose whatsoever. Neither party is
granted any right to create any obligation or responsibility or make
representations, express or implied, on behalf of or in the name of the other
party or to bind the other party in any matter or thing whatsoever.
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<PAGE>
11.8 BINDING AGREEMENT. This Agreement shall be binding upon Licensor and its
assigns, and Licensee and its permitted successors and assigns.
11.9 AMA REQUIREMENTS. Licensee understands and acknowledges that Licensee's
Use of Current Procedural Terminology ("CPT," as that term is used and
copyrighted by the American Medical Association ("AMA")) as incorporated in that
portion of the Data which may be used to formulate reimbursement schedules for
claims submitted to healthcare providers (or other providers of healthcare-
related services) and/or to evaluate physician fee schedules or other physician
reimbursement schedules (collectively, the "CPT Data") is subject to the
following restrictions imposed by the AMA: (i) the license to Licensee to use
CPT as incorporated in the CPT Data is nontransferable and nonexclusive, and is
for the sole purpose of use within the United States; (ii) the CPT Data is not
to be used in performing medical diagnostic functions, setting treatment
procedures or substituting for the medical judgment of a physician, or licensed
from the AMA and Medirisk to do so, (iii) Licensee may not create derivative
works based upon CPT, and (iv) Licensee must comply with the requirements of the
Uniform Commercial Code. The AMA disclaims any and all liability relating to
CPT as incorporated in the CPT Data, including liability for the sequence,
accuracy and completeness of data contained in CPT. The AMA does not warrant
that the data contained in CPT will meet Licensee's requirements, or that the
use of the CPT Data will be uninterrupted or without error. In no event shall
the AMA be liable to Licensee for special, incidental, direct and/or
consequential damages, including lost profits in connection with CPT. The AMA's
entire liability and warranty with respect to CPT is limited to reasonable
efforts by Medirisk to correct a defect in CPT as set forth in the CPT Data or
to furnish a replacement of the CPT Data with corrected CPT within a reasonable
period of time. Use of CPT in any public computer-based information system or
bulletin board (such as the Internet) is prohibited. Licensee shall ensure (a)
that anyone with authorized access to the CPT Data understands and complies with
the provisions of this Section 11.9 and (b) that language setting forth the
substantive portions of this Section 11.9 appears in a conspicuous location in
any End-User Agreement itself and on the restricted-access Web site of Licensee
from which the Data will be accessible by End-Users.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereto set their hands under seal on
the dates indicated, effective as of the date first set forth above.
MEDIRISK, INC. WEBMD, INC.
By: /s/ Kenneth M. Goins, Jr. By: /s/ W. Michael Heekin
----------------------------------- ----------------------------
KENNETH M. GOINS, JR. (Signature)
President and Chief Operating Officer
NAME: W. Michael Heekin
---------------------------
TITLE: Executive Vice President
---------------------------
DATE: December 31, 1998 DATE: December 31, 1998
Notice Address: Notice Address:
Medirisk, Inc. WebMD, Inc.
Suite 400 400 The Lenox Building
Two Piedmont Center 3399 Peachtree Road, N.E.
3565 Piedmont Road Atlanta, Georgia 30326
Atlanta, Georgia 30305-1502
Facsimile: (404) 364-6703 Facsimile: (404) 479-7651
Attention: Contracts Administration Attention: President
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<PAGE>
EXHIBIT "A"
COMPONENTS OF THE DATABASE COMPRISING THE DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MEDIRISK BUSINESS UNIT DATA SET DESCRIPTION DATA AGE DATA CHARACTERISTICS
---------------------- -------------------- -------- --------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reimbursement Solutions MEDIRISK(SM) Physician Fee Database 12 Months 35 medical specialties; 50 CPT codes
per specialty; 287 geographically
defined markets; 6 benchmark fee levels
- -------------------------------------------------------------------------------------------------------------------------------
Healthdemographics, Inc. Utilization Database 12 Months HealthPacs (19) with data grouped by
product/service line; geographically
defined by county
- -------------------------------------------------------------------------------------------------------------------------------
CareData Reports, Inc. Member Satisfaction Rankings 12 Months Survey results; rankings for health
plan members' satisfaction for 26
metropolitan markets; commercial
populations
- -------------------------------------------------------------------------------------------------------------------------------
Sweetwater Health Enterprises, Inc. Physician Credentials Information 12 Months 700,000 physicians; data elements;
provider demographics, licensure
education, training, hospital
affiliation, board certifications and
office information
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Licensor's subsidiary Medirisk of Missouri, Inc., which does business as
PracticeMatch, also maintains a Web-enabled product that allows healthcare
providers to submit curriculum vitae for inclusion in the PracticeMatch(R)
proprietary database that is targeted for use by hospital in-house physician
recruiters. While this database is not part of the Data, Licensor will allow
Licensee to place a "hotlink" on its Web-site(s) allowing Licensee' subscribers
direct access to such data collection product to enable them to more easily
provide such information.
<PAGE>
EXHIBIT "B"
PRODUCTS
Market Performance Products
- ---------------------------
. CareData Reports' health plan member satisfaction surveys
. CareData Reports' disease-specific studies
. Healthdemographics' HealthPac(TM) data sets (19)
. Healthdemographics' Avenir(TM) analytical and mapping tool
. Reimbursement Solutions' CPT-4 fee and utilization databases
. Reimbursement Solutions' analytical tools for capitation modeling
. Reimbursement Solutions' workers' compensation database and AUTOMEDSM
database
Clinical Performance Products
- -----------------------------
. Clinical outcomes measurement reports for general rehabilitation,
orthopedics, and ambulatory surgery
. Successful Solutions' comparative outcomes reports for hospitals
. Successful Solutions' coding compliance tools
. Successful Solutions' physician profiling reports
Physician Credentials Products
- ------------------------------
. Sweetwater's Physician Database
. Sweetwater's Sweet-Q(TM) and Luci(TM) credentialing and quality management
software
. PracticeMatch(R) Physician Recruiting Database
<PAGE>
EXHIBIT "C"
LICENSE FEES
Licensee shall pay to Licensor a License Fee of ($) Dollars for the term of
this Agreement.
The License Fee shall be payable in five (5) installments of $ each, due and
payable on the following respective dates: 8 January 1999, 15 March 1999, 15
June 1999, 15 September 1999 and 15 December 1999.
In connection with any obligation of Licensor to pay royalties to the AMA with
respect to an End-User's usage of CPT Data, Licensee covenants and agrees as
follows:
. Licensee will put limitations in place in its Internet-based services so that
no End-User will be able to access more than ***(***) CPT Codes through Licensee
in any calendar year.
. With respect to any fees or charges payable to Licensee by End-Users for
access to Licensee's Internet-based services, the portion thereof which is
allocable to an End-User's right to access the Data shall not exceed *** ($***)
Dollars per month.
Solely with respect to such End-User usage of CPT Data, Licensor shall have the
right to have its internal or independent auditors audit the pertinent records
of Licensee, and Licensee shall provide access to such records upon reasonable
notice to Licensee. Except as set for below, such audit shall be conducted at
the sole cost of Licensor. In the event that such audit reveals an overage in
the permitted level of access to CPT Codes hereunder by more than *** (***) End-
Users, then Licensee shall reimburse Licensor for any royalties payable by
Licensor to the AMA with respect to each such End-User in excess of *** which
exceeds the access level permitted hereunder (not to exceed $*** per End-User),
as well as the out-of-pocket fees and costs of such audit. The right of Licensor
to receive additional renumeration under this provision shall be in addition to
any other rights which it may have and does not constitute a limitation on any
other remedies which Licensor may have hereunder or at law.
______________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.56
CONTENT LICENSE AGREEMENT
This Agreement, dated as of December 31, 1998, between InteliHealth, Inc.
("InteliHealth") and WebMD, Inc. ("Customer"). As of August 17, 1998, Endeavor
Technologies, Inc. changed its corporate name to WebMD, Inc. This Agreement
replaces in its entirety that certain Co-Branded Site and Linking Agreement,
dated as of July 1, 1998, between Endeavor Technologies, Inc. and InteliHealth.
This Agreement describes the terms and conditions under which Customer will
receive InteliHealth content for publication on its Web site.
1. DESCRIPTION OF CONTENT; ACCESS.
(a) InteliHealth grants to Customer for the Term of this Agreement the non-
exclusive right and license to utilize the content described on Exhibit A hereto
to (the "Content") in accordance with this Agreement and upon the General Terms
and Conditions set forth in Exhibit D hereto. During the Term of this Agreement,
InteliHealth further agrees to make available to Customer the Content in
accordance with the performance criteria set forth on Exhibit B hereto and in a
format reasonably acceptable to Customer and as otherwise provided herein.
(b) Within 14 days of the Effective Date hereof, InteliHealth will create a
template that does not include the InteliHealth "chrome", including but not
limited to all advertising, menu bars (currently on the left of the page),
InteliHealth banners and site branding and establish URLs by which Customer may
access the Content. Following the set-up of these URLs, Customer will be able to
access the Content without first having to contact InteliHealth personnel. These
URLs will be accessible at all times InteliHealth's Web site
(www.intelihealth.com) is accessible. InteliHealth agrees that the custom
template will not include any InteliHealth site navigation elements, advertising
or sponsorship serving, and any frame set or chrome (unless mutually agreed to).
All intracontent navigational links contained within the Content will point only
to other content that is subject to (i) the parameters establish by the custom
template and (ii) the terms of this Agreement. Notwithstanding the foregoing,
any intracontent navigational links within the Content may be removed or
inactivated by Customer.
(c) Customer acknowledges that the Content made available to it will change
over the course of the Term (as defined below) as InteliHealth changes the
content on its own site in the normal course of its business or due to licensing
restrictions placed in it from other parties. InteliHealth will make good faith
efforts to replace content it removes with comparable content if Customer
reasonably deems it to be a priority.
(d) During the Term of this Agreement, Customer will provide to InteliHealth
two Customer physician demonstration accounts solely for the purpose of
InteliHealth's monitoring of Customer's compliance with the terms of this
Agreement with regard to use of the Content. Any other use of such accounts
shall be prohibited.
<PAGE>
2. PUBLICATION ON CUSTOMER WEB SITE.
(a) Customer will publish the Content on its Web site located at www.webmd.com
(the "Customer Web Site"). In addition, Customer will post links or other
notices on all Content pages regarding Customer's standard copyright notice
and/or disclaimers. Such links or other notices to be mutually agreed to by the
parties.
(b) The parties will mutually agree on the final presentation of the Content
(so that InteliHealth can ensure compliance with the requirements of its
licensors) provided that such presentation shall consist only of bylines and
attribution associated with specific Content and no other branding shall be
associated with the Content or the Customer's site generally. In any event,
Customer may not include any branding in connection with the Content, other than
that of InteliHealth, Johns Hopkins or the licensor of the Content, so as to
create the impression that Customer or any other third party is the owner of
such content.
(c) Under no circumstances may Customer (i) cache or otherwise store the
Content or (ii) resell, distribute, sublicense or otherwise transfer the Content
to any third party, except as specifically provided for herein or when mutually
agreed to in writing. However, Customer may enter into co-branding or other co-
promotional arrangements with third parties under which such third parties'
branding will be associated with the Content, provided that (A) the content at
all times is only accessible on the Customer Web Site and Customer's servers,
(B) such third parties may not be companies which produce or distribute
pornography, tobacco, firearms or alcohol, and (C) such arrangements comply with
the terms and conditions of this Agreement. In the event such a third party
wishes to display or distribute the Content on its Web site, InteliHealth will
provide the license rights and technical and other resources required for such
an arrangement on mutually-agreeable terms.
3. ADVERTISING AND SPONSORSHIPS.
(a) InteliHealth may not sell advertising and sponsorships in connection with
the Content distributed on the Customer Web Site. Customer may sell advertising
and sponsorships in connection with the Content and will be solely responsible
for managing and serving all advertising inventory.
(b) Customer agrees that all advertising and sponsorships (i) will comply with
InteliHealth's standard advertising guidelines (Exhibit C) and (ii) that no
advertising or sponsorships may be sold to companies which produce or distribute
pornography, tobacco, firearms or alcohol.
(c) The parties agree to negotiate in good faith to reach a further agreement
on appropriate advertising and sponsorship royalty split, if any. The failure to
obtain such an agreement in the future shall not invalidate any part of this
Agreement nor the parties' respective rights hereunder.
(d) Solely in connection with the good faith discussions between the parties
set forth in Section 3(c) above, Customer agrees to provide InteliHealth usage
information at least
2
<PAGE>
quarterly regarding pageviews and revenue information associated with the
Content. The failure to provide such information shall not constitute a material
breach of this Agreement.
4. FEES AND EXPENSES.
(a) During the Term (as defined below), Customer will pay InteliHealth an
annual fee of $*** (the "Annual Fee"), payable in three installments. Provided
that the template described in Section 1(b) above is functional within the time
frame set forth in the same Section 1(b) and to the reasonable satisfaction of
Customer, Customer agrees to pay the first installment of $*** within 21 days of
the Effective Date of this Agreement. If the template is not functional,
Customer agrees to pay the first installment within 7 days of the date such
template is functional. The remaining two installments of $*** each will become
due within 30 days of the six month anniversary of the Effective Date hereof and
within 30 days of the nine month anniversary of the Effective date respectively.
(b) Except as set forth in this Agreement, each party will be responsible for
its own production, editorial and creative work and for any other costs or
expenses incurred in connection with this Agreement.
(c) The parties may work together to develop mutually agreeable terms and
conditions for the implementation of the InteliHealth Online Store on the
Customer Web Site.
5. TERM AND TERMINATION.
(a) The term of this Agreement (the "Term") will be one (1) year from the date
first above written (the "Effective Date"), unless terminated as set forth
below.
(b) Either party may terminate this Agreement without cause upon 30 days prior
written notice to the other party, provided that such notice is delivered no
earlier than 30 days prior and no later than 30 days following the six month
anniversary of the Effective Date.
(c) In addition to termination rights set forth in subsection (b) above, either
party may terminate this Agreement at any time during the Term hereof upon
written notice (i) in the event of a material breach by the other party that has
not been cured within 30 days of written notice of such breach, or (ii) in the
event all or substantially all of the assets, stock or business of the other
party are transferred to a competitive third party.
(d) In the event either party terminates this Agreement as set forth in
subsections (b) and (c) above, Customer will be relieved from any further
payment obligations under Section 4 above for the remainder of the Term and the
demonstration accounts for Customer's Web Site provided to InteliHealth
hereunder shall be cancelled.
________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
3
<PAGE>
The attached General Terms and Conditions are a party of this Agreement, and the
signatures below constitute acceptance of the foregoing terms and the General
Terms and Conditions.
INTELIHEALTH, INC. WEBMD, INC.
By: /s/ Joel A. Kahn MD By: /s/ W. Michael Heekin
------------------------------- --------------------------------
Name: Joel A. Kahn MD Name: W. Michael Heekin
----------------------------- ------------------------------
Title: Chief Medical Officer Title: Executive Vice President
---------------------------- -----------------------------
4
<PAGE>
EXHIBIT A
DESCRIPTION OF CONTENT
CONSUMER CONTENT
The Consumer Content may include the following and may be subject to periodic
changes, additions, deletions and/or substitutions consistent with the intent of
this agreement. This content may reside only on consumer areas of the Customer
Web Site.
TODAY'S NEWS MINUTE
- -------------------
Brief look at a key development in health.
HOPKINS ASK THE DOC
- -------------------
Answers to readers medical questions from experts at Johns Hopkins.
HOPKINS Q&AS
- ------------
Insight from Johns Hopkins experts putting the latest developments in health in
perspective. Q&A format.
TODAY IN HEALTH HISTORY
- -----------------------
Brief fun and informative anecdotes from the history of medicine.
JOHNS HOPKINS HEALTH INSIDER
- ----------------------------
An inside look at the latest medical breakthroughs and practical advice from the
Johns Hopkins Health Insider newsletter.
ADULT HEALTH ADVISOR
- --------------------
Patient information on a variety of topics indexed from A to Z.
*POLLEN MAPS
- ------------
U.S. maps depicting overall air quality, overall pollen, grass pollen, weed
pollen, tree pollen, plus lists of above data by city for more than 50 cities.
THE WEEK IN HEALTH
- ------------------
Conversational roundup of key health news of the previous seven days.
HEALTH ZONES
- ------------
High quality material written by Johns Hopkins and other branded sources.
NEWS
- ----
Daily news and information from a variety of sources.
SEARCH
- ------
Users can search for health information by keyword
5
<PAGE>
DRUG SEARCH
- -----------
Users can search for medication information
GENERAL INFOFINDER
- ------------------
A drop-down list that takes users directly to information on 40 diseases and
conditions
PERSONAL RISK REPORT
- --------------------
Provides users with an assessment of their health and advice on minimizing
future risks
INTERACTIVE HEALTH
- ------------------
Quizzes, Radiology Gallery, Odometers and other interactive applications
HOSPITAL LOCATOR SEARCH
- -----------------------
Users can search a national database of hospitals
USDA NUTRITION DATABASE
- -----------------------
Readers can plug in different foods to find the nutritional value
ASK-THE-DOC
- -----------
Users can access our featured Ask-the-Doc question and our Ask-the-Doc archive
DAILY DESKERCISE
- ----------------
Provides users each day with a different brief stretching exercise they can do
at their desk
PROMOTIONAL TOOLS AND CONTENT
- -----------------------------
Packages consisting of timely combination of copy, graphics and links. Topics
range from news-driven to calendar and event-driven.
Typical packages may contain some or all of the following categories:
. "See Also" a set of related links you can use to support a breaking
news or calendar-driven story
. "Stand-Alone" Text, graphics and related links packaged together that
you can place on your site
. "Special" Text, graphics and related links you can put on your site
that also link to a larger co-brand or mini site on that topic created
by InteliHealth, Women's Health or other timely topics may be
incorporated.
. "Editorial Calendar", a look ahead at content and promotions we will
--------------------
be featuring throughout the next six months
MISCELLANEOUS
Custom and/or embargoed content incorporating above components specifically
developed for Web MD may also be developed as mutually agreed to between both
parties.
6
<PAGE>
PROFESSIONAL CONTENT
The Professional Content may include the following and may be subject to
periodic changes, additions, deletions and/or substitutions consistent with the
intent of this agreement. This content may reside only on professional areas of
the Customer Web Site.
NEWS
- ----
Daily news and information from a variety of sources.
RESOURCES
- ---------
Lists of links to quality resources for the health professional.
CONTINUING EDUCATION
- --------------------
Continuing Education programs from a variety of sources.
SPECIALTY AREAS
- ---------------
Quality information written by InteliHealth or aggregated from a variety of high
quality sources.
7
<PAGE>
EXHIBIT B
PERFORMANCE CRITERIA
1. PERFORMANCE
a) Average less than *** seconds response time for ***% of requests.
Measures server response time only, not network transmission time.
b) Average ***% up time. This would be exclusive of regularly scheduled
maintenance. Scheduled maintenance is defined as maintenance for which
48 hours advance notice has been given for the required down time.
c) Post a mutually-acceptable message in the event of a system outage.
d) InteliHealth will measure its performance against the foregoing
criteria on a monthly basis.
2. MONITORING/REPORTING
a) Provide details on the method used to monitor performance times.
b) Provide quarterly reporting which details server up time with the
following details per period:
i) average response time
ii) actual daily response time detail
iii) average server up time
iv) actual daily server up time
c) This information will be e-mailed to the appropriate contact within
Customer on the first Monday of each quarter for the previous
quarter's reports.
3. ESCALATION PROCEDURES
a) Notify Customer via the following e-mail addresses in case of a
service outage:
i) [email protected]
ii) [email protected]
b) Notify Customer within 30 minutes of InteliHealth's awareness of a
service outage that lasts greater than 30 minutes. Status information
to include:
i) reason for the outage
ii) ETA for service restoral
______________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
8
<PAGE>
c) If Customer experiences a service outage of greater than 30 minutes
and has not been notified by e-mail by InteliHealth, Customer will
contact the Senior System Administrator at InteliHealth by pager at
[email protected] and will be given the information listed
-------------------------
in 3.b).
d) Continue to notify Customer with updated status for the duration of
the outage.
e) Provide a monthly outage report. This report should include:
i) the cause of the problem
ii) method used to correct the problem
iii) measures InteliHealth will take to prevent further occurrences
4. PENALTIES
a) In the event that InteliHealth fails to meet the performance objective
defined in Section 1(a) in any given month, a penalty of $*** will be
due Customer.
b) In the event that InteliHealth fails to meet the performance objective
defined in Section 1(b) in any given month, InteliHealth will credit
Customer an amount equal to: ***
c) In the event that InteliHealth fails to meet the performance objective
defined in Section 1(c) in any given month, a penalty of $*** will be
due Customer.
d) InteliHealth will pay the foregoing penalties (if any) on a quarterly
basis, with payment accompanying each quarterly report.
e) Failure by InteliHealth to meet these performance objectives for ***
consecutive months or *** out of *** months shall constitute a breach
of this Agreement and Customer will have the right to terminate this
Agreement in accordance with the terms hereof. Customer agrees that
the penalties and right of termination described above shall
constitute Customer's sole and exclusive remedy, and InteliHealth's
sole and exclusive obligation, for failure to meet the performance
criteria described herein.
_______________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
9
<PAGE>
EXHIBIT C
INTELIHEALTH ADVERTISING AND SPONSORSHIP GUIDELINES
. InteliHealth, in all cases, maintains complete editorial independence in
our writing. We do not allow advertisers, licensees or 3rd party sponsors
to make changes to any content without InteliHealth's prior written
consent.
. It must be clear that all advertisements and sponsorships are paid
messages.
. All advertisements and sponsorships will be clearly separate from all
health content.
. No advertising or sponsorships for firearms, alcohol, tobacco or
pornographic products.
. InteliHealth will not sell any information to a third party that would
allow it to identify an individual's medical condition(s). InteliHealth
reserves the right to sell data that does not identify individual users,
and to use the information in connection with its own products and
services.
. The Health Home online store is provided as a service of InteliHealth. In
accordance with our strict editorial policies, neither Johns Hopkins nor
any other Information Providers endorse specific products on this service.
. InteliHealth content must be presented in a manner which does not imply
endorsement of products or services, or any sponsors, advertisers,
licensees, or any other third parties.
. Advertisements and sponsorships should not 1) diminish the reputation of
InteliHealth or its partners or 2) diminish the quality of InteliHealth or
its' partners content, products or services.
10
<PAGE>
EXHIBIT D
GENERAL TERMS AND CONDITIONS
1. For the purposes of these General Terms and Conditions, the term "Content"
shall include all Content (as defined above) and any other content,
information, software, tools or materials made available by InteliHealth or
accessible on any InteliHealth service under this Agreement.
2. InteliHealth grants to Customer a nonexclusive, worldwide right to display
the Content on the Customer Web Site in accordance with the terms of this
Agreement. In addition, each party grants to the other a nonexclusive,
nontransferable, royalty-free right to display the trademarks and logos
made available by such party, subject to the terms of this Agreement and
such party's standard trademark usage guidelines (a copy of which will be
provided by each party). All other rights to a party's intellectual
property shall remain with such party or its licensors.
3. Customer agrees not to modify or edit any Content without InteliHealth's
prior written consent, provided that Customer may alter the format of the
Content if necessary to display the Content appropriately so long as
Customer does not alter in any way the text or substance of the Content.
Customer may not display the final version of the Content on the Customer
Web Site until InteliHealth has approved its release, and InteliHealth
agrees not to unreasonably withhold such approval. If InteliHealth does not
approve of the version of the Content as displayed on the Customer Web
Site, InteliHealth will promptly notify Customer of the necessary
modifications. Following such release, InteliHealth will promptly notify
Customer of any changes which may become necessary to keep the Content
accurate and current. If Customer is unable to effect these changes after
using commercially reasonable efforts, Customer will promptly cease using
the Content, unless otherwise agreed to by the parties. Notwithstanding
anything in this Agreement to the contrary, InteliHealth reserves the
right, in its sole discretion, to modify the publication schedule of the
Content and/or to determine not to publish any Content.
4. Unless specified elsewhere in this Agreement, Customer will pay any fees
due within thirty (30) days of its receipt of an Invoice, together with any
usage information or other mutually agreed upon reporting. InteliHealth may
cease delivery of Content in the event any payment is more than 30 days
overdue. Customer will keep accurate records in connection with this
Agreement which are sufficient for the calculation of the amounts due and
will make such records available to InteliHealth and its representatives at
the places where such records are customarily kept for inspection during
normal business hours, provided that such inspections (a) occur only on
reasonable advance notice, (b) do not occur more frequently than once every
six (6) months during the term of this Agreement (and for one year
thereafter), and (c) are conducted at InteliHealth's expense (unless such
inspection reveals an underpayment by Customer of more than five percent
(5%), in which case Customer shall reimburse InteliHealth for the cost of
the inspection).
11
<PAGE>
5. Customer agrees not to remove, conceal or reposition any copyright or other
proprietary notice, legal disclaimer, or any credit-line or date-line
contained in the Content (or otherwise create the impression that Customer
is the owner of the Content). Customer agrees to use the Content in
accordance with all applicable laws and the terms of this Agreement.
6. Notwithstanding anything to the contrary contained in this Agreement,
InteliHealth may immediately remove any Content in whole or in part, in the
event the Content or any portion of the Content: (i) becomes the subject of
a claim that such Content infringes the ownership rights of any third party
or that InteliHealth otherwise does not have the right to permit others to
access such Content, (ii) depends on an agreement between InteliHealth and
a third party, and such agreement is modified or terminated for any reason
or breached by the third party and as a result InteliHealth is unable to
continue to provide all or part of the Content upon terms reasonably
acceptable to InteliHealth; (iii) becomes illegal or contrary to any
applicable law; (iv) is no longer provided by InteliHealth generally to
third parties; or (v) in InteliHealth's sole opinion, or in the opinion of
any government regulatory authority, the provision of such Content
materially jeopardizes the health or safety of any person using or relying
upon the Content, in which case Customer will cooperate with InteliHealth
to minimize the potential for jeopardy to human health or safety.
7. Within a reasonable time after expiration or termination of this Agreement
(but in no event more than thirty (30) days), Customer will (a) remove all
Content from its site and computers and otherwise return or destroy all
materials or information provided to it hereunder, and, if requested by
InteliHealth, Customer will certify as such to InteliHealth in writing, and
(b) pay InteliHealth all amounts owed to it under this Agreement, prorated
to the effective date of termination, if appropriate.
8. Each party (the "Indemnifying party") will indemnify, defend and hold
harmless the other party and its affiliated companies from and against all
claims, suits and proceedings and any and all related liabilities, losses,
expenses, damages and costs (including, without limitation, reasonable
attorneys' fees), including, without limitation, any third-party claims
alleging infringement of any copyright, trademark or other intellectual
property right or alleging libel, defamation or invasion of privacy,
arising from the use of any Content, products, software, trademarks, logos
or other materials or information (collectively, "Materials") (a) provided
by the indemnifying party or (b) accessible on the indemnifying party's Web
site or via a link from the indemnifying party's Web site, unless such
Materials were originally provided by the other party.
The indemnified party will: promptly notify the indemnifying party of any
claim, suit, or proceeding for which indemnity is claimed; cooperate
reasonably with the indemnifying party at the latter's expense; and allow
to the indemnifying party to control the defense or settlement thereof. The
indemnified party will have the right to participate in any defense of a
claim and/or to be represented by counsel of its own choosing at its own
expense. InteliHealth obligations under this section shall not apply to any
claims to the extent such claims are based upon (a) use of any Materials
that have been altered by
12
<PAGE>
Customer or any party other than InteliHealth, the combination of any
Materials with any items not provided by InteliHealth, or the display of
Materials in a manner not approved by InteliHealth in accordance with this
Agreement, if such claim would not arisen but for such alteration,
combination or display, or (b) use of any Materials after receiving notice
from InteliHealth that such Materials may give rise to any such claim.
9. Neither party makes any representations, warranties or guarantees of any
kind, either express or implied (including, without limitation, any
warranties of merchantability or fitness for a particular purpose), with
respect to (a) their respective Web sites, or the functionality,
performance or results of use thereof, or (b) any content, software,
templates, usage statistics, or other materials or information provided to
the other party in connection with this Agreement.
10. Neither party will have any liability for any (a) special, indirect,
incidental, consequential, or exemplary damages in connection with this
Agreement or (b) damages of any type suffered or incurred by either party
or any third party arising out of (i) any faults, interruptions or delays
in delivery or displaying the Content, (ii) any use of or reliance on the
Content by any person or (iii) any inaccuracies, errors or omissions in the
Content. Each party's total liability for monetary damages shall not exceed
the total amount of fees paid to InteliHealth hereunder. The foregoing
limitations shall not apply to each party's rights or damage awards under
applicable intellectual property laws.
11. During the term of this Agreement, and for a period of two years
thereafter, each party shall retain in confidence any information provided
to it by the other party and marked, labeled or otherwise designated as
confidential or proprietary, unless the information sought to be disclosed
(a) is publicly known at the time of disclosure, (b) is lawfully received
from a third party not bound in a confidential relationship with the other
party, (c) is published or otherwise made known to the public by the other
party, (d) was generated independently without reference to the other
party's confidential information, or (e) is required to be disclosed under
a court order.
12. Neither party shall be responsible for any failure to perform its
obligations under this Agreement (other than obligations to pay money)
caused by an event reasonably beyond its control, including but not limited
to, the infrastructure of the Internet, wars, riots, labor strikes, natural
disasters or any law, regulation, ordinance or other act or order of any
court, government or governmental agency.
13. Neither party will issue any press release or other public statement
regarding this Agreement without the other party's prior written consent,
except that InteliHealth may include Customer's name in any list of the
participants in the Program. Notices delivered under this Agreement may be
given by letter, facsimile or email (with hard copy confirmation) and will
be effective when received. If any provisions of this Agreement are held by
a court of competent jurisdiction to be illegal, invalid or unenforceable,
the remaining provisions shall continue in full force and effect. The
parties hereto are independent contractors. This Agreement shall not create
an agency, partnership, joint venture or any other form of legal
association, and neither party shall
13
<PAGE>
have the right to bind the other to any agreement with a third party or to
incur any obligation or liability on behalf of the other party. This
Agreement contains the entire understanding of the parties with respect to
the transactions and matters contemplated hereby, supersedes all previous
communications, understandings and agreements (whether oral or written),
and cannot be amended except by a writing signed by both parties. This
Agreement will be construed in accordance with the laws of the Commonwealth
of Pennsylvania. The terms of Paragraph 4 through 13 will survive
expiration or termination of this agreement.
14
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.57
January 15, 1999
VIA FACSIMILE TO: (609) 797-5949
- ---------------------------------
Mr. John Suender
Senior Vice President and General Counsel
MedQuist, Inc./Transcriptions, Ltd.
5 Greentree Center, Suite 311
Marlton, NJ 08053
Dear Mr. Suender:
This letter states the terms of our agreement through which Transcriptions,
Ltd. and WebMD, Inc. will co-market *** subscriptions to WebMD. Transcriptions,
Ltd. agrees to place or purchase a minimum of *** one-year subscriptions to
WebMD for physicians who will be selected by Transcriptions, Ltd., originating
*** subscriptions per month beginning on February 1, 1999. The final ***
subscriptions would, therefore, originate on June 1, 1999 and expire on May 31,
2000. Transcriptions, Ltd. will pay WebMD the subscription sponsorship fee of
$29.95 per subscription per month in arrears on a monthly basis, with the first
payment due on February 28, 1999. WebMD will invoice Transcriptions, Ltd.
monthly, based on actual subscriber count and Transcriptions, Ltd. will receive
credit against each such invoice in the amount, if any, of any payments received
by WebMD from any subscriber placed by Transcriptions, Ltd. pursuant to this
agreement.
The parties anticipate that Transcriptions, Ltd may incur costs in
marketing and integrating the WebMD subscriptions into its business. In
recognition of those anticipated costs, WebMD will pay Transcriptions, Ltd. a
marketing and technical integration fee of $***, in four equal increments of
$*** on the first business day of the second, third and fourth calendar quarters
in 1999. The payment for the first quarter will be made on or before February
15, 1999.
Transcriptions, Ltd. may remarket any or all of the *** subscriptions or
may distribute them to its physician clients without cost to such physicians.
WebMD will pay to Transcriptions, Ltd. a commission of $*** per subscriber on
all subscriptions which renew for a second year.
If these terms are satisfactory, please sign in the space provided below
and return a copy to us via facsimile at (404) 479-7603. We look forward in
1999 to mutual success in our partnership with Transcriptions, Ltd.
___________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE>
Mr John Suender
January 15, 1999
Page 2
Sincerely,
/s/ Joseph L. Mathias IV
Joseph L. Mathias IV
Vice President, Corporate Development
JLM/mmr
cc: Mr. Jeffery T. Arnold
Mr. K. Robert Draughon
Mr. Jay P. Gilbertson
Mr. W. Michael Heekin
On behalf of Transcriptions, Ltd., the undersigned consents to the agreement
described above.
By: /s/ David A. Cohen
--------------------------------------
David A. Cohen, Chairman and CEO
Dated: 1/15/99
------------------------------------
<PAGE>
EXHIBIT 10.58
WEBMD, INC.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of the 13th day of January, 1999, among WebMD, Inc., a Georgia
corporation (the "Company"), and the persons listed on Exhibit A hereto (the
---------
"Purchasers"), as such Exhibit may be amended from time to time.
RECITALS:
--------
A. The Purchasers are the purchasers of the Company's Series B
Convertible Preferred Stock (the "Series B Preferred Stock") pursuant to a Stock
Purchase Agreement dated as of January 13, 1999 among the Purchasers and the
Company, as such may be amended from time to time (the "Stock Purchase
Agreement").
B. It is anticipated that future sales of Series B Preferred Stock may
occur.
C. The Company and the Purchasers desire to set forth the registration
rights to be granted to parties to the Stock Purchase Agreement.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth herein and in the Stock Purchase
Agreement, the parties mutually agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the voting common stock, without designation as
------------
to series and without par value per share, of the Company.
"Holder" shall mean any holder of outstanding Registrable Securities or
------
Shares.
"Initial Public Offering" means the offer and sale of shares of Common
-----------------------
Stock in a transaction underwritten by an investment banking firm following the
completion of which (i) the Common Stock will be listed for trading on any
national securities exchange or (ii) there will be at least two market makers
who are making a market in the Common Stock through the Nasdaq National Market
System.
<PAGE>
"Initiating Holders" shall mean any Holder or Holders of not less than 50%
------------------
of the then outstanding Registrable Securities.
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" means shares of Common Stock (i) issued pursuant
----------------------
to the conversion or exercise of the Shares, or (ii) issued as a dividend or
other distribution with respect to, or in exchange or in replacement of, the
Shares or such Common Stock, excluding in all cases, however (including
exclusion from the calculation of the number of outstanding Registrable
Securities), any Registrable Securities sold by a person in a transaction,
including a transaction pursuant to a registration statement under Section 2 or
Section 3 or a transaction pursuant to Rule 144 of the Securities Act, in which
such person's rights under Section 2 or Section 3 are not transferred.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute promulgated in replacement thereof, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Securities" shall mean the Shares and any securities issued in respect
----------
thereto or upon conversion thereof.
"Shares" shall mean the Series B Preferred Stock of the Company purchased
------
pursuant to the Stock Purchase Agreement.
2. Demand Registration. In case the Company shall receive from Initiating
-------------------
Holders a written request that the Company effect a registration with respect to
at least 200,000 shares of Common Stock that constitute Registrable Securities
(as adjusted for stock splits, stock dividends, recapitalizations and similar
events) the Company will:
(a) promptly give written notice of the proposed registration to all other
Holders so they may have an opportunity to consider joining in such
registration, which they may do (subject to the terms and provisions of this
Agreement) at their election within ten (10) days after receipt of the notice of
the proposed registration by the Company; and
(b) as soon as practicable, use its reasonable best efforts to effect such
registration (including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request given within ten (10) days
after receipt of notice from the Company pursuant to Section 2(a); provided that
the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 2:
2
<PAGE>
(i) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) Prior to the date which is one (1) year following the
effective date of the registration statement relating to an Initial Public
Offering;
(iii) Within the one hundred twenty (120) day period immediately
following the effective date of a registration statement pertaining to a public
offering of Common Stock for its own account or for the account of another
shareholder of the Company who has exercised a demand right to register shares
of Common Stock (other than a registration relating solely to a Commission Rule
145 transaction or a registration relating solely to employee benefit plans);
(iv) After the Company has effected one (1) registration pursuant
to this Section 2 and such registration has been declared or ordered effective;
or
(v) If the Company furnishes to the Initiating Holders a letter
signed by the Chief Executive Officer or the President of the Company stating
that the Company intends to file a registration statement in connection with a
bona fide firm commitment underwritten registration for securities to be offered
for its own account (the "Intended Registration"); provided, however, that if
-------- -------
the Company does not file with the Commission its Intended Registration within
ninety (90) days of the request of the Initiating Holders, the Company shall
file the requested registration statement within thirty (30) days of the
termination of such ninety (90) day period.
Subject to the foregoing clauses (i) through (v), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request of the
Initiating Holders.
(c) Underwriting. The sale of Registrable Securities pursuant to this
------------
Section 2 must be made by means of a firm commitment underwriting through
underwriters who are reasonably acceptable to the Company and the holders of a
majority of the Registrable Securities that are proposed to be distributed
through such underwriting. The right of any Holder to registration pursuant to
this Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested by such Holder (unless mutually otherwise
agreed by a majority in interest of the Holders and such Holder) to the extent
provided herein.
The Company and all Holders proposing to distribute Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 2(c), if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten and so advises the Initiating Holders in writing,
then the Initiating Holders shall so advise the Company and all Holders (except
those Holders who have
3
<PAGE>
indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting) and the number of Registrable
Securities that may be included in the registration and underwriting shall be
allocated first to the Holders on a pro rata basis according to the number of
Registrable Securities requested to be included by the Holders; second to the
Company; and third to other shareholders of the Company who have requested to
sell in the registration. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
-------- -------
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used above in determining the
underwriter limitation.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account or the
account of others in such registration if the underwriter so agrees and if the
number of Registrable Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited.
(d) Delay of Registration. If the Company shall furnish to the Initiating
---------------------
Holders a certificate signed by the President of the Company stating that, in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the filing of such registration statement, then the
Company may direct that such request for registration be delayed for a period
not in excess of ninety (90) days, such right to delay a request to be exercised
by the Company not more than twice in any one-year period.
3. Piggyback Registration.
----------------------
(a) If at any time after ninety (90) days following an Initial Public
Offering, the Company shall determine to register for sale for cash any of its
Common Stock, for its own account or for the account of others (other than the
Holders), other than a registration relating solely to employee benefit plans or
securities issued or issuable to employees or consultants (including a
registration on Form S-8), a registration relating solely to a Commission Rule
145 transaction, a registration on Form S-4 in connection with a merger,
acquisition, divestiture, reorganization or similar event or a registration on
any registration form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of Registrable Securities, the Company promptly will give to each Holder
written notice thereof and shall use its reasonable best efforts to include in
such registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting
4
<PAGE>
involved therein, all the Registrable Securities specified in a written request
or requests, made within ten (10) days after receipt of such written notice from
the Company, by any Holder or Holders. However, the Company may, without the
consent of the Holders, withdraw such registration statement prior to its
becoming effective if the Company has abandoned its proposal to register the
securities proposed to be registered thereby.
(b) Underwriting. If the registration of which the Company gives notice is
------------
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
3(a). In such event the right of any Holder to registration pursuant to Section
3(a) shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other
shareholders of the Company distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 3(b), if the underwriter or
the Company determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders (except those Holders who have indicated to the
Company their decision not to distribute any of their Registrable Securities
through such underwriting), and the number of shares of Registrable Securities
that may be included in the registration and underwriting, if any, shall be
allocated among such Holders as follows:
(i) In the event of a piggyback registration pursuant to Section
3(a) that is initiated by the Company, then the number of shares that may be
included in the registration and underwriting shall be allocated first to the
Company and then to all selling shareholders, including the Holders, who have
requested to sell in the registration on a pro rata basis according to the
number of shares requested to be included; and
(ii) In the event of a piggyback registration pursuant to Section
3(a) that is initiated by the exercise of demand registration rights by a
shareholder or shareholders of the Company (other than the Holders), then the
number of shares that may be included in the registration and underwriting shall
be allocated first to such selling shareholders who exercised such demand and
then to all selling shareholders, including the Holders, who have requested to
sell in the registration, on a pro rata basis according to the number of shares
requested to be included;
provided, however, that in no event shall the total number of shares included in
- -------- -------
the offering by HBO & Company of Georgia ("HBOC"), Sirrom Investments, Inc.
("Sirrom"), Premiere Technologies, Inc. ("Premiere") and Matria Healthcare, Inc.
("Matria") pursuant to a piggyback registration be less than the number of
securities included in the offering by any other single selling shareholder
pursuant to piggyback registration rights unless all securities held by HBOC,
Sirrom, Premiere and Matria requested to be included in such offering are
included in such offering or unless HBOC, Sirrom, Premiere and Matria waive such
limitation or choose not to sell any shares in such registration, and the number
of shares that Holders
5
<PAGE>
would otherwise be entitled to include in such registration may be reduced to
give effect to this requirement.
(c) No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration; provided,
--------
however, that, if by the withdrawal of such Registrable Securities a greater
- -------
number of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities pursuant to the terms and limitations set forth herein in the same
proportion used above in determining the underwriter limitation.
4. Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to Section 2 or
Section 3, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense, the Company will use its reasonable best
efforts to:
(a) Keep such registration, qualification or compliance effective for a
period of ninety (90) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
5. Rule 144(k). Notwithstanding anything to the contrary contained
-----------
herein, no Holder shall have rights to a registration under Section 2 or Section
3 after the time that such Holder could sell all of its Registrable Securities
pursuant to Rule 144(k) promulgated under the 1933 Act or any successor rule
thereto.
6. Registration Expenses. The Company shall pay all expenses in
---------------------
connection with any registration, including, without limitation, all
registration, filing and NASD fees, printing expenses, all fees and expenses of
complying with securities or blue sky laws, the fees and disbursements of one
counsel for the Holders and the fees and disbursements of counsel for the
Company and of its independent accountants; provided that, in any registration,
each party shall pay for its own underwriting discounts and commissions and
transfer taxes. The Company shall not, however, be required to pay for expenses
of any registration proceeding begun pursuant to Section 2, the request of which
has been subsequently withdrawn by the Initiating Holders (unless the withdrawal
is based upon material adverse information concerning the Company of which the
Initiating Holders were unaware at the time of such request), in which case such
expenses shall be borne by the Holders whose securities were to be included in
the registration in proportion to the number of shares for which such
registration was requested.
6
<PAGE>
7. Assignment of Rights. No Holder may assign its rights under this
--------------------
Agreement to any party without the prior written consent of the Company, and any
attempted transfer in violation of this Section 7 shall be null and void;
provided, however, that a Holder may assign its rights under this Agreement
- -------- -------
without such prior written consent to a transferee or assignee that controls, is
controlled by or is under common control with such Holder.
8. Information by Holder. The Holder or Holders of Registrable Securities
---------------------
included in any registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may request in writing.
9. "Market Stand-off" Agreement. Each Holder agrees not to sell or
---------------------------
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by it during the 180 day period following the effective date of the
Initial Public Offering if so requested by the Company and underwriters of
Common Stock (or other securities) of the Company. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of such period.
10. Indemnification.
---------------
(a) In the event of the offer and sale of Registrable Securities held by
Holders under the 1933 Act, the Company shall, and hereby does, indemnify and
hold harmless each Holder, its directors, officers and partners and each other
Person, if any, who controls such Holder within the meaning of Section 15 of the
1933 Act, against any losses, claims, damages or liabilities, joint or several,
to which the Holder or any such director or officer or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such shares were registered under the 1933
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances in
which they were made not misleading, and the Company shall reimburse the Holder,
and each such director, officer, partner and controlling person for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding;
provided that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by or on behalf of such Holder specifically stating that it is for use
in the preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company, or any such
director, officer, partner or controlling person and shall survive the transfer
of such shares by the Holder.
7
<PAGE>
(b) The Company may require, as a condition to including any Registrable
Securities to be offered by a Holder in any registration statement filed
pursuant to this Section 10, that the Company shall have received an agreement
from such Holder to be bound by the terms of this Section 10, including an
undertaking reasonably satisfactory to it from such Holder, to indemnify and
hold the Company, its directors and officers and each other Person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act, against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director or officer or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information about such Holder as a Holder of the
Company furnished to the Company through an instrument duly executed by such
Holder specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that such indemnity
-------- -------
agreement found in this Section 10(b) shall in no event exceed the gross
proceeds from the offering received by such Holder. Such indemnity shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling person and shall
survive the transfer by any Holder of such shares.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 10(a) or (b) (including any governmental action), such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the commencement of such
action; provided that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under Section 10(a) or (b), except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not
available to the indemnifying party in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. Neither an indemnified nor an indemnifying party shall be liable
for any settlement of any action or proceeding effected without its consent. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
8
<PAGE>
(d) The indemnification required by Section 10(a) and (b) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expenses, losses, damages or
liabilities are incurred.
(e) If the indemnification provided for in this Section 10 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense as is appropriate to
reflect the relative benefits received by the indemnified party on the one hand,
and the indemnifying party on the other from the offering of the Common Stock,
as well as other relevant equitable considerations.
11. Miscellaneous
-------------
(a) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia applicable to contracts between
Georgia residents entered into and to be performed entirely within the State of
Georgia.
(b) Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
(c) Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subjects
hereof.
(d) Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be effective three (3) days
after mailed by first-class mail, postage prepaid, or otherwise delivered by
hand or by messenger, addressed (a) if to a Purchaser, at such Purchaser's
address set forth on the attached exhibit, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of Registrable Securities, at such address as such Holder shall have
furnished the Company in writing, or, until any such Holder so furnishes an
address to the Company, then to and at the address of the last Holder of such
Registrable Securities who has so furnished an address to the Company, or (c) if
to the Company, at such address as the Company shall have furnished to each
Purchaser and each such other Holder in writing.
(e) Delays or Omissions. No delay or omission to exercise any right, power
-------------------
or remedy accruing to any Holder of any Registrable Securities, upon any breach
or default of the Company under this Agreement, shall impair any such right,
power or remedy of such Holder nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereunder occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement, or any waiver on the part of any Holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
9
<PAGE>
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
(g) Severability. In the case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
(h) Amendments. The provisions of this Agreement may be amended at any
----------
time and from time to time, and particular provisions of this Agreement may be
waived, with and only with an agreement or consent in writing signed by the
Company and by the holders of a majority of the number of shares of Registrable
Securities (or securities convertible into Registrable Securities) outstanding
as of the date of such amendment or waiver; provided, however, that without
-------- -------
obtaining the consent of any other party to this Agreement, the Company may
amend this Agreement to add hereto as parties each person or entity who
purchases Shares pursuant to the Stock Purchase Agreement on or after the date
of this Agreement, such Amendment to be effected by obtaining the signature of
each such party and the Company to a counterpart to this Agreement. Each
Purchaser acknowledges that by the operation of this Section 11(h), the holders
of a majority of the outstanding Registrable Securities may have the right and
power to diminish or eliminate all rights of such Purchaser under this Agreement
and that parties may be added to this Agreement as Purchasers and their
securities may be added to this Agreement as Registrable Securities without the
consent of any Purchaser.
10
<PAGE>
This Registration Rights Agreement is hereby executed as of the date first
above written.
WebMD, INC.
By: /s/ Jeffrey T. Arnold /s/ Holcombe T. Green, Jr.
--------------------- ----------------------------------------
Jeffrey T. Arnold HOLCOMBE T. GREEN, JR.
Chief Executive Officer
HALL FAMILY INVESTMENTS, L.P.
By: /s/ Nancy Hall Green
-------------------------------------
Nancy Hall Green
KEP VI, LLC
By: /s/ George E. Matelich
-------------------------------------
George E. Matelich, Managing Member
11
<PAGE>
EXHIBIT A
Number of Shares of
Purchaser Series B Preferred Stock
- --------- ------------------------
KEP VI, LLC 100,000
Holcombe T. Green, Jr. 50,000
Hall Family Investments, L.P. 50,000
12
<PAGE>
EXHIBIT 10.59
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
------------------------------------------------
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Amendment"),
dated as of January 22, 1999, is made and entered into by and between WebMD,
Inc., a Georgia corporation f/k/a Endeavor Technologies, Inc. (the "Company"),
and the persons and entities indicated on Exhibit A hereto (the "Investors").
---------
WHEREAS, the Company has entered into a Registration Rights Agreement dated
as of January 13, 1999 (the "Stock Purchase Agreement"), pursuant to which
certain Purchasers (as defined therein) of the Company's Series B Preferred
Stock received registration rights with respect to certain securities of the
Company owned by the Purchasers;
WHEREAS, each of the Investors has purchased from the Company the number of
shares of its Series B Preferred Stock specified opposite such Investor's name
on Exhibit A (the "Series B Shares");
---------
WHEREAS, each of the Investors desires to become a party to the
Registration Rights Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Pursuant to Section 11(h) thereof, the Registration Rights Agreement is
hereby amended to include each Investor as a Purchaser.
2. Exhibit A to the Registration Rights Agreement is hereby amended and
---------
restated in the form attached as Exhibit A hereto.
---------
3. All other provisions of the Registration Rights Agreement shall remain
in full force and effect.
[SIGNATURES BEGIN ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this First
Amendment to Registration Rights Agreement as of the day and year first above
written.
THE COMPANY:
WebMD, Inc.
By: /s/ Jeffrey T. Arnold
------------------------
Jeffrey T. Arnold
Chief Executive Officer
INVESTOR:
Croft & Bender LLC
By: /s/ Edward S. Croft
------------------------
Title: Managing Director
------------------------
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of
Investor Series B Preferred Stock
- -------- ------------------------
<S> <C>
KEP VI, LLC 100,000
Holcombe T. Green, Jr. 50,000
Hall Family Investments, L.P. 50,000
Croft & Bender LLC (1) 10,000
</TABLE>
(1) Pursuant to First Amendment to Registration Rights Agreement dated January
22, 1999.
<PAGE>
EXHIBIT 10.60
SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
-------------------------------------------------
THIS SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Amendment"),
dated as of January 25, 1999, is made and entered into by and between WebMD,
Inc., a Georgia corporation f/k/a Endeavor Technologies, Inc. (the "Company"),
and the persons and entities indicated on Exhibit A hereto (the "Investors").
---------
WHEREAS, the Company has entered into a Registration Rights Agreement dated
as of January 13, 1999, as amended on January 22, 1999 (the "Registration Rights
Agreement"), pursuant to which certain Purchasers (as defined therein) of the
Company's Series B Preferred Stock received registration rights with respect to
shares of Series B Preferred Stock of the Company owned by the Purchasers;
WHEREAS, certain of the Investors (the "Series C Investors") have purchased
from the Company the number of shares of its Series C Preferred Stock specified
opposite such Investor's name on Exhibit A (the "Series C Shares");
---------
WHEREAS, each of the Series C Investors desires to become a party to the
Registration Rights Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Registration Rights Agreement is hereby amended as follows:
(a) RECITAL (A) shall be deleted and replaced with the following:
"The Purchasers include (i) the purchasers of the Company's Series B
Preferred Stock (the "Series B Preferred Stock") pursuant to a Stock
Purchase Agreement dated as of January 13, 1999, among such purchasers and
the Company, as such may be amended from time to time (the "Series B Stock
Purchase Agreement") and (ii) the purchasers of the Company's Series C
Preferred Stock (the "Series C Preferred Stock") pursuant to a Stock
Purchase Agreement to be entered into among such purchasers and the
Company, as such may be amended from time to time (the "Series C Stock
Purchase Agreement").
(b) RECITAL (B) shall be amended to add the words "and Series C Preferred
Stock" after "Series B Preferred Stock."
(c) RECITAL (C) shall be amended to replace the words "Stock Purchase
Agreement" with "Series B Stock Purchase Agreement and Series C Stock
Purchase Agreement."
(d) Section 1: The definition of "Registrable Securities" shall be amended
by adding the words "or Warrants" after the word "Shares" in subsections
(i) and (ii).
<PAGE>
(e) Section 1: The definition of "Shares" shall be deleted and replaced
with the following:
"Shares" shall mean the Series B Preferred Stock and the Series C Preferred
------
Stock of the Company purchased pursuant to either the Series B Stock
Purchase Agreement or the Series C Stock Purchase Agreement, respectively.
(f) Section 1: A new definition of the word "Warrants" shall be added and
shall read in its entirety as follows:
"Warrants" shall mean warrants to purchase up to 750,000 shares of Series D
--------
Common Stock of the Company (or 750,000 shares of Common Stock, following
an Initial Public Offering) that may be issued by the Company to Gleacher
NatWest."
(g) Section 7: Section 7 shall be amended by adding a new sentence at the
end of Section 7, which new sentence shall read in full as follows:
"Any transfer of Warrants shall be conditioned upon the Company receiving
the agreement of the tranferees that they will not exercise such warrants
if such exercise would not be in compliance with the exemption from
registration provided by Rule 506 of Regulation D promulgated pursuant to
the Securities Act."
(h) Section 11(h): Section 11(h) shall be amended by deleting the first
sentence thereof and replacing such first sentence with the following:
"The provisions of this Agreement may be amended at any time and from time
to time, and particular provisions of this Agreement may be waived, with
and only with an agreement or consent in writing signed by the Company and
by the holders of a majority of the number of shares of Registrable
Securities (or securities convertible into Registrable Securities)
outstanding as of the date of such amendment or waiver; provided, however,
-------- -------
that without obtaining the consent of any other party to this Agreement,
the Company may amend this Agreement (i) to add hereto as parties each
person or entity who purchases Shares pursuant to the Series B Stock
Purchase Agreement or Series C Stock Purchase Agreement on or after the
date of this Agreement, such Amendment to be effected by obtaining the
signature of each such party and the Company to a counterpart to this
Agreement and (ii) to add Gleacher NatWest in the event the Company issues
the Warrants to Gleacher NatWest, such Amendment to be effected by
obtaining the signature of the Company and Gleacher NatWest to a
counterpart to this Agreement; and (iii) to restate this Agreement from
time to time to incorporate all amendments previously made, which
restatement may be effected by the Company, acting alone, which may
indicate thereon the date of such restatement and the conformed signatures
of all holders then party to this Agreement.
(i) Exhibit A to the Registration Rights Agreement is hereby amended and
---------
restated in the form attached as Exhibit A hereto.
---------
2. All other provisions of the Registration Rights Agreement shall remain
in full force and effect.
<PAGE>
3. This Amendment may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Second
Amendment to Registration Rights Agreement as of the day and year first above
written.
THE COMPANY: INVESTORS:
WebMD, Inc. KEP VI, LLC
By: /s/ Jeffrey T. Arnold By: /s/ George E. Matelich
--------------------------- -----------------------------
Jeffrey T. Arnold
Chief Executive Officer Title: Managing Member
--------------------------
Holcombe T. Green, Jr.
/s/ Holcombe T. Green
-------------------------------
Hall Family Investments, L.P.
By: /s/ Nancy Hall Green
-----------------------------
Title:__________________________
Croft & Bender LLC
By: /s/ Edward S. Croft
----------------------------
Title: Managing Director
------------------------
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of
Preferred Stock or
Investor Shares Subject to Warrants
- -------- --------------------------
<S> <C>
Series B
KEP VI, LLC 100,000
Holcombe T. Green, Jr. 50,000
Hall Family Investments, L.P. 50,000
Croft & Bender LLC (1) 10,000
</TABLE>
(1) Pursuant to First Amendment to Registration Rights Agreement dated January
22, 1999.
<PAGE>
EXHIBIT 10.61
THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
------------------------------------------------
THIS THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Amendment"),
dated as of January 27, 1999, is made and entered into by and between WebMD,
Inc., a Georgia corporation f/k/a Endeavor Technologies, Inc. (the "Company"),
and the persons and entities indicated on Exhibit A hereto (the "Investors").
---------
WHEREAS, the Company has entered into a Registration Rights Agreement dated
as of January 13, 1999 (as amended through the date hereof, the "Registration
Rights Agreement"), pursuant to which certain Purchasers (as defined therein) of
the Company's Series B Preferred Stock received registration rights with respect
to certain securities of the Company owned by the Purchasers;
WHEREAS, certain of the Investors (the "Series C Investors") have purchased
from the Company the number of shares of its Series C Preferred Stock specified
opposite such Investor's name on Exhibit A (the "Series C Shares");
---------
WHEREAS, each of the Series C Investors desires to become a party to the
Registration Rights Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Pursuant to Section 11(h) thereof, the Registration Rights Agreement is
hereby amended to include each Series C Investor as a Purchaser.
2. Exhibit A to the Registration Rights Agreement is hereby amended and
---------
restated in the form attached as Exhibit A hereto.
---------
3. All other provisions of the Registration Rights Agreement shall remain
in full force and effect.
[SIGNATURES BEGIN ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Third
Amendment to Registration Rights Agreement as of the day and year first above
written.
THE COMPANY:
WebMD, Inc.
By: /s/ Jeffrey T. Arnold
----------------------------------
Jeffrey T. Arnold
Chief Executive Officer
INVESTOR:
Tenet Healthcare Corporation
By: /s/ Trevor Fetter
----------------------------------
Title: Chief Corporate Officer,
Office of the President
----------------------------------
/s/ Eric J. Gleacher
---------------------------------------
Eric J. Gleacher
/s/ Charles G. Phillips
---------------------------------------
Charles G. Phillips
/s/ Robert A. Engel
---------------------------------------
Robert A. Engel
/s/ Jeffrey H. Tepper
---------------------------------------
Jeffrey H. Tepper
/s/ Emil W. Henry, Jr.
---------------------------------------
Emil W. Henry, Jr.
/s/ John Huwiler
---------------------------------------
John Huwiler
<PAGE>
/s/ H. Conrad Meyer
---------------------------------------
H. Conrad Meyer
/s/ Roger W. Hoit
---------------------------------------
Roger W. Hoit
/s/ Ken Ambrecht
---------------------------------------
Ken Ambrecht
/s/ Daniel H. Fitzgerald
---------------------------------------
Daniel H. Fitzgerald
/s/ Max Holmes
---------------------------------------
Max Holmes
/s/ Matthew Johnson
---------------------------------------
Matthew Johnson
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of
Investor Series B Preferred Stock
- -------- ------------------------
<S> <C>
KEP VI, LLC 100,000
Holcombe T. Green, Jr. 50,000
Hall Family Investments, L.P. 50,000
Croft & Bender LLC (1) 10,000
Number of Shares of
Investor Series C Preferred Stock
- -------- ------------------------
Eric J. Gleacher 75,000
Charles G. Phillips 32,500
Robert A. Engel 10,000
Jeffrey H. Tepper 6,250
Emil W. Henry, Jr. 10,000
John Huwiler 5,000
H. Conrad Meyer 10,000
Roger W. Hoit 5,000
Ken Ambrecht 5,000
Daniel H. Fitzgerald 10,000
Max Holmes 5,000
Matthew Johnson 5,000
Tenet Healthcare Corporation 150,000
</TABLE>
(1) Pursuant to First Amendment to Registration Rights Agreement dated January
22, 1999.
<PAGE>
EXHIBIT 10.62
FOURTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
-------------------------------------------------
THIS FOURTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Amendment"),
dated as of January 28, 1999, is made and entered into by and between WebMD,
Inc., a Georgia corporation f/k/a Endeavor Technologies, Inc. (the "Company"),
and the persons and entities indicated on Exhibit A hereto (the "Investors").
---------
WHEREAS, the Company has entered into a Registration Rights Agreement dated
as of January 13, 1999 (as amended through the date hereof, the "Registration
Rights Agreement"), pursuant to which certain Purchasers (as defined therein) of
the Company's Series B Preferred Stock received registration rights with respect
to certain securities of the Company owned by the Purchasers;
WHEREAS, certain of the Investors (the "Series C Investors") have purchased
from the Company the number of shares of its Series C Preferred Stock specified
opposite such Investor's name on Exhibit A (the "Series C Shares");
---------
WHEREAS, each of the Series C Investors desires to become a party to the
Registration Rights Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Pursuant to Section 11(h) thereof, the Registration Rights Agreement is
hereby amended to include each Series C Investor as a Purchaser.
2. Exhibit A to the Registration Rights Agreement is hereby amended and
---------
restated in the form attached as Exhibit A hereto.
---------
3. All other provisions of the Registration Rights Agreement shall remain
in full force and effect.
[SIGNATURES BEGIN ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Fourth
Amendment to Registration Rights Agreement as of the day and year first above
written.
THE COMPANY:
WebMD, Inc.
By: /s/ Jeffrey T. Arnold
--------------------------------------------
Jeffrey T. Arnold
Executive Officer
INVESTOR:
Trigon Healthcare, Inc.
By: /s/ Thomas G. Snead, Jr.
--------------------------------------------
Title: President and Chief Operating Officer
------------------------------------------
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Shares of
Investor Series B Preferred Stock
- -------- ------------------------
<S> <C>
KEP VI, LLC 100,000
Holcombe T. Green, Jr. 50,000
Hall Family Investments, L.P. 50,000
Croft & Bender LLC (1) 10,000
</TABLE>
<TABLE>
<CAPTION>
Number of Shares of
Investor Series C Preferred Stock
- -------- ------------------------
<S> <C>
Eric J. Gleacher (2) 75,000
Charles G. Phillips (2) 32,500
Robert A. Engel (2) 10,000
Jeffrey H. Tepper (2) 6,250
Emil W. Henry, Jr. (2) 10,000
John Huwiler (2) 5,000
H. Conrad Meyer (2) 10,000
Roger W. Hoit (2) 5,000
Ken Ambrecht (2) 5,000
Daniel H. Fitzgerald (2) 10,000
Max Holmes (2) 5,000
Matthew Johnson (2) 5,000
Tenet Healthcare Corporation (2) 150,000
Trigon Healthcare, Inc. 250,000
</TABLE>
(1) Pursuant to First Amendment to Registration Rights Agreement dated January
22, 1999.
(2) Pursuant to Third Amendment to Registration Rights Agreement dated January
27, 1999.
<PAGE>
EXHIBIT 10.63
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is made and entered into as of
the 28th day of January, 1999, by and between WebMD, INC., a Georgia corporation
(the "Company"), and PREMIER PURCHASING PARTNERS, L.P., a California limited
partnership (the "Purchaser").
1. SALE AND ISSUANCE OF SECURITIES.
1.1 Sale of Shares. Subject to the terms and conditions hereof, at the
--------------
Closing (defined in Section 2.1) the Company shall issue and sell to Purchaser,
and Purchaser shall purchase from the Company, two hundred fifty thousand
(250,000) shares (the "Purchased Shares") of Series C Preferred Stock, no par
value per share (the "Preferred Stock"), for the purchase price provided in
Section 1.2 below.
1.2 Purchase Price. The purchase price for the Purchased Shares shall be
--------------
twenty dollars ($20.00) per share, or an aggregate of five million dollars
($5,000,000) (the "Purchase Price"). The Purchase Price shall be paid at the
Closing via wire transfer.
1.3 Investment Warrant. On the Closing Date (as defined herein), the
------------------
Company shall issue to Purchaser, for no additional consideration, an investment
warrant in the form of Exhibit 1.3 attached hereto (hereinafter, the "Investment
-----------
Warrant") dated the Closing Date providing for the purchase of shares of
Preferred Stock (or Common Stock as provided therein). The Investment Warrant
shall be immediately vested and exercisable for three years following the issue
date and shall entitle the holder to purchase 100,000 shares of Preferred Stock
(or Common Stock as provided therein) at an exercise price of $20.00 per share,
subject to adjustment as set forth therein.
1.4 Performance-Based Warrant. On the Closing Date, the Company shall
-------------------------
also issue to Purchaser, for no additional consideration, a performance-based
warrant, in substantially the form attached hereto as Exhibit 1.4 (the
-----------
"Performance Warrant") to purchase an aggregate of 100,000 shares of Preferred
Stock (or Common Stock as provided therein). The Performance Warrant will be
granted with respect to 50,000 shares of Preferred Stock (or Common Stock as
provided therein) on each December 31 of each of the calendar years 1999 and
2000, with the exercise price per share equal to the fair market value of the
underlying capital stock on the respective dates of grant (as adjusted for stock
splits, stock dividends, combinations and the like occurring after the date
hereof) provided that the joint marketing efforts of Purchaser and the Company
yield the Company gross revenues, calculated on an accrual basis (the "Alliance
Revenues") of $4,500,000 and $7,500,000, respectively, during such years. During
calendar year 1999, if the Company receives Alliance Revenues of at least
$675,000, but less than $4,500,000, the Performance Warrant will be
<PAGE>
granted with respect to the number of shares equal to the Alliance Revenues
measured in dollars divided by 90, rounded to the nearest whole number. For
purposes of the Performance Warrant and this Agreement, "Alliance Revenues"
shall include all Company revenues from any subscriber or other source generated
by Premier Purchasing Partners, L.P. or its affiliates, regardless of the
Company's strategic alliance partner or other vendor that shall have paid or
collected such revenues. In particular, any Alliance Revenues from WebMD
subscriptions or usage by members or new members of Provider Select generated
through McKesson HBOC or an affiliate thereof will be credited towards
Purchaser's performance goals for Alliance Revenues. If Alliance Revenues do not
attain $7,500,000 calculated for the calendar year 2000, the vesting of warrant
rights and the exercise and issuance of Warrant Shares in respect of Alliance
Revenues attained in 1999 shall remain effective and unimpaired. At Purchaser's
request, which may be made on a quarterly basis, the Company will report on the
year-to-date Alliance Revenues. The Company will also allow the Purchaser a
reasonable opportunity on an annual basis to audit the Alliance Revenues.
2. CLOSING; DELIVERIES.
2.1 Closing. The closing of the purchase and sale of the Purchased
-------
Shares (the "Closing") shall be held on or before January 28, 1999 (the "Closing
Date") at the offices of Nelson Mullins Riley & Scarborough, L.L.P., Atlanta,
Georgia, or at such other place as the parties may agree. Faxed signatures shall
be deemed valid and shall be confirmed by original documents sent by overnight
mail.
2.2 Deliveries at Closing. At the Closing, the Company shall deliver to
---------------------
Purchaser a certificate, issued in Purchaser's name, representing the Purchased
Shares, and Purchaser shall deliver the Purchase Price to the Company by wire
transfer. In addition, the Company shall deliver to the Purchaser such other
instruments and documents as are described in Article 5, and the Purchaser shall
deliver to the Company such other instruments and documents as are described in
Article 6.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In order to induce Purchaser to enter into and perform its obligations
under this Agreement, the Company hereby represents and warrants to Purchaser as
follows:
3.1 Organization and Standing; Charter and Bylaws. The Company is a
---------------------------------------------
corporation duly organized and validly existing under the laws of the State of
Georgia and is in good standing under such laws. The Company has previously
delivered to Purchaser true and accurate copies of its Amended and Restated
Articles of Incorporation, as amended (the "Articles"), and its Amended and
Restated Bylaws, as presently in effect.
3.2 Corporate Power. The Company has all requisite legal and corporate
---------------
power and authority to enter into this Agreement, to sell the Purchased Shares
and to carry out and perform its other obligations under the terms of this
Agreement.
2
<PAGE>
3.3 Subsidiaries and Affiliates. Except as set forth in Exhibit 3.3
--------------------------- -----------
attached hereto, the Company does not own or control, directly or indirectly,
any interest or investment in any corporation, partnership, association or other
form of business entity.
3.4 Capitalization. Immediately prior to the Closing Date, the
--------------
authorized capital stock of the Company shall consist of 107,000,000 shares of
capital stock, of which: (a) 75,000,000 shares are designated as Common Stock,
voting and without par value per share, of which 3,000,000 are issued and
outstanding; (b) 3,000,000 have been designated as Common Stock Series B,
nonvoting and without par value per share, of which 1,400,000 are issued and
outstanding; (c) 1,500,000 shares have been designated as Common Stock Series C,
nonvoting and without par value per share, of which 1,500,000 are issued and
outstanding; (d) 15,000,000 shares have been designated as Common Stock Series
D, nonvoting and without par value per share, of which 4,496,805 are issued and
outstanding; (e) 2,500,000 shares have been designated as Common Stock Series E,
nonvoting and without par value per share, of which 2,100,000 are issued and
outstanding; (f) 10,000,000 shares of preferred stock, of which (x) 1,600,000
shares have been designated as Series A Preferred Stock, without par value per
share, and of which 801,000 shares are issued and outstanding, and (y) 3,400,000
shares have been designated as Series B Preferred Stock, and of which 2,973,263
shares are issued and outstanding, and (z) 2,000,000 shares have been designated
as Series C Preferred Stock, and of which 178,750 shares are issued and
outstanding. Except for the number of shares authorized, the preferences and
rights of Series C Preferred Stock are identical to the preferences and rights
of Series B Preferred Stock. All such issued and outstanding shares have been
duly authorized and validly issued, are fully paid and nonassessable, are owned
beneficially and of record by the shareholders and in the amounts set forth in
Exhibit 3.4 attached hereto. Except as shown in Exhibit 3.4 and as contemplated
- ----------- -----------
by this Agreement, there are no outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from the Company
of any shares of its capital stock.
3.5 Authorization. All corporate action on the part of the Company and
-------------
its directors, officers and shareholders and holders of contractual rights
necessary for (i) the authorization, execution, delivery and performance of all
its obligations under this Agreement and any document contemplated hereby, (ii)
the establishment of the preferences, limitations and rights of the Preferred
Stock and the authorization, issuance and delivery by the Company of the
Purchased Shares, the Investment Warrant, the Performance Warrant and the shares
of Preferred Stock or Common Stock, as the case may be, issuable upon exercise
of the Investment Warrant and the Performance Warrant (collectively, the
"Warrant Shares") (iii) for the authorization and reservation of the shares of
the Common Stock issuable upon conversion of all such Preferred Stock pursuant
to the terms of the Company's Articles (the "Conversion Shares"), and (iv) the
Group Purchasing Agreement between Provider Select, Inc. and the Company, signed
December 11, 1999, effective as of January 1, 1999, as amended pursuant to
Amendment to Group Purchasing Agreement dated as of the date hereof (as so
amended the "Provider Select Group Purchasing Agreement"), has been (or will be)
taken prior to the Closing. This Agreement, the Investment Warrant, the
Performance Warrant, the Fourth Amendment dated January 21, 1999, to the
Restated
3
<PAGE>
Shareholders' Agreement dated as of October 18, 1996, the Mutual Non-
Disclosure Agreement between the Company and Purchaser dated as of November 1,
1998 and the Provider Select Group Purchasing Agreement constitute the valid and
binding obligations of the Company and are enforceable against it in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the enforcement of creditors' rights
generally, and except that the availability of the remedy of specific
performance or other equitable relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
3.6 Validity of Stock. The Purchased Shares and the Warrant Shares, when
-----------------
issued in accordance with the Investment Warrant or Performance Warrant, as the
case may be, will be duly authorized, validly issued, fully paid and
nonassessable, will be free of any liens or encumbrances, and will not be
subject to any preemptive rights, rights of first refusal or redemption rights,
other than as expressly provided herein and in the Articles or as will have been
waived. The Conversion Shares have been duly and validly reserved, and neither
they nor the issuance thereof are subject to any preemptive rights or rights of
first refusal or redemption rights, and, upon issuance, they will be validly
issued, fully paid and nonassessable.
3.7 Financial Statements. The Company has furnished Purchaser with (a)
--------------------
audited consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996 and 1997, together with audited consolidated statements of
income and cash flows for the three-year period ended December 31, 1997, and (b)
an unaudited consolidated balance sheet of the Company as of September 30, 1998,
together with unaudited consolidated statements of income and cash flow for the
nine-month period then ended and for the months of October and November 1998
(collectively, the "Interim Financial Statements;" all the foregoing financial
statements being collectively referred to hereafter as the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
fairly present the financial position of the Company and the results of its
operations as of the dates and for the periods indicated, subject, in the case
of the Interim Financial Statements, to normal year-end adjustments (which are
not expected to be material) and the absence of footnotes.
3.8 Changes. Except as disclosed in Exhibit 3.8 attached hereto and as
------- -----------
disclosed in the Interim Financial Statements, since the date of the Interim
Financial Statements, there has not been:
3.8.1 any change in the assets, liabilities, financial condition, or
operations of the Company considered in the aggregate from that reflected in the
Interim Financial Statements, except changes in the ordinary course of business;
3.8.2 any materially adverse change (individually or in the
aggregate), except in the ordinary course of business, in the contingent
obligations of the Company by way of guaranty, endorsement, indemnity, warranty,
or otherwise;
3.8.3 any damage, destruction, or loss that had a material adverse
effect on the properties or business of the Company, whether or not covered by
insurance;
4
<PAGE>
3.8.4 any loans made by the Company to its employees, officers, or
directors or members of their immediate families other than travel and other
commercially reasonable advances made in the ordinary course of business;
3.8.5 any declaration or payment of any dividend or other
distribution of the assets of the Company;
3.8.6 any other event or condition of any character that has had a
material adverse effect on the business of the Company; or
3.8.7 any agreement or commitment by the Company to do any of the
things described in this Section 3.8.
3.9 Material Liabilities. Except (a) as disclosed in Exhibit 3.9
-------------------- -----------
attached hereto or as reflected in the Interim Financial Statements, (b) for the
obligations and liabilities incurred in the ordinary course of business since
the date of the Interim Financial Statements, and (c) for obligations under
contracts made in the ordinary course of business that would not be required by
GAAP to be reflected in the Interim Financial Statements, the Company does not
have any material liabilities or obligations, absolute or contingent.
3.10 Contracts and Commitments. Other than this Agreement or as set forth
-------------------------
in Exhibit 3.10 attached hereto, the Company does not have any contracts,
------------
agreements or instruments to which it is a party and that involve either (a) a
commitment by, or revenue to, the Company in excess of $25,000 annually, or (b)
provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services. Except as set forth in Exhibit 3.10, all
------------
contracts, agreements or instruments to which the Company is a party are valid
and binding upon the Company and the other parties thereto and are in full force
and effect and enforceable in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general equitable
principles, and neither the Company nor, to the Knowledge of the Company (as
defined in Section 9.9 hereof), any other party to any such contract, agreement
or instrument has breached any provision of, or is in default under, the terms
thereof, and there are no claims or allegations of offset, defense, or
counterclaims that would prevent the work in process of the Company or its
contracts and agreements from maturing in due course into fully collectible
accounts receivable. Except as set forth on Exhibit 3.10, the Company has
------------
complied with all applicable statutes, ordinances, rules, regulations and orders
relating to seeking, bidding, obtaining, performing under or otherwise complying
with, contracts with governmental and quasi-governmental authorities, agencies
or other entities.
3.11 Protection of Intellectual Property Generally. Exhibit 3.11 hereto
--------------------------------------------- ------------
sets forth a complete and correct list and summary description of all registered
and material unregistered trademarks, trade or company names, service marks,
service names, brand names and registrations, if any, therefor; all registered
copyrights; and all patents and all patent applications,
5
<PAGE>
if any, in each case applicable to or used or intended to be used in the
business of the Company, together with a complete list of all licenses granted
by or to the Company with respect to any of the above. The Company has filed
applications in the United States Patent and Trademark Office for registration
of "Web-MD", "WebMD" and "WebMD OnCall" as service marks (the application for
"Web-MD" was initially denied, but the Company filed a response on November 20,
1998), but otherwise the Company has not sought governmental protection by way
of patent, trademark or copyright registration or application for the property
listed in Exhibit 3.11 hereto. The Company validly owns or is validly licensed
------------
to use all inventions, processes, know-how, formulas, patterns, designs, and
trade secrets that are used in the conduct of its business as now conducted. All
such rights and all rights listed in Exhibit 3.11 hereto are valid and
------------
enforceable and are free from any security interest, lien or encumbrance or any
default on the part of the Company, and are not now involved in any pending or,
to the Knowledge of the Company, threatened interference proceeding. No option,
license, sublicense or other agreement has been granted in respect of any
patent, trademark, brand name, trade secret, copyright or pending application
therefor listed in Exhibit 3.11 hereto, except as noted in Exhibit 3.11.
------------ ------------
Except as set forth on Exhibit 3.11, none of the Company's owned intellectual
------------
property infringes any patent, trademark, service mark, trade or company name or
application therefor or any related technological right of any other person.
None of the rights of the Company described in this Section 3.11 will be
impaired in any way by the transactions provided for herein, and all of such
rights will be fully enforceable by the Company after the Closing Date without
the consent or agreement of any other party. The Company does not believe it is
or will be necessary to utilize any inventions of any of its employees (or
individuals it currently intends to hire) made prior to their employment by the
Company.
3.12 Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance of and compliance with this Agreement and the Provider Select Group
Purchasing Agreement and the issuance of the Purchased Shares, the Warrant
Shares and the Conversion Shares will not result in any violation or be in
conflict with or constitute a default under any of the terms or provisions of
the Articles or Bylaws of the Company, or any mortgage, indenture, contract,
agreement or instrument to which the Company is a party, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company pursuant to any such term or provision.
3.13 Litigation and Other Proceedings. Except as disclosed in Exhibit
-------------------------------- -------
3.13 attached hereto, there are no actions, proceedings or investigations
- ----
pending against the Company or its properties or shareholders (or, to the
Knowledge of the Company, any basis therefor or threat thereof) that, either in
any case or in the aggregate, could reasonably be expected to result in any
material adverse change in the business or financial condition of the Company or
its properties or assets or in any material impairment of the right or ability
of the Company to carry on its business as now conducted, or in any material
liability on the part of the Company, and none that challenges the validity of
this Agreement or any action taken or to be taken in connection herewith. The
foregoing includes, without limiting its generality, actions pending or, to the
Knowledge of the Company, threatened (or any threat thereof) involving the prior
employment of the Company's employees or their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers.
6
<PAGE>
3.14 Employees. Except as disclosed in Exhibit 3.14 attached hereto, the
--------- ------------
Company does not have any employment contracts with any of its employees not
expressly terminable at will and no collective bargaining agreements covering
any of its employees. Further, the Company does not have any policies,
procedures or handbooks providing for other than at-will employment. The Company
is not aware of any proposed, threatened or actual union organization activity
affecting the Company's current or prospective operations.
3.15 Registration Rights. Except as provided for in Article 8 hereof, and
-------------------
in Exhibit 3.15 attached hereto, the Company is under no obligation to register
------------
any of its presently outstanding securities or any of its securities that may
hereafter be issued pursuant to this or any other existing agreement.
3.16 Governmental Consents. Except for the filing of a Form D with the
---------------------
Securities and Exchange Commission (the "Commission") and the States of Georgia
and California (which filings the Company covenants to file timely), no consent,
approval or authorization of, or registration, declaration, designation,
qualification or filing with, any governmental authority on the part of the
Company is required in connection with the valid execution and delivery of this
Agreement, the offer, sale or issuance of the Purchased Shares by the Company,
the issuance by the Company of the Conversion Shares, or the consummation of any
other transaction contemplated hereby other than as provided by applicable
securities laws.
3.17 Other Consents. All consents of any third party and any shareholders
--------------
of the Company necessary for the execution, delivery and performance by the
Company of this Agreement or the consummation of the transactions contemplated
hereby have been received prior to the Closing.
3.18 Title to Property and Assets. Except as disclosed in Exhibit 3.18
---------------------------- ------------
attached hereto, the Company has good and marketable title to its material
properties and assets and has good title to all its leasehold interests, in each
case subject to no mortgage, pledge, lien, encumbrance or charge.
3.19 Insurance. The Company has fire and casualty insurance policies in
---------
an amount sufficient to allow it to replace with proceeds from such insurance
any of its material, tangible properties that might be damaged or destroyed.
3.20 Licenses and Permits; Compliance with Laws. Except as disclosed in
------------------------------------------
Exhibit 3.20 attached hereto, the Company holds all licenses, certificates,
- ------------
permits, franchises and rights from all appropriate federal, state or other
public authorities necessary for the conduct of its business and the use of its
assets. Except as disclosed in Exhibit 3.20 attached hereto, the Company has
------------
conducted, and is presently conducting, its business so as to comply in all
material respects with all applicable statutes, ordinances, rules, regulations
and orders of any governmental authority. Further, the Company is not presently
charged with or, to the Knowledge of the Company, under governmental
investigation with respect to, any actual or alleged violation of any statute,
ordinance, rule or regulation. To the Knowledge of the Company, the Company is
not
7
<PAGE>
presently the subject of any pending or, to the Knowledge of the Company,
threatened adverse proceeding by any regulatory authority having jurisdiction
over its business, properties or operations. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will result in the termination of any such license, certificate, permit,
franchise or right held by the Company.
3.21 Tax Matters. Except as disclosed in Exhibit 3.21 attached hereto,
----------- ------------
the Company has accurately prepared and timely filed all income and other tax
returns, if any, that are required to be filed, and has paid, or made provision
for the payment of, all taxes that have or may have become due pursuant to said
returns or pursuant to any assessment that has or may be received from any
taxing authority for the period through the date of the Interim Financial
Statements, and there are no outstanding agreements by the Company for the
extension of time for the assessment of any tax. The United States income tax
returns of the Company have not been audited by the Internal Revenue Service.
Except as disclosed in Exhibit 3.21, no deficiency assessment or proposed
------------
adjustment of the Company's United States income tax or state or municipal taxes
(if any) is pending, and the Company has no Knowledge of any proposed liability
for any tax to be imposed upon the Company's properties or assets for which
there is not an adequate reserve reflected in the Interim Financial Statements.
3.22 Employment; No Conflicting Agreements. Except as disclosed in
-------------------------------------
Exhibit 3.22 attached hereto, none of the officers, directors, and key employees
- ------------
of the Company is obligated under any contract (including licenses, covenants,
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would conflict with
his or her obligation to use his or her best efforts to promote the interests of
the Company or that would conflict with the business of the Company as the
Company presently conducts the same.
3.23 Indebtedness to Directors and Officers; Interested Party
--------------------------------------------------------
Transactions. Except as disclosed in Exhibit 3.23 attached hereto, the Company
------------
is not indebted to any of its directors or officers or party to any contract
with any affiliate of its directors or officers, and, to the Knowledge of the
Company, none of such directors or officers has a claim of any nature against
the Company except for compensation due for past or current pay periods. To the
Knowledge of the Company and except as disclosed in Exhibit 3.23, no officer,
------------
director or holder of more than of the capital stock of the Company or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Securities Act of 1933, as amended (the "Securities Act")) of any such
person or entity or the Company has or has had, either directly or indirectly,
(a) an interest in any person or entity that (i) furnishes or sells services or
products that are furnished or sold or are proposed to be furnished or sold by
the Company, or (ii) purchases from or sells or furnishes to the Company any
goods or services, or (b) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in Exhibit 3.23 hereto, there are no existing material arrangements or
------------
proposed material transactions between the Company and any officer, director, or
holder of more than 5% of the capital stock of the Company or any affiliate or
associate of any such person.
8
<PAGE>
3.24 Employee Plans. Exhibit 3.24 attached hereto lists all employee
-------------- ------------
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") and all severance, bonus, retirement, pension,
profit-sharing, deferred compensation plans and other similar fringe or employee
benefit plans, programs or arrangements, and all employee or compensation
agreements, written or otherwise, for the benefit of or relating to any employee
of the Company (collectively, "Employee Plans"). None of the Company nor any of
its officers or directors has taken any action, directly or indirectly, to
obligate the Company to adopt any additional Employee Plans and except as
disclosed in Exhibit 3.24, the Company has no plans prior to the Initial Public
Offering (as defined herein), to increase the number of shares reserved or
authorized for all such Employee Plans to a number that exceeds 25% of all stock
outstanding on a fully diluted basis. . The Company has complied with all
terms and conditions of the Employee Plans, except where the violation would not
have a material adverse effect on the Company's business, as it is currently
conducted, or assets of the Company.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to the Company as follows:
4.1 Access to Information. Purchaser acknowledges that all documents,
---------------------
records, a nd books pertaining to the Company have been made available for
inspection by Purchaser. Purchaser's affiliate, Provider Select, Inc., has a
pre-existing business or personal relationship with the Company or with one or
more of the Company's officers, directors or controlling persons. Purchaser and
its advisor or advisors, or a person or persons acting on their behalf, have had
a reasonable opportunity to ask questions of and receive answers from the
officers of the Company, concerning the terms and conditions of the offering of
the Purchased Shares, and to obtain additional information, to the extent
possessed or obtainable without unreasonable effort or expense by the officers
of the Company. All such questions have been answered to the full satisfaction
of Purchaser.
4.2 Experience; Investment. Purchaser has such knowledge and experience
----------------------
in financial and business matters as to enable Purchaser (a) to utilize the
information made available to it in connection with the offering of the
Purchased Shares, the Investment Warrant and the Performance Warrant, (b) to
evaluate the merits and risks associated with a purchase of the Purchased
Shares, the Investment Warrant and the Performance Warrant, and (c) to make an
informed decision with respect thereto. Purchaser's business and financial
experience is such that the Company could reasonably assume Purchaser has the
capacity to protect its own interests in connection with the offer, sale and
issuance of the Purchased Shares, the Investment Warrant and the Performance
Warrant. Purchaser is acquiring the Purchased Shares, the Investment Warrant and
the Performance Warrant solely for its own account, not as a nominee or agent,
and not with a view to, or for sale in connection with, any distribution
thereof. Purchaser is an "accredited investor" within the meaning of Regulation
D promulgated by the Commission under the Securities Act, by reason of being a
corporation with assets in excess of $5,000,000.
4.3 Registration Under the Securities Act. Purchaser understands that
-------------------------------------
(a) neither the offering nor the sale of the Purchased Shares and the issuance
of the Investment Warrant and the
9
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Performance Warrant has been registered under the Securities Act or applicable
state securities laws, in reliance upon exemptions from the registration
provisions of the Securities Act and applicable state securities laws, (b) the
Purchased Shares purchased by Purchaser and the Investment Warrant and
Performance Warrant issued to the Purchaser must be held by it indefinitely
unless the sale or transfer thereof is subsequently registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available, and the certificates or documents representing all
Purchased Shares, the Investment Warrant and the Performance Warrant will be
legended to reflect such restrictions, (c) except as provided in Article 8
hereof, the Company is under no obligation to register any Purchased Shares,
Warrant Shares or Conversion Shares on Purchaser's behalf or to assist it in
complying with any exemption from registration, and (d) the officers of the
Company will rely upon the representations and warranties made by Purchaser in
this Agreement in order to establish such exemption from the registration
provisions of the Securities Act and applicable state securities laws.
4.4 Transfer. Purchaser will not transfer the Investment Warrant, the
--------
Performance Warrant or any Purchased Shares, Warrant Shares or Conversion Shares
without registration under the Securities Act and applicable state securities
laws unless the transfer is exempt from registration under the Securities Act
and such laws and is made in compliance with the legends contemplated by Section
9.11 herein.
4.5 Authorization. All action on the part of Purchaser necessary for the
-------------
authorization, execution, delivery and performance of all obligations of
Purchaser under this Agreement or any document contemplated hereby has been (or
will be) taken prior to the Closing. This Agreement, when executed and
delivered by Purchaser, will constitute the valid and binding obligation of
Purchaser and is enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the enforcement of creditors' rights generally, and except that the availability
of the remedy of specific performance or other equitable relief is subject to
the discretion of the court before which any proceeding therefor may be brought.
5. CONDITIONS TO CLOSING OF PURCHASER.
The obligation of Purchaser to purchase and pay for the Purchased Shares at
the Closing is subject to the fulfillment to its satisfaction on or prior to the
Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Article 3 hereof shall be true and correct in
all respects when made and shall be true and correct on such Closing Date with
the same force and effect as if they had been made on and as of said date.
5.2 Performance. All covenants, agreements and conditions contained in
-----------
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all respects.
10
<PAGE>
5.3 Filing of Charter Amendment. The charter amendment giving effect in
---------------------------
the Company's articles of incorporation to the establishment and designation of
the Preferred Stock shall have been properly filed with the Secretary of State
of the State of Georgia prior to Closing.
5.4 Compliance Certificate. Unless the Closing Date is the same as the
----------------------
date of this Agreement, Purchaser shall have received a certificate executed by
the President or other executive officer of the Company, dated as of the Closing
Date, certifying that the conditions specified in Sections 5.1 and 5.2 hereof
have been fulfilled.
5.5 Opinion of Company's Counsel. Purchaser shall have received from
----------------------------
Nelson Mullins Riley & Scarborough, L.L.P., counsel to the Company, in form and
substance satisfactory to Purchaser and its counsel, a favorable opinion
addressed to Purchaser, dated as of the Closing Date, substantially in the form
set forth in Exhibit 5.5 attached hereto.
-----------
5.6 Evidence of Consents. The Company shall have given Purchaser evidence
--------------------
satisfactory to Purchaser that it has received all necessary consents of third
parties and shareholders of the Company pursuant to Section 3.17 hereof.
5.7 Warrants. The Company shall have issued to Purchaser the Investment
--------
Warrant in substantially the form attached hereto as Exhibit 1.3 and the
-----------
Performance Warrant in substantially the form attached hereto as Exhibit 1.4.
-----------
5.8 Fourth Amendment to Restated Shareholders' Agreement. The Fourth
----------------------------------------------------
Amendment, dated as of January 21, 1999, to the Company's Restated Shareholders
Agreement, dated as of October 18, 1996, shall have been duly executed and
delivered and become effective.
6. CONDITIONS TO CLOSING OF THE COMPANY.
The obligation of the Company to sell the Purchased Shares at the Closing
is subject to the fulfillment on or prior to the Closing Date of the following
conditions:
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by Purchaser in Article 4 hereof shall be true and correct in
all respects when made and shall be true and correct on such Closing Date with
the same force and effect as if they had been made on and as of said date.
6.2 Performance. All covenants, agreements and conditions contained in
-----------
this Agreement to be performed by or complied with by Purchaser on or prior to
such Closing Date shall have been performed or complied with in all respects.
6.3 Joinder Agreement to Restated Shareholders Agreement. Purchaser shall
----------------------------------------------------
have executed a Joinder Agreement, in the form set forth in Exhibit 6.3 attached
-----------
hereto, to that certain Restated Shareholders Agreement dated October 18, 1996,
as amended from time to time.
11
<PAGE>
7. COVENANTS.
7.1 Basic Information and Access. Subject to Section 7.2:
----------------------------
7.1.1 As soon as practicable after the end of each fiscal year, and
in any event within 90 days after each fiscal year beginning with the year
ending December 31, 1998, the Company shall furnish to Purchaser audited
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such fiscal year and audited consolidated statements of income and
cash flow of the Company and its subsidiaries, if any, for such fiscal year,
prepared in accordance with GAAP consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail and certified by Ernst & Young, LLP or another independent
public accounting firm, which shall also be one of the six largest firms of
nationally recognized standing in the United States, a recognized regional firm
or a firm acceptable to Purchaser.
7.1.2 As soon as practicable after the end of each fiscal quarter,
and in any event within 45 days thereafter, the Company shall furnish to
Purchaser consolidated balance sheets of the Company and its subsidiaries, if
any, as of the end of such fiscal quarter, and consolidated statements of income
and cash flow of the Company and its subsidiaries, if any, for such fiscal
quarter and for the current fiscal year to date, prepared in accordance with
GAAP consistently applied, with such statements certified by the chief financial
officer of the Company as having been prepared in accordance with GAAP
consistently applied, and accompanied by a brief narrative description of the
Company's business activities during said quarter.
7.2 Suspension of Certain Covenants. The covenants set forth in Article
-------------------------------
7, except those in Section 7.3, shall be suspended and be of no force or effect
if the Company becomes subject to the reporting requirements of the federal
Securities Exchange Act of 1934, as amended (the "Securities Exchange Act");
provided that such covenants shall once again apply in the event the Company
ceases to remain subject to such requirements and if at such time the Purchaser
owns Purchased Shares or Conversion Shares.
7.3 Confidentiality. Purchaser agrees that it will keep confidential and
---------------
will not disclose, divulge or use any confidential, proprietary or secret
information that Purchaser may obtain from the Company, and that the Company has
marked "confidential," "proprietary" or "secret" or has otherwise identified as
being such, pursuant to financial statements, reports and other materials
submitted by the Company pursuant hereto or pursuant to the provisions of
Section 7.1 (the "Confidential Information"); provided that the term
Confidential Information shall not include any information supplied by the
Company that (a) on the date hereof or thereafter becomes generally available to
the public other than as a result of a disclosure, directly or indirectly, by
Purchaser; (b) is disclosed by Purchaser with the prior written consent of the
Company; (c) was available to Purchaser on a non-confidential basis from a
source other than the Company prior to its disclosure to Purchaser by the
Company; or (d) becomes available to Purchaser on a non-confidential basis from
a source other than the Company; provided further, that, with regard to clauses
(c) and (d), the source was not himself or itself known by Purchaser to be bound
by a
12
<PAGE>
confidentiality agreement, fiduciary duty or other obligation of confidentiality
with the Company and did not receive such information, directly or indirectly,
from a person or entity so bound.
7.4 Additional Affirmative Covenants. In addition, for so long as any
--------------------------------
Purchased Shares remain outstanding, and until the occurrence of an "Initial
Public Offering" (as defined herein), the Company shall, or shall cause any
Subsidiary, as applicable, to:
7.4.1 promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company or
any Subsidiary; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set aside on its
books adequate reserves with respect thereto; and provided, further, that the
Company shall pay all such taxes, assessments, charges or levies forthwith upon
the commencement of proceedings to foreclose any lien that may have attached as
security therefor;
7.4.2 promptly pay, or cause to be paid, when due, in conformance
with customary trade terms, all other material indebtedness incident to the
operations of the Company and its subsidiaries, if any, which is not subject to
a good faith dispute;
7.4.3 keep its properties and those of its subsidiaries, if any, used
in or valuable to the Company's and its subsidiaries' business operations in
good repair, working order and condition, reasonable wear and tear excepted, and
from time to time make all necessary and proper repairs, renewals, replacements,
additions and improvements thereto;
7.4.4 comply, and cause its subsidiaries, if any, to comply, in all
material respects, at all times with the provisions of all material leases to
which any of the Company and its subsidiaries is a party or under which any of
them occupies real property;
7.4.5 keep its material assets and those of its subsidiaries that are
of an insurable character insured by reputable insurers against loss or damage
by fire and explosion in amounts customary for companies in similar businesses
similarly situated; and maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner customary for companies in similar businesses
similarly situated;
7.4.6 keep true records and books of account in which full, true and
correct entries will be made of all dealings or transactions in relation to its
and its subsidiaries' business and affairs in accordance with GAAP applied on a
consistent basis;
7.4.7 duly observe and conform to, and cause its subsidiaries, if
any, to so observe and conform to, in all material respects, all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their property or assets;
13
<PAGE>
7.4.8 maintain in full force and effect its corporate existence,
rights and franchises and use its commercially reasonable efforts to maintain in
full force and effect all licenses and other rights to use patents, processes,
licenses, trademarks, service marks, trade names or copyrights owned or
possessed by it or any subsidiary and necessary to the conduct of its business;
and
7.4.9 obtain a confidentiality and non-disclosure agreement as
described in Section 7.6 from each new employee of the Company or a subsidiary.
7.5 No Integrated Offerings. Prior to the Initial Public Offering, the
-----------------------
Company shall not make any offering or sale of securities of the Company that is
required to be registered under the Securities Act, or the rules or regulations
promulgated thereunder.
7.6 Employee Confidentiality Agreements. Following the Closing Date, each
-----------------------------------
of the Company and the Subsidiaries shall use reasonable efforts to obtain non-
disclosure and confidentiality agreements with respect to its trade secrets and
other proprietary information from each of its employees on terms customary for
companies in similar businesses similarly situated.
7.7 Intentionally Omitted.
---------------------
7.8 Communications with Management.
------------------------------
7.8.1 Observation of Board Meetings; Inspection of Records. Purchaser
----------------------------------------------------
shall have the right of notice and attendance as a non-voting observer at all
meetings of the Board of Directors (or any committee thereof) of the Company at
all times prior to an Initial Public Offering. A designated representative of
Purchaser shall have the right to inspect the premises and records of Company
upon reasonable notice and during ordinary business hours, and to discuss with
Company's management matters relating to the Company's finances and operations.
7.8.2 Notifications of Major Changes. Prior to an Initial Public
------------------------------
Offering, the Company shall use its diligent and best efforts to provide at
least 10 days' prior notice to Purchaser of all recapitalizations, acquisitions,
mergers, consolidations and sales of substantially all of the assets or stock of
the Company (individually, a "Major Change"), or the offer of additional shares
of Preferred Stock of any series or of Common Stock of any series pursuant to
any Major Change, or redemption or repurchase of any shares, or cash or stock
dividends. The failure to provide such notice shall not effect or impair the
validity or execution of any such Major Change.
7.8.3 Waiver. By written notice at any time, Purchaser may waive or
------
relinquish any right or privilege under this section, without waiver of any
other right of Purchaser under law or this Agreement.
7.8.4 Conduct of Business. Prior to the earlier of an Initial
-------------------
Public Offering or the expiration of six months after Closing, the Company will
continue to conduct its business
14
<PAGE>
and engage principally in a line or lines of business involving its functioning
as an "Internet portal" for medical professionals and consumers or the supply-
chain for medical professionals.
8. REGISTRATION RIGHTS.
8.1 Certain Definitions. As used in this Agreement, in addition to the
-------------------
terms defined above, the following terms shall have the following respective
meanings:
"Commission" shall have the meaning set forth in Section 3.16 hereof.
"Holders" shall mean Purchaser and any other person holding Registrable
Securities to whom these registration rights have been transferred pursuant to
Section 8.9 hereof.
"Initial Public Offering" shall mean the Company's first offering of
securities to the public made pursuant to a registration statement that is filed
and declared effective under the Securities Act.
"Initiating Holders" shall mean a Holder or Holders who in the aggregate
own at least 50% of the Registrable Securities then issued and outstanding.
"Other Shareholders" shall mean persons other than Holders who, by virtue
of agreements with the Company, are entitled to include their securities in a
registration effected pursuant to this Agreement.
The terms "register," "registered" and "registration" refer to the
effectiveness of a registration statement prepared and filed in compliance with
the Securities Act.
"Registrable Securities" as of any particular time shall mean all
Conversion Shares and any additional shares of Common Stock issued with respect
to the Conversion Shares pursuant to any stock split, stock dividend,
recapitalization or similar event, or automatic conversion thereof into another
series of Common Stock pursuant to the provisions of the Articles.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 8.1 and 8.2 hereof, including, without limitation, all
registration and filing fees; printing expenses; fees and disbursements of
counsel for the Company; reasonable fees and expenses of a single counsel for
the selling Holders; state "blue sky" fees and expenses; and accountants'
expenses, including without limitation any special audits required by the
Commission with respect to any such registration; but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company.
"Securities Act" shall have the meaning set forth in Section 3.23 hereof.
"Securities Exchange Act" shall have the meaning set forth in Section 7.2
hereof.
15
<PAGE>
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and any other securities of the Company being sold in the same
registration as the Registrable Securities by Other Shareholders.
8.2 Requested Registration.
----------------------
8.2.1 Demand Registration Rights. Subject to the conditions of
--------------------------
Subsection 8.2.2 below, the Initiating Holders may make one demand on the
Company to register all or a portion consisting of at least 200,000 shares of
the Registrable Securities on Form S-1 or such other form that may be available
to the Company to effect such demand registration (a "Demand Registration");
provided, however, that (i) the Initiating Holders may not initiate a demand on
the Company to register any Registrable Securities until 180 days after the
closing of an Initial Public Offering, and (ii) the Company shall not be
obligated to file a registration statement pursuant to demand of the Initiating
Holders until 90 days after the effective date of a registration statement filed
pursuant to the demand of a party who has the right to demand that the Company
register securities, which demand was made prior to the demand of the Initiating
Holders. If Purchaser is precluded from effecting a Demand Registration by the
limitation set forth in clause (ii) of the preceding sentence, the Company's
Chief Executive Officer and President must use diligent, reasonable commercial
efforts to obtain relief from that limitation on behalf of Purchaser.
8.2.2 Request for Registration. In the event the Company shall
------------------------
receive from the Initiating Holders a written request that the Company effect a
Demand Registration with respect to all or a portion consisting of at least
200,000 shares of the Registrable Securities, the Company shall:
(i) promptly give written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation,
the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable
"blue sky" or other state securities laws, and appropriate
compliance with applicable regulations issued under the
Securities Act) as may be so requested and as would permit
or facilitate the sale and distribution of such portion of
such Registrable Securities as is specified in such
request, together with such portion of the Registrable
Securities of any Holder or Holders joining in such
request as is specified in a written request given within
20 days after receipt of such written notice from the
Company; provided that the Company shall not be obligated
to take any action to effect any such registration
pursuant to this Section 8.2 in any particular
jurisdiction in which the Company would be required to
execute a general consent to service of process in
effecting such registration, qualification or compliance
16
<PAGE>
unless the Company is already subject to service in such
jurisdiction and except as may be required by the
Securities Act.
In the event the Company is not obligated to effect any requested
registration by virtue of the foregoing, such request shall not be deemed to be
a Demand Registration for purposes of Subsection 8.2.1. Subject to the
foregoing, the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of the Initiating Holders. Notwithstanding the
foregoing provisions of this Section 8.2.2, the Company's obligation to file a
registration statement hereunder shall be suspended for a period not to exceed
90 days and no more than once during any period of 12 consecutive months if
there exists at the time material non-public information relating to the Company
that, in the reasonable opinion of the Company, should not be disclosed or if
the filing of such registration statement would, in the opinion of the Board of
Directors o the Company, arrived at in good faith, adversely affect the Company,
a material financing project or a material proposal or pending acquisition,
merger or other corporate reorganization to which the Company is then, or is
then expected to become a party.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Subsection 8.2.3 below, include
securities offered by the Company for its own account and/or other securities of
the Company that are held by Other Shareholders.
8.2.3 Underwriting. If the Initiating Holders intend or are required
------------
to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Subsection 8.2.1 and the Company shall include such information in
the written notice referred to in Subsection 8.2.2(i) hereof. The right of any
Holder to registration pursuant to this Section 8.2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein.
If the Company shall request inclusion in any registration pursuant to
Section 8.2 of securities being sold for its own account, or if Other
Shareholders shall request inclusion in any registration pursuant hereto, then,
subject to the last sentence of this Subsection 8.2.3 with respect to the
Company's request, the Initiating Holders shall, on behalf of all Holders,
include such securities in the underwriting and may condition such offer on
their acceptance of the further applicable provisions of this Article 8. The
Company shall (together with all Holders and Other Shareholders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form and containing customary terms
reasonably acceptable to the Initiating Holders, with the representative of the
underwriter or underwriters selected for such underwriting by the Company and
reasonably acceptable to the Initiating Holders; provided, however, that if the
Company has not selected an underwriter reasonably acceptable to the Initiating
Holders within 30 days after the Company's receipt of the request for
registration from the Initiating Holders, then the Initiating Holders may select
an underwriter reasonably acceptable to the Company in connection with such
registration. Notwithstanding any other provision of this Section 8.2, if the
underwriter representative advises the Initiating Holders in writing that
17
<PAGE>
marketing factors require a limitation of the number of shares to be
underwritten, the securities of the Company held by Other Shareholders shall
first be excluded from such registration to the extent so required by such
limitation, and, to the extent additional shares need to be excluded in order to
conform to such limitation, the securities requested by the Company to be
included, if any, shall next be excluded. The Company shall advise all holders
of securities requesting registration as to the number of shares of securities
that may be included in the registration and underwriting as allocated in the
foregoing manner. If any Other Shareholder or Holder who has requested inclusion
in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of shares to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so agrees
and if the number of Registrable Securities and other securities of the Holders
that would otherwise have been included in such registration and underwriting
will not be limited thereby.
8.3 Company Registration.
--------------------
8.3.1 If the Company shall determine to register any of its
securities, for its own account or for the account of others (other than the
Holders), in connection with the public offering of such securities solely for
cash on a form that would permit the registration of the Registrable Securities
other than on Form S-8, Form S-4 or another form not available for registering
the Registrable Securities for sale to the public, the Company shall promptly
give to each Holder written notice of such registration (a "Piggyback
Registration"), and shall include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made by any Holder or Holders within 15 days after receipt of such
written notice from the Company, subject to the underwriter limitations, if any,
described in Subsection 8.3.3 hereof; provided, however, that no Holder shall
have the right to participate in an Initial Public Offering registration
statement declared effective within the 12-month period following the Closing
Date. The Company shall have the right to withdraw or cease to prepare or file
any registration statement for any offering referred to in this Subsection 8.3.1
without any obligation or liability to any Holder.
8.3.2 Number of Piggyback Registrations. Subject to the underwriter
---------------------------------
limitations, if any, described in Subsection 8.3.3 below, each Holder shall be
entitled to have its Registrable Securities included in an unlimited number of
Piggyback Registrations pursuant to this Section 8.3 until such time as all the
Registrable Securities may be resold pursuant to Rule 144 promulgated pursuant
to the Securities Act (or any successor provision).
8.3.3 Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Subsection 8.3.1 hereof. In such event the right of any Holder to
registration pursuant to Subsection 8.3.1 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable
18
<PAGE>
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company. Notwithstanding any other provision of this Section 8.3, if the
underwriter reasonably determines that marketing factors require a limitation on
the number of shares to be underwritten, such reduction in the number of shares
that may be included in the registration shall be made (a) first, to the shares
of the Holders and Other Shareholders requesting registration of securities
pursuant to piggyback registration rights; (b) second, to the shares of the
Company, and (c) third, to the shares of any person other than the Holders
requesting registration of securities pursuant to demand registration rights;
all in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and other securities that such person, Holders and Other
Shareholders had requested to be included in such registration; provided,
--------
however, that in no event shall the total number of shares included in the
- -------
offering by HBO & Company of Georgia ("HBOC"), Sirrom Investments, Inc.
("Sirrom"), Premiere Technologies, Inc. ("Premiere") and Matria Healthcare, Inc.
("Matria") pursuant to a piggyback registration be less than the number of
securities included in the offering by any other single selling shareholder
pursuant to piggyback registration rights unless all securities held by HBOC,
Sirrom, Premiere and Matria requested to be included in such offering are
included in such offering or unless HBOC, Sirrom, Premiere and Matria waive such
limitation or choose not to sell any shares in such registration, and the number
of shares that the Holder or Other Shareholder would otherwise be entitled to
include in such registration may be reduced to give effect to this requirement.
The Company shall advise all holders of securities requesting registration as to
the number of shares or securities that may be included in the registration and
underwriting as allocated in the foregoing manner. No such reduction shall be
made with respect to securities offered by the Company for its own account. If
any Holder or Other Shareholder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall also be withdrawn from such
registration.
8.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company; and all Selling Expenses shall be borne
by the Holders, the Other Shareholders of the securities so registered and the
Company, to the extent of securities registered on its behalf, pro rata on the
basis of the number of their shares so registered; provided, however, that the
Company shall not be required to pay any Registration Expenses if, as a result
of the withdrawal of a request for registration by the Initiating Holders
pursuant to Section 8.2 hereof, the registration statement does not become
effective, in which case the Holders and Other Shareholders requesting
registration shall bear such Registration Expenses pro rata on the basis of the
number of their shares so included in the registration request (except for the
fees of any counsel for the Holders, which shall be borne only by the persons
whom such counsel represented, pro rata on the basis of the number of their
shares so included in the registration request); provided, further, that such
registration shall not be counted as a Demand Registration pursuant to
Subsection 8.2.1 hereof; and provided, further, however, that if any
jurisdiction in which the securities shall be qualified
19
<PAGE>
shall require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by the selling shareholders, then such
expenses shall be payable by the selling shareholders pro rata to the extent
required by such jurisdiction.
8.5 Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company shall keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense the Company shall use its best efforts to:
8.5.1 keep such registration effective for a period of 120 days or
until the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; and
8.5.2 furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
8.6 Indemnification.
---------------
8.6.1 With respect to each Holder whose securities have been
registered pursuant to this Agreement, the Company shall indemnify such Holder,
each of such Holder's officers, directors and partners, and each person
controlling (as defined in Subsection 8.6.4 below) such Holder and each of such
controlling person's officers, directors and partners, and shall also indemnify
each underwriter, if any, and each person who controls any underwriter, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on (a) any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, (b)
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
(c) any violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and shall reimburse each such Holder and each person controlling
such Holder, and each of such controlling person's officers, directors and
partners, each of its officers, directors and partners, each such underwriter,
and each person who controls such underwriter, for any legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the Company
shall not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based upon written information
furnished to the Company by such Holder or on behalf of such Holder by the
officers, directors or partners of such Holder seeking to be indemnified, where
such information is stated to be specifically for use in such prospectus,
offering circular or related document.
8.6.2 Each Holder and Other Shareholder shall, if securities held by
him or it are included among the securities as to which such registration,
qualification or compliance is
20
<PAGE>
being effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls (as defined in Subsection 8.6.4 below) the
Company or such underwriter, and each other such Holder and Other Shareholder
and each of such controlling person's officers, directors and partners, and each
person controlling such other Holder or Other Shareholder and each of such
controlling person's officers, directors and partners, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Company, such other Holders,
Other Shareholders, directors, officers, partners, persons, each underwriter and
each person who controls such underwriter for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder or
Other Shareholder specifically for use therein; provided, however, that the
obligations of such Holder or Other Shareholder hereunder shall be limited to an
amount equal to the proceeds to such Holder or Other Shareholder of securities
sold as contemplated herein.
8.6.3 Each party entitled to indemnification under this Section 8.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be withheld unreasonably). The Indemnified Party may participate in such
defense with counsel of its own choosing, but the fees and expenses of such
counsel shall be at such Indemnified Party's expense unless (i) the Indemnifying
Party and the Indemnified Party shall have agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential conflicting interests between them. The failure of
any Indemnified Party to give notice as provided herein shall relieve the
Indemnifying Party of its obligations under this Section 8.6 only if such
failure is prejudicial to the ability of the Indemnifying Party to defend such
action, and such failure shall in no event relieve the Indemnifying Party of any
liability that he or it may have to any Indemnified Party otherwise than under
this Section 8.6. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation.
21
<PAGE>
8.6.4 For purposes of this Section 8.6, the term "control" shall have
the meaning assigned thereto under the Securities Act.
8.7 Information by Holders and Other Shareholders. Each Holder or Other
---------------------------------------------
Shareholder of securities included in any registration shall furnish to the
Company such information regarding such Holder or Other Shareholder and the
distribution proposed by such Holder or Other Shareholder as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
8.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission that may permit the sale of the
Common Stock to the public without registration, the Company shall, for so long
as Registrable Securities are outstanding:
8.8.1 make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated by the Commission under the
Securities Act ("Rule 144"), at all times after ninety (90) days following the
Initial Public Offering;
8.8.2 file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act at any time after it has become subject to the reporting
requirements thereunder; and
8.8.3 so long as any Holder owns any securities constituting or
representing Registrable Securities, furnish to such Holder forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after ninety (90) days following
the Initial Public Offering), and of the Securities Act and the Securities
Exchange Act (at any time after it has become subject to the reporting
requirements thereunder), a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing such Holder to sell any such securities without
registration.
8.9 Transfer of Registration Rights. All, but not less than all, of the
-------------------------------
rights and obligations granted under this Article 8 to cause the Company to
register the Registrable Securities may be assigned, transferred or otherwise
conveyed, in whole but not in part, by the Purchaser to any person provided that
the Purchaser gives the Company written notice (at the time of, or within a
reasonable time after, such transfer) stating the name and address of such
transferee, and such transferee provides its agreement, in a form reasonably
satisfactory to the Company, to be bound by the provisions of this Article 8.
8.10 "Market Stand-Off" Agreement. If requested by the Company upon the
----------------------------
recommendation of the Board of Directors of the Company and an underwriter of
Common Stock (or other securities) of the Company, the Holders shall not sell
or otherwise transfer or dispose of any Common Stock (or other securities) of
the Company held by them during the 180-day period following the effective date
of a registration statement of the Company filed under the Securities Act,
provided that:
22
<PAGE>
(a) such agreement shall apply only with respect to an underwritten
Initial Public Offering; and
(b) Other Shareholders selling securities pursuant to such
registration statement and all officers and directors of the Company enter into
similar agreements specifying restrictions for the same length of time as
specified in the Purchaser's agreement.
Such agreement shall be in writing in form satisfactory to the Company and
such underwriter. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said 180-day period.
9. MISCELLANEOUS.
9.1 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Georgia, without regard to its principles of
conflicts of laws.
9.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by Purchaser and the closings
of the transactions contemplated hereby.
9.3 Assignment. This Agreement may not be assigned by operation of law or
----------
otherwise without the express written consent of the Company and the Purchaser
(which consent may be granted or withheld in the sole discretion of the Company
or the Purchaser); provided, however, that the Purchaser may, without the
consent of the Company, assign this Agreement to any person who directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with the Purchaser, but no such assignment shall relieve
the Purchaser of any of its obligations under this Agreement; and provided
further, however, that the rights granted pursuant to Article 8 may be
transferred only in accordance with Section 8.9.
9.4 Entire Agreement; Amendment. This Agreement and the other documents
---------------------------
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated orally, but only by a written instrument signed by the holders of at
least a majority of the Purchased Shares then issued and outstanding (as well as
any shares issued with respect to the same upon any stock split, stock dividend,
recapitalization or similar event) and a representative of the Company so
authorized by its Board of Directors.
9.5 Notices. All notices and other communications required or permitted
-------
hereunder shall be given in writing and shall be deemed effectively given upon
personal delivery or three business days following deposit with the United
States Postal Service, by certified mail, return receipt requested, postage
prepaid, or otherwise delivered by hand or by messenger, addressed;
23
<PAGE>
(a) if to Purchaser:
Premier Purchasing Partners, L.P.
12225 El Camino Real
San Diego, CA 92130
with a copy to (which shall not constitute notice):
William B. Bierce, Esq.
Bierce & Kenerson, P.C.
36 West 44th Street
New York, NY 10036
or
(b) if to any other holder of any shares of Preferred Stock or
Conversion Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such shares of
Preferred Stock or Conversion Shares who has so furnished an address to the
Company, or
(c) if to the Company, at:
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road
Atlanta, Georgia 30326
Attn: Chief Executive Officer
with a copy to (which shall not constitute notice):
L. Scott Askins, Esq.
(same address)
with a copy to (which shall not constitute notice):
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street
Suite 1400
Atlanta, Georgia 30309
Attn: James Walker IV, Esq.
or at such other address as the Company shall have furnished to Purchaser and
each such other holder in writing.
24
<PAGE>
9.6 Delays or Omissions; Remedies Cumulative. No delay or omission to
----------------------------------------
exercise any right, power or remedy accruing to any party, upon any breach or
default under this Agreement, shall impair any such right, power or remedy of
such party or be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. All
of a party's remedies, either under this Agreement, or by law or otherwise
afforded to such party, shall be cumulative and not alternative.
9.7 Agent's Fees. Each party (a) represents and warrants that it has
------------
retained no finder or broker in connection with the transactions contemplated by
this Agreement (except as disclosed to the other parties hereto as of the date
hereof) and (b) hereby agrees to indemnify and to hold the other parties
harmless of and from any liability for commissions or compensation in the nature
of an agent's, finder's or broker's fee to any broker or other person or firm
(and the cost and expenses of defending against such liability or asserted
liability) for which said party is responsible.
9.8 Expenses. Each party shall bear its own expenses and legal fees (and
--------
expenses and disbursements of its legal counsel) incurred on its behalf with
respect to this Agreement and the transactions contemplated hereby.
9.9 Construction of Certain Terms. The titles of the articles, sections,
-----------------------------
and subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement. For purposes of this
Agreement, the terms "Company's Knowledge," "Knowledge of the Company" and
"Knowledge" as applied to the Company means, as to a particular matter, the
actual knowledge of the Company's executive officers and in-house corporate
counsel. Wherever words "including," "include" or "includes" are used in this
Agreement, they shall be deemed followed by the words "without limitation."
References to any gender shall be deemed to mean any gender.
9.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.11 Legends. In addition to any legends required by the Securities Act
-------
or any applicable state securities laws, the Company shall place the following
legend on the front or back of each certificate evidencing ownership of shares
of Preferred Stock:
The Corporation will furnish without charge to each
shareholder who so requests a statement of the
designations, relative rights, preferences and
limitations applicable to each class, and series within
a class, of capital stock of the Corporation and the
variations in rights, preferences and limitations
applicable to each series (and the authority of the
Corporation's board of directors to determine
variations for future series).
25
<PAGE>
The Company shall place legends on each certificate evidencing ownership of
shares of Common Stock identical to those initially placed on the certificates
for Preferred Stock relating to the Securities Act and all applicable state
securities laws.
9.12 Enforcement.
-----------
(a) Remedies at Law or in Equity. If the Company shall default in
----------------------------
any of its obligations under this Agreement or if any representation or warranty
made by or on behalf of the Company or Purchaser in this Agreement or in any
certificate, report or other instrument delivered under or pursuant to any term
hereof shall be untrue or misleading in any material respect as of the date of
this Agreement or as of the Closing Date or as of the date it was made,
furnished or delivered, the other parties may proceed to protect and enforce
their respective rights by suit in equity or action at law, whether for the
specific performance of any term contained in this Agreement, injunction against
the breach of any such term or in furtherance of the exercise of any power
granted in this Agreement, or to enforce any other legal or equitable right of
such party or to take any one of more of such actions. In the event any party
brings such an action against any other party, the prevailing party in such
dispute shall be entitled to recover from the losing party all reasonable fees,
costs and expenses enforcing any right of such prevailing party under or with
respect to this Agreement, including such reasonable fees and expenses of
attorneys and accountants, which shall include all fees, costs and expenses of
appeals.
(b) Remedies Cumulative; Waiver. No remedy referred to herein or in
---------------------------
any exhibit hereto is intended to be exclusive, but each shall be cumulative and
in addition to any other remedy referred to above or otherwise available to a
party at law or in equity. No express or implied waiver by any party of any
default shall be a waiver of any future or subsequent default. The failure or
delay of any party in exercising any rights granted him or it hereunder shall
not constitute a waiver of any such right and any single or partial exercise of
any particular right by such party shall not exhaust the same or constitute a
waiver of any other right provided herein.
9.13 Timely Performance. Time is of the essence as to the performance of
------------------
the obligations required of the respective parties under this Agreement.
9.14 No Joint Venture. Nothing in this Agreement shall be deemed to
----------------
constitute the Company and Purchaser, or any affiliate of Purchaser, as
partners, agents or joint venturers.
[Signatures begin on following page.]
26
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the day and year first above written.
THE COMPANY:
WEBMD, INC.
By: /s/ Jeffrey T. Arnold
------------------------------------
Jeffrey T. Arnold
Chief Executive Officer
PURCHASER:
PREMIER PURCHASING PARTNERS, L.P.
By: Premier Plans, Inc.,
Its sole general partner
/s/ Bary Bailey
------------------------------------
Bary Bailey
Treasurer
27
<PAGE>
List of Exhibits
- ----------------
1.3 Form of Investment Warrant
1.4 Form of Performance-Based Warrant
3.3 Subsidiaries and Affiliates
3.4 Outstanding Rights, etc. in Respect of Authorized Capital Stock
3.8 Changes Since Date of Interim Financial Statements
3.9 Material Liabilities
3.10 Contracts
3.11 Intellectual Property
3.13 Litigation
3.14 Employment Agreements
3.15 Registration Rights
3.18 Title Exceptions
3.20 Compliance with Laws Exceptions
3.21 Tax Exceptions
3.22 Conflicts of Officers, Directors and Key Employees
3.23 Indebtedness to Directors and Officers; Interested Party Transactions
3.24 Employee Benefit Plans
5.5 Form of Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
6.3 Form of Joinder Agreement
28
<PAGE>
EXHIBIT 10.64
SECOND AMENDMENT TO INVESTMENT AGREEMENT
THIS SECOND AMENDMENT TO INVESTMENT AGREEMENT is made and entered into as
of the 28th day of January, 1999 by and between WebMD, Inc., a Georgia
corporation formerly known as Endeavor Technologies, Inc. (the "Company"), and
HBO & Company of Georgia, a Delaware corporation ("HBOC").
W I T N E S S E T H:
WHEREAS, the Company and HBOC are parties to that certain Investment
Agreement dated as of August 24, 1998 (the "Series A Investment Agreement"), as
amended on October 23, 1998, pursuant to which HBOC purchased 667,000 shares of
Series A Preferred Stock (the "Series A Preferred") of the Company;
WHEREAS, HBOC received certain registration rights with respect to the
shares of the Company's Common Stock issuable upon conversion of the shares of
Series A Preferred;
WHEREAS, the Company and HBOC have entered into an Investment
Agreement dated as of January 28, 1999 (the "Series B Investment Agreement"),
pursuant to which HBOC purchased 650,000 shares of the Series B Preferred Stock
(the "Series B Preferred) of the Company;
WHEREAS, the Company and HBOC desire to provide for the granting of
registration rights to HBOC as set forth in the Series A Investment Agreement
with respect to the shares of the Company's Common Stock issuable upon
conversion of the shares of Series B Preferred and certain other changes;
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1. Clause (z) of Section 9.2 of the Series A Investment Agreement is
hereby amended by substituting for the words "Preferred Stock" therein the words
"all series of the Company's preferred stock."
2. Section 11.1 of the Series A Investment Agreement entitled
"Registration Rights" is hereby amended by adding at the end thereof the words
"and (d) the shares of Common Stock issuable upon conversion of the shares of
Series B Preferred Stock of the Company held by the Purchaser."
3. Except as amended hereby, the terms of the Series A Investment
Agreement shall remain in full force and effect without change.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Investment Agreement as of the day and year first written above.
WEBMD, INC.
By: /s/ Jeffrey T. Arnold
--------------------------------------------
Jeffrey T. Arnold
Chairman and Chief Executive Officer
HBO & COMPANY OF GEORGIA
By: /s/ Russell G. Overton
--------------------------------------------
Name: Russell G. Overton
------------------------------------
Title: Senior Vice President
------------------------------------
2
<PAGE>
EXHIBIT 10.65
THIS WARRANT AND THE SHARES OF SERIES C PREFERRED STOCK OR 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 TRANSFER CONTAINED IN
ARTICLE IV HEREOF.
INVESTMENT WARRANT TO PURCHASE SHARES OF
SERIES C PREFERRED STOCK OR COMMON STOCK OF WEBMD, INC.
Date of Issuance: January 28, 1999
THIS CERTIFIES that, for value received, Premier Purchasing Partners, L.P.,
a California limited partnership, or registered assigns (the "Holder"), is
entitled to purchase, at any time and from time to time prior to the third (3rd)
anniversary of the Date of Issuance indicated hereinabove, subject to the other
provisions of this warrant, from WebMD, Inc., a Georgia corporation (the
"Company"), (i) up to one hundred thousand (100,000) shares of Series C
Preferred Stock of the Company, no par value per share (the "Preferred Stock"),
at twenty dollars ($20.00) per share prior to an Initial Public Offering (as
defined herein) or (ii) subsequent to an Initial Public Offering, that number of
shares of Common Stock into which the number of shares of Preferred Stock would
be convertible immediately prior to the closing of such Initial Public Offering,
each subject to the adjustments set forth in Article V hereof. 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.
<PAGE>
"Additional Shares of Common Stock": all shares of Common Stock issued by
the Company after the date of the Initial Public Offering.
"Additional Shares of Preferred Stock": all shares of Preferred Stock
issued by the Company after the Date of Issuance other than the Warrant Shares.
"Common Stock": unless otherwise indicated, the Company's authorized
"Common Stock," no par value per share, without designation as to series, as it
exists on the date hereof.
"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": evidences of indebtedness, shares of stock or
other securities that are convertible into or exchangeable for Additional Shares
of Preferred Stock.
"Date of Issuance": the issue date of this Warrant, indicated 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.
"Market Price": with respect to a share of Common Stock on any business day
following the Initial Public Offering: (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.
2
<PAGE>
"Person": any individual, corporation, partnership, trust, unincorporated
organization and any government, and any political subdivision, instrumentality
or agency thereof.
"Preferred Stock": as defined on the first page hereof. Following the
occurrence of an Initial Public Offering, all references in this Warrant to
"Preferred Stock" shall be deemed to refer to Common Stock, by virtue of the
automatic conversion of the Preferred Stock into Common Stock that will occur
pursuant to the Company's Articles of Incorporation.
"Stock Unit": one share of Preferred Stock, as such stock is constituted on
the Date of Issuance and thereafter the number of shares of Preferred Stock as
shall result from the adjustments specified in Article V.
"Warrant Office": as defined in Section 3.1.
"Warrant Shares": the shares of Preferred Stock or Common Stock, as the
case may be, purchasable by the Holder upon the exercise of this Warrant.
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 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 Preferred Stock having a value computed
based upon the then current fair value determined in good faith by the Company's
Board of Directors, equal to the then applicable Exercise Price multiplied by
the number of Warrant Shares then being purchased, and (c) this Warrant. The
number of Warrant Shares to be purchased in any exercise hereunder shall be no
fewer than 25,000 or the total number of Warrant Shares available for purchase
at the date of exercise, whichever is less. 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 fair value
at the time of exercise 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 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,
3
<PAGE>
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 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 Preferred 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,
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
4
<PAGE>
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 Preferred 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.
5
<PAGE>
ARTICLE IV
RESTRICTION ON TRANSFER
4.1 Restrictions on 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 ensure 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 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 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, (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 one transferee, this warrant (separate from any
shares issued by partial exercise of this Warrant) being indivisible and
transferable only as a single unit, or (iv) to effect a transfer to any
transferee that is not a qualified institutional buyer or institutional
accredited investor; provided, however, that the Company shall have the
obligation to register the shares of Common Stock issued upon exercise of this
Warrant on the terms set forth in the Investment Agreement.
(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
------------------------------------
Preferred Stock comprising a Stock Unit shall be subject to adjustment from time
to time as set forth in this Section 5.1.
6
<PAGE>
(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 Preferred Stock of any
series for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Preferred Stock, or
(ii) subdivide its outstanding shares of Preferred Stock into a
larger number of shares of Preferred Stock, or
(iii) combine its outstanding shares of Preferred Stock into a
smaller number of shares of Preferred Stock;
then the number of shares of Preferred 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 Preferred Stock that a record holder of the number of shares
of Preferred 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
Preferred 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) Issuance of Additional Shares of Preferred Stock.
------------------------------------------------
(i) In case at any time prior to the occurrence of the Initial
Public Offering the Company shall (except as hereinafter provided) issue or sell
any Additional Shares of Preferred Stock for a consideration per share less than
the Exercise Price, then the number of shares of Preferred Stock thereafter
comprising a Stock Unit shall be adjusted to that
7
<PAGE>
number determined by multiplying the number of shares of Preferred 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 Preferred Stock issued
and outstanding plus the number of Additional Shares of Preferred Stock deemed
to be outstanding pursuant to Subsection 5.1(d) immediately prior to the
issuance of such Additional Shares of Preferred Stock plus the number of such
Additional Shares of Preferred Stock so issued and (ii) the denominator of which
shall be the number of shares of Preferred Stock issued and outstanding plus the
number of Additional Shares of Preferred Stock deemed to be outstanding pursuant
to Subsection 5.1(d) immediately prior to the issuance of such Additional Shares
of Preferred Stock plus the number of shares of Preferred Stock that the
aggregate consideration for the total number of such Additional Shares of
Preferred Stock so issued would purchase at the Exercise Price.
(ii) In case at any time after 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 Market 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 Market Price.
The provisions of this Subsection 5.1(c) shall not apply to any issuance of
Additional Shares of Preferred Stock or Common Stock for which an adjustment is
provided under Subsection 5.1(a). No adjustment of the number of shares of
Preferred Stock or Common Stock comprising a Stock Unit shall be made under this
subsection upon the issuance of any Additional Shares of Preferred Stock or
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
Preferred 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 Preferred Stock may at
any time thereafter be issuable pursuant to such warrants or other rights or
pursuant to
8
<PAGE>
the terms of such Convertible Securities shall be lower than the Exercise Price,
then the number of shares of Preferred 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 Preferred Stock
shall be deemed to be the minimum consideration received and receivable by the
Company for the issuance of such Additional Shares of Preferred 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 Preferred 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 have been made upon the issuance of such warrants or other rights
pursuant to this Subsection 5.1(d).
(e) Superseding Adjustment of Stock Unit. If, at any time after any
------------------------------------
adjustment of the number of shares comprising a Stock Unit shall have been made
pursuant to the foregoing Subsection 5.1(d) on the basis of the issuance of
warrants or other rights or the issuance of other Convertible Securities, or
after any new adjustments of the number of shares comprising a Stock Unit shall
have been made pursuant to this Subsection 5.1(e),
(i) such warrants or rights or the right of conversion or
exchange in such other Convertible Securities shall expire, and a portion of
such warrants or rights, or the right of conversion or exchange in respect of a
portion of such other Convertible Securities, as the case may be, shall not have
been exercised, and/or
(ii) the consideration per share, for which shares of Preferred
Stock are issuable pursuant to such warrants or rights or the terms of such
other Convertible Securities, shall be increased for any reason,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Preferred 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
(x) treating the number of Additional Shares of Preferred Stock, if
any, theretofore actually issued or issuable pursuant to the previous
exercise of such warrants or rights or such right of conversion or
exchange, as having been issued on the date or dates of such exercise and
for the consideration actually received and receivable therefor, and
(y) treating any such warrants or rights or any such other
Convertible Securities that then remain outstanding as having been granted
or issued immediately after the time of such increase of the consideration
per share for which shares of Preferred Stock are issuable under such
warrants or rights or other Convertible Securities;
9
<PAGE>
and, if and to the extent called for by the foregoing provisions of this Section
5.1 on the basis aforesaid, a new adjustment of the number of shares comprising
a Stock Unit shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
(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 Preferred 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 Preferred 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 Preferred Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional Shares of
Preferred 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 Preferred Stock or Convertible Securities are offered
by the Company for subscription, the subscription price, or, if such Additional
Shares of Preferred 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
Preferred Stock or Convertible Securities or any warrants or other rights to
subscribe for or purchase such Additional Shares of Preferred Stock or
Convertible Securities shall be issued in connection with any merger in which
the 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 Preferred 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
Preferred 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
10
<PAGE>
calculation results in adjustment of the number of shares of Preferred 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 Preferred 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
Preferred 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 Preferred Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Preferred
Stock, the Company shall be deemed to have received for such Additional Shares
of Preferred 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 Preferred 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 Preferred 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 Preferred 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.
(iv) Fractional Interests. In computing adjustments under this
--------------------
section, fractional interests in Preferred 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
- ---------------------
Preferred 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.
11
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(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 Preferred 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 shares of its capital stock in
connection with any stock split, stock dividend or recapitalization by the
Company; (d) 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 (e) the Company converts any securities into Common Stock pursuant to
the Company's Articles of Incorporation.
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 days after any such action has
occurred.
ARTICLE VI
REGISTRATION RIGHTS
Any and all shares of the Company's Common Stock issued pursuant to this
Warrant or upon conversion of Preferred Stock issued pursuant to this Warrant
shall be deemed "Registrable Securities" for purposes of Article 8 of that
certain Investment Agreement of even date herewith by and between the Company
and Premier Purchasing Partners, L.P.
12
<PAGE>
ARTICLE VII
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 Preferred Stock on the same date such
persons receive such notice.
ARTICLE VIII
EXPIRATION
This Warrant shall expire and may not be exercised after the third (3rd)
anniversary of the Date of Issuance.
ARTICLE IX
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 Preferred 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 Preferred Stock or other securities deliverable upon the exercise of
this Warrant sufficient to enable it at any time to fulfill all its obligations
hereunder.
ARTICLE X
MISCELLANEOUS
10.1 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.
10.2 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.
10.3 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
13
<PAGE>
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.
10.4 Filing of Warrant. A copy of this Warrant shall be filed in the
-----------------
records of the Company.
10.5 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.
10.6 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.
10.7 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 10.7 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.
14
<PAGE>
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.
[CORPORATE SEAL] WEBMD, INC.
Attest:
By: /s/ W. Michael Heekin By: /s/ Jeffrey T. Arnold
-------------------------------- ------------------------------
Name: W. Michael Heekin Jeffrey T. Arnold,
--------------------------
Title: Executive Vice President Chief Executive Officer
-------------------------
15
<PAGE>
WARRANT SHARES PURCHASE SCHEDULE
No. of Shares Purchased Date of Purchase Notation by Company
Officer
__________________________ ________________ _________________________
__________________________ ________________ _________________________
__________________________ ________________ _________________________
__________________________ ________________ _________________________
__________________________ ________________ _________________________
__________________________ ________________ _________________________
16
<PAGE>
EXHIBIT A
---------
TO WARRANT
NOTICE OF EXERCISE
Dated:_______________________________
The undersigned hereby irrevocably elects to exercise its right to purchase
_____ shares of the [PREFERRED STOCK] [COMMON STOCK], no par value per share, of
WebMD, Inc., such right being pursuant to a Warrant dated _______________ ____,
1999, as issued to Premier Purchasing Partners, L.P., for up to ________ shares
of such [PREFERRED STOCK] [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
[PREFERRED STOCK] [COMMON STOCK] for which the Warrant could otherwise be
exercised such that such Market Value equals the Exercise Price for such shares
of [PREFERRED STOCK] [COMMON STOCK]. After giving effect to the foregoing
election to exercise, there shall remain unexercised the right to purchase _____
shares of the [Preferred Stock] [Common Stock], no par value per share, (subject
to adjustment) under this Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature:___________________________________
Shares Heretofore Purchased
Under Warrant:
_________________________________
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EXHIBIT 10.66
THIS WARRANT AND THE SHARES OF SERIES C PREFERRED STOCK OR 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 TRANSFER CONTAINED IN
ARTICLE IV HEREOF.
PERFORMANCE-BASED WARRANT TO PURCHASE SECURITIES
OF WEBMD, INC.
Date of Issuance: January 28, 1999
THIS CERTIFIES that, for value received, WebMD, Inc., a Georgia corporation
(the "Company"), hereby agrees to grant to Premier Purchasing Partners, L.P, a
California limited partnership, or its registered assigns (the "Holder"), the
right to purchase up to 100,000 shares of Series C Preferred Stock, no par value
per share (the "Preferred 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, 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.
"Additional Shares of Common Stock": all shares of Common Stock issued by
the Company after the date of an Initial Public Offering.
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"Additional Shares of Preferred Stock": all shares of Preferred Stock
issued by the Company after the date hereof other than the Warrant Shares.
"Alliance Revenues," as used in Section 2.1, shall include all Company
revenues from any subscriber or other source generated by Premier Purchasing
Partners, L.P. or its affiliates (including without limitation Provider Select,
Inc.), regardless of the Company's strategic alliance partner or other vendor
that shall have paid or collected such revenues. In particular, any Alliance
Revenues from WebMD subscriptions or usage by members or new members of Provider
Select generated through McKesson HBOC or an affiliate thereof will be credited
towards Premier's performance goals for Alliance Revenues.
"Common Stock": unless otherwise indicated, the Company's authorized
"Common Stock," no par value per share, without designation as to series, as it
exists on the date hereof.
"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": evidences of indebtedness, shares of stock or
other securities that are convertible into or exchangeable for Additional Shares
of Preferred Stock.
"Exercise Price": Fair Market Value on the Vesting Date.
"Fair Market Value": with respect to a share of Preferred Stock or Common
Stock, as the case may be:
(i) prior to an Initial Public Offering, the fair market value shall
equal $20.00 per share unless otherwise determined by the Board of
Directors, in its sole discretion; or
(ii) subsequent to an Initial Public Offering, the Market Price on the
Vesting Date.
"Holder": as defined on the first page hereof.
"Initial Public Offering": as defined in the Company's Articles of
Incorporation.
"Investment Agreement": Investment Agreement dated January 28, 1999 by and
between the Company and Premier Purchasing Partners, L.P.
"Market Price": with respect to a share of Common Stock on any business
day following the Initial Public Offering: (a) if such security is listed or
admitted for trading on
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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.
"Preferred Stock": as defined on the first page hereof. Following the
occurrence of an Initial Public Offering, all references in this Warrant to
"Preferred Stock" shall be deemed to refer to Common Stock, by virtue of the
automatic conversion of the Preferred Stock into Common Stock that will occur
pursuant to the Company's Articles of Incorporation.
"Premier": Premier Purchasing Partners, L.P.
"Stock Unit": one share of Preferred Stock, as such stock is constituted on
the date hereof and thereafter the number of shares of Preferred Stock as shall
result from the adjustments specified in Article V.
"Vesting Date": each date on which rights to purchase shares of Preferred
Stock pursuant to this Warrant may vest.
"Warrant Office": as defined in Section 3.1.
"Warrant Shares": the shares of Preferred Stock or Common Stock, as the
case may be, purchasable by the Holder upon the exercise of this Warrant.
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ARTICLE II
EXERCISE OF WARRANT
2.1 Vesting and Exercisability. The right to purchase shares of Preferred
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Stock shall vest and become exercisable in accordance with the following:
(a) The right to purchase 50,000 shares of Preferred Stock shall be
granted and shall, upon grant, immediately vest and become exercisable on each
of December 31, 1999 and 2000, respectively, if the joint marketing efforts of
Premier and its affiliates and the Company generate for the Company gross
revenues calculated on an accrual basis (as defined above, the "Alliance
Revenues") of $4,500,000 and $7,500,000 for the twelve months ended December 31,
1999 and 2000, respectively. During calendar year 1999, if the Company receives
Alliance Revenues of at least $675,000, but less than $4,500,000, a right will
be granted to purchase that number of shares equal to the Alliance Revenues for
such year measured in dollars divided by 90, rounded to the nearest whole
number.
(b) Absent an adjustment pursuant to the terms of this Warrant, the
maximum aggregate number of shares of Preferred Stock that may be subject to
purchase hereunder shall be 100,000.
2.2 Method of Exercise. To the extent this Warrant is exercisable from
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time to time, 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 substantially in the form attached hereto as Exhibit A duly executed by
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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 Preferred Stock having a value computed based upon the Fair Market
Value, equal to the then applicable Exercise Price multiplied by the number of
Warrant Shares then being purchased, and (c) this Warrant. The number of Warrant
Shares to be purchased in any exercise hereunder shall be no fewer than 25,000
or the total number of Warrant Shares available for purchase at the date of
exercise, whichever is less. 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 Fair Market Value 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
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
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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.
2.3 Shares to be Fully Paid and Non-Assessable. All Warrant Shares issued
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upon the exercise of this Warrant shall be 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
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upon any exercise of this Warrant to issue a certificate representing any
fraction of a share of Preferred Stock.
2.5 Legend on Warrant Shares. Each certificate for Warrant Shares issued
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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,
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.
2.6 Acknowledgment of Continuing Obligation. The Company shall, at the
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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
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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
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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
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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
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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 Preferred Stock without having a new
warrant issued.
3.4 Division or Combination of Warrants. This Warrant may not be divided
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or combined with any other warrant.
3.5 Expenses of Delivery of Warrants. The Company shall pay all expenses,
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taxes (other than transfer taxes), and other charges payable in connection with
the preparation, issuance and delivery of new Warrants hereunder.
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ARTICLE IV
RESTRICTION ON TRANSFER
4.1 Restrictions on Transfer. Notwithstanding any provisions contained in
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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 transfer of this Warrant,
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the following provisions shall apply:
(a) If in the written opinion of counsel to the Holder (which opinion
and counsel must be 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, (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 one transferee, this warrant (separate from any
shares issued by partial exercise of this Warrant) being indivisible and
transferable only as a single unit, or (iv) to effect a transfer to any
transferee that is not a qualified institutional buyer or institutional
accredited investor; provided, however, that the Company shall have the
obligation to register the shares of Common Stock issued upon exercise of this
Warrant on the terms set forth in the Investment Agreement.
(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
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Preferred 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
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or from time to time the Company shall:
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(i) take a record of the holders of its Preferred Stock of any
series for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Preferred Stock, or
(ii) subdivide its outstanding shares of Preferred Stock into a
larger number of shares of Preferred Stock, or
(iii) combine its outstanding shares of Preferred Stock into a
smaller number of shares of Preferred Stock;
then the number of shares of Preferred 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 Preferred Stock that a record holder of the number of shares
of Preferred 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
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from time to time the Company shall take a record of the holders of its
Preferred 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) Issuance of Additional Shares of Preferred Stock.
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(i) In case at any time prior to the occurrence of the Initial
Public Offering the Company shall (except as hereinafter provided) issue or sell
any Additional Shares of Preferred Stock for a consideration per share less than
the Exercise Price, then the number of shares of Preferred Stock thereafter
comprising a Stock Unit shall be adjusted to that number determined by
multiplying the number of shares of Preferred 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 Preferred Stock issued and outstanding plus the
number of Additional Shares of Preferred Stock deemed to be outstanding pursuant
to Subsection 5.1(d) immediately prior to the issuance of such Additional Shares
of Preferred Stock plus the number of such Additional
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Shares of Preferred Stock so issued and (ii) the denominator of which shall be
the number of shares of Preferred Stock issued and outstanding plus the number
of Additional Shares of Preferred Stock deemed to be outstanding pursuant to
Subsection 5.1(d) immediately prior to the issuance of such Additional Shares of
Preferred Stock plus the number of shares of Preferred Stock that the aggregate
consideration for the total number of such Additional Shares of Preferred Stock
so issued would purchase at the Exercise Price.
(ii) In case at any time after 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 Market 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 Market Price.
The provisions of this Subsection 5.1(c) shall not apply to any issuance of
Additional Shares of Preferred Stock or Common Stock for which an adjustment is
provided under Subsection 5.1(a). No adjustment of the number of shares of
Preferred Stock or Common Stock comprising a Stock Unit shall be made under this
subsection upon the issuance of any Additional Shares of Preferred Stock or
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
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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
Preferred 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 Preferred 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 Preferred 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
Preferred Stock shall be deemed to be the minimum consideration
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received and receivable by the Company for the issuance of such Additional
Shares of Preferred 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 Preferred 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 have been made
upon the issuance of such warrants or other rights pursuant to this Subsection
5.1(d).
(e) Superseding Adjustment of Stock Unit. If, at any time after any
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adjustment of the number of shares comprising a Stock Unit shall have been made
pursuant to the foregoing Subsection 5.1(d) on the basis of the issuance of
warrants or other rights or the issuance of other Convertible Securities, or
after any new adjustments of the number of shares comprising a Stock Unit shall
have been made pursuant to this Subsection 5.1(e),
(i) such warrants or rights or the right of conversion or
exchange in such other Convertible Securities shall expire, and a portion of
such warrants or rights, or the right of conversion or exchange in respect of a
portion of such other Convertible Securities, as the case may be, shall not have
been exercised, and/or
(ii) the consideration per share, for which shares of Preferred
Stock are issuable pursuant to such warrants or rights or the terms of such
other Convertible Securities, shall be increased for any reason,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Preferred 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
(x) treating the number of Additional Shares of Preferred Stock, if
any, theretofore actually issued or issuable pursuant to the previous
exercise of such warrants or rights or such right of conversion or
exchange, as having been issued on the date or dates of such exercise and
for the consideration actually received and receivable therefor, and
(y) treating any such warrants or rights or any such other
Convertible Securities that then remain outstanding as having been granted
or issued immediately after the time of such increase of the consideration
per share for which shares of Preferred Stock are issuable under such
warrants or rights or other Convertible Securities;
and, if and to the extent called for by the foregoing provisions of this Section
5.1 on the basis aforesaid, a new adjustment of the number of shares comprising
a Stock Unit shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
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(f) Other Provisions Applicable to Adjustment Under This Section. The
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following provisions shall be applicable to the making of adjustments of the
number of shares of Preferred Stock comprising a Stock Unit hereinbefore
provided for in this Section 5.1:
(i) Treasury Stock. The sale or other disposition of any
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issued shares of Preferred 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
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Additional Shares of Preferred Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional Shares of
Preferred 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 Preferred Stock or Convertible Securities are offered
by the Company for subscription, the subscription price, or, if such Additional
Shares of Preferred 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
Preferred Stock or Convertible Securities or any warrants or other rights to
subscribe for or purchase such Additional Shares of Preferred Stock or
Convertible Securities shall be issued in connection with any merger in which
the 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 Preferred 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
Preferred 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 Preferred 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 Preferred
Stock issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the
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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
Preferred 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 Preferred Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Preferred
Stock, the Company shall be deemed to have received for such Additional Shares
of Preferred 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
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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 Preferred 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 Preferred 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 Preferred 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.
(iv) Fractional Interests. In computing adjustments under this
--------------------
section, fractional interests in Preferred 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
- ---------------------
Preferred 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 Preferred Stock
purchasable upon
12
<PAGE>
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 shares of its capital stock in
connection with any stock split, stock dividend or recapitalization by the
Company; (d) the Company issues any shares of common stock of the Company
pursuant to options, warrants or rights granted either before or after the date
hereof 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 hereof, 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 (e) the Company converts any securities 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 days after any such action has
occurred.
ARTICLE VI
REGISTRATION RIGHTS
Any and all shares of the Company's Common Stock issued pursuant to this
Warrant or upon conversion of Preferred Stock issued pursuant to this Warrant
shall be deemed "Registrable Securities" for purposes of Article 8 of the
Investment Agreement.
13
<PAGE>
ARTICLE VII
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 Preferred Stock on the same date such
persons receive such notice.
ARTICLE VIII
EXPIRATION
Rights to purchase shares under this Warrant shall expire and may not be
exercised after the third anniversary of their respective Vesting Dates.
ARTICLE IX
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 Preferred 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 Preferred 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 X
MISCELLANEOUS
10.1 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.
10.2 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.
10.3 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
14
<PAGE>
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.
10.4 Filing of Warrant. A copy of this Warrant shall be filed in the
-----------------
records of the Company.
10.5 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.
10.6 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.
10.7 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 10.7 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.
15
<PAGE>
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 28th day of January, 1999.
[CORPORATE SEAL] WEBMD, INC.
Attest:
By: /s/ W. Michael Heekin By: /s/ Jeffrey T. Arnold
---------------------------------- ------------------------------------
Name: W. Michael Heekin Jeffrey T. Arnold, Chief Executive
--------------------------------
Title: Executive Vice President Officer
-------------------------------
16
<PAGE>
WARRANT SHARES PURCHASE SCHEDULE
<TABLE>
<CAPTION>
NO. OF SHARES PURCHASED DATE OF PURCHASE NOTATION BY COMPANY OFFICER
<S> <C> <C>
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
TO WARRANT
NOTICE OF EXERCISE
Dated:__________________
The undersigned hereby irrevocably elects to exercise its right to purchase
_____ shares of the [PREFERRED STOCK] [COMMON STOCK], no par value per share, of
WebMD, Inc., such right being pursuant to a Warrant dated _______________ ____,
1999, as issued to Premier Purchasing Partners, L.P., for up to ________ shares
of such [PREFERRED STOCK] [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
[PREFERRED STOCK] [COMMON STOCK] for which the Warrant could otherwise be
exercised such that such Market Value equals the Exercise Price for such shares
of [PREFERRED STOCK] [COMMON STOCK]. After giving effect to the foregoing
election to exercise, there shall remain unexercised the right to purchase _____
shares of the [Preferred Stock] [Common Stock], no par value per share, (subject
to adjustment) under this Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature:______________________________
Shares Heretofore Purchased
Under Warrant:
___________________________________
<PAGE>
EXHIBIT 10.67
January 27, 1999
STRICTLY PRIVATE AND CONFIDENTIAL
- ---------------------------------
WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
Attn: Jeffrey T. Arnold
Chairman and Chief Executive Officer
Dear Jeffrey:
We are pleased to confirm the arrangements under which Gleacher NatWest Inc.
("Gleacher NatWest") and WebMD, Inc. ("WebMD" or the "Company") have entered
into a strategic relationship pursuant to which Gleacher NatWest has (i)
provided financial advisory services to the Company in connection with the
Company's acquisitions of Sapient Health Network, Inc. ("SHN") and Direct
Medical Knowledge, Inc. ("DMK"); and (ii) will provide financial advisory
services to the Company in the future. The Company will compensate Gleacher
NatWest (or its designees) for all such past and future services through the
issuance of a Warrant (as defined herein) in lieu of any cash compensation. The
terms of this relationship are as follows:
1. ADVISORY SERVICES. The period during which advisory services are to be
------------------
rendered shall commence on the date hereof and end on the second
anniversary of the date hereof, unless earlier terminated as provided
herein (the "Advisory Period"). During the Advisory Period, Gleacher
NatWest will act as financial advisor to the Company and render from time
to time such financial advisory and investment banking services as may be
appropriate and mutually agreed upon. Gleacher NatWest's principal
objective is to assist the Company, as financial advisors, in the
exploration and implementation of alternatives that maximize the ultimate
per share value of the Company. In that regard, Gleacher NatWest expects
its primary focus will be:
(a) reviewing the strategic and capital needs of the Company, analyzing
the alternatives for raising capital and assisting the Company in
designing and implementing an appropriate capital structure;
(b) providing, as requested from time to time, advice on evaluating,
structuring, negotiating and executing any proposed acquisitions or
divestitures by the Company;
(c) providing, as requested from time to time, advice on evaluating,
structuring, negotiating and executing any proposed strategic
relationships to be entered into by the Company;
(d) providing general advice to the Company on corporate governance
matters and otherwise assisting the Company with respect to investor
relations matters; and
(e) providing access to office space and support.
In connection with the foregoing, Gleacher NatWest will render, during the
Advisory Period, such financial fairness opinions, in a form reasonably
satisfactory to the Company and to Gleacher NatWest, as may be requested
from time to time and be appropriate under the circumstances. No separate
or additional fees shall be payable in connection with the rendering of any
such opinion. Gleacher NatWest recognizes that the Company may from time to
time desire and/or require the services of other investment banking and
financial advisory firms. Gleacher NatWest will, as
<PAGE>
WebMD, Inc.
January 27, 1999
Page 2
requested, assist the Company in its efforts to work with and to maximize
the contribution which other firms can make to WebMD's future success.
The Company recognizes that the advisory relationship is not an exclusive
relationship for Gleacher NatWest or any of its personnel. Gleacher
NatWest, however, will devote such time and resources as are customary for
it in connection with an important assignment of this type. Gleacher
NatWest also agrees to consult with the Company so as to avoid any
conflicts of interest which may result from Gleacher NatWest performing
investment banking assignments for any of the Company's major competitors.
2. ISSUANCE OF WARRANT. The Company will issue a warrant substantially in the
--------------------
form of Exhibit I attached hereto (the "Warrant") to Gleacher NatWest (or
its designees), promptly following the execution of this letter agreement.
The parties hereby acknowledge that Gleacher NatWest's right to purchase an
aggregate of 100,000 shares of the up to 750,000 shares of Series D Common
Stock covered in the Warrant relate to compensation for advisory services
rendered by Gleacher NatWest to the Company in connection with the
Company's acquisitions of SHN and DMK.
OTHER MATTERS
- -------------
In addition to the Warrant issued to Gleacher NatWest, the Company agrees to
reimburse Gleacher NatWest for all reasonable travel and other reasonable out-
of-pocket expenses incurred by Gleacher NatWest in connection with Gleacher
NatWest's engagement hereunder, including all reasonable fees and disbursements
of Gleacher NatWest's legal counsel and any other professional advisors,
provided that the retention of such professional advisors has been approved in
advance by the Company.
Gleacher NatWest and the Company will each use all reasonable efforts to prepare
and execute the Warrant Agreement provided for in this letter agreement as
promptly as possible following execution of this letter agreement.
The Company recognizes and confirms that in advising the Company in completing
its engagement hereunder, Gleacher NatWest will be using and relying on data,
material and other information furnished to Gleacher NatWest by the Company. It
is understood that in performing under this engagement Gleacher NatWest may
reasonably rely upon any information so supplied without independent
verification and that Gleacher NatWest shall not have any responsibility for
such independent verification. As a condition to Gleacher NatWest's obligation
to provide services hereunder, the Company represents, warrants and covenants to
Gleacher NatWest that none of the information furnished to Gleacher NatWest by
the Company or contained in the Company's filings under any federal or state
securities laws shall include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they are made, not misleading. Gleacher
NatWest agrees that it will keep confidential and not disclose or permit its
employees or representatives to disclose information received from the Company
(other than to Gleacher NatWest employees involved in the performance of
services hereunder or otherwise on a need-to-know basis), or otherwise use such
information, except as contemplated in this letter agreement, as may be
authorized by the Company in connection with Gleacher NatWest's performance of
services hereunder, or as such disclosure may be required by law.
The Company acknowledges that all advice given by Gleacher NatWest in connection
with its engagement
<PAGE>
WebMD, Inc.
January 27, 1999
Page 3
hereunder is intended solely for the benefit and use of the Board of Directors
and senior management of WebMD. Except as may be required by applicable law, the
Company agrees that no such advice shall be used for any other purpose or be
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor shall any public references to Gleacher NatWest be made by
or on behalf of the Company, in each case without Gleacher NatWest's prior
written consent. Notwithstanding the foregoing, any fairness opinion rendered by
Gleacher NatWest may be included in any proxy statement, or amendment thereto,
filed by the Company in connection with any transaction provided that Gleacher
NatWest has the opportunity to review and approve any disclosure or description
of the opinion or Gleacher NatWest contained in such document.
The Company recognizes that Gleacher NatWest has been retained only by the
Company and that its engagement is not deemed to be on behalf of, and is not
intended to confer any rights or bestow the status of third-party beneficiary
upon, any shareholder or employee of the Company, or any other person not a
party hereto as against Gleacher NatWest or any of its affiliates, their
respective limited and general partners, directors, officers, agents and
employees or each other person, if any, controlling Gleacher NatWest or any of
its affiliates. Unless otherwise expressly stated in writing by Gleacher
NatWest, no advice or opinions rendered to the Board of Directors or management
of the Company during the course of the engagement hereunder shall constitute a
recommendation to any other party and no one other than the Company, its
directors and its senior management, is authorized to rely upon the engagement
of Gleacher NatWest or any statements or conduct by Gleacher NatWest. Moreover,
it is acknowledged that the relationship of Gleacher NatWest to the Company is
that of an independent contractor, that the obligations and responsibilities of
Gleacher NatWest to the Company are limited to those specifically set forth
herein, and that Gleacher NatWest, by entering into this agreement and
satisfying its obligations hereunder, does not assume any fiduciary duties with
respect to the Company, its Board of Directors, its management, its employees or
its shareholders. All decisions made with respect to potential financings and
mergers and acquisition transactions, whether or not consistent with advice
rendered by Gleacher NatWest, shall be those of the Board of Directors or
management of the Company, as the case may be.
In connection with matters described in this letter, the Company and Gleacher
NatWest have entered into a separate letter agreement, dated the date hereof,
providing for indemnification, contribution and reimbursement of Gleacher
NatWest and certain other individuals and entities, a copy of which is attached
hereto as Exhibit II.
Any right to trial by jury with respect to any claim or action arising out of
this agreement or conduct in connection with the engagement is hereby waived by
the parties hereto and their affiliates. This agreement shall be deemed made in
New York. This agreement and all controversies arising from or related to
performance under this agreement shall be governed by the laws of the State of
New York, without regard to such state's rules concerning conflicts of laws.
All controversies arising from or related to performance under this agreement
shall be adjudicated in State or Federal court within the State of New York.
Gleacher NatWest may assign its right and obligations under this letter
agreement to any partnership of which Gleacher NatWest is the general partner or
to any other entity which succeeds to the business of Gleacher NatWest so long
as Mr. Eric J. Gleacher is a principal of the successor entity, in each case,
without the consent of the Company. The provisions of this agreement (including
the attached letter agreement) shall be binding upon and inure to the benefit of
any successors, assigns, heirs and personal representatives of the Company and
Gleacher NatWest.
<PAGE>
WebMD, Inc.
January 27, 1999
Page 4
Gleacher NatWest's services hereunder may be terminated by the Company for
"Cause". For purposes of this letter agreement, "Cause" shall be defined as (i)
the failure of Gleacher NatWest to meet performance expectations, as determined
by the Company's President or Chief Financial Officer and communicated in
reasonable detail in writing in a notice delivered to Gleacher NatWest (the
"Deficiency Notice") or (ii) a material breach by Gleacher NatWest of its
obligations under this letter agreement; provided however, that in the event of
a termination for the failure to meet performance expectations, Gleacher NatWest
shall be entitled to the cure provision set forth below. Upon delivery of a
Deficiency Notice, Gleacher NatWest shall then have a period of 30 days after
receipt of such Deficiency Notice in which to attempt to effect a cure of
specified deficiencies. If at the end of such 30-day period no such cure has
been effected in the good faith judgment of the Company's President or Chief
Financial Officer, then this letter agreement shall be deemed terminated
effective as of the date of Gleacher NatWest's receipt of such Deficiency
Notice.
Upon termination of Gleacher NatWest's services under this agreement by the
Company for Cause, this agreement shall have no further force or effect except
that (i) any out-of-pocket expenses incurred by Gleacher NatWest prior to the
date of termination which are required to be reimbursed hereunder shall be paid
or reimbursed in accordance with the terms of this agreement; (ii) the
confidentiality provisions of this agreement shall continue to apply for a
period of two years following such termination; and (iii) the indemnity,
contribution and other provisions as contained in the attached letter agreement
shall continue to apply notwithstanding termination.
In the event of termination of Gleacher NatWest's services under this agreement
by the Company for Gleacher NatWest's failure to meet performance criteria
hereunder, and if such termination is prior to the first anniversary hereof, the
Warrant shall not be vested or exercisable for 250,000 shares of the up to
750,000 shares covered thereby. In the event of termination of Gleacher
NatWest's services under this agreement by the Company for Cause due to a
material breach by Gleacher NatWest of its obligations under this letter
agreement solely as a result of Gleacher NatWest's willful misconduct, gross
negligence or failure to dedicate less than an aggregate of 100 hours per month
of the business time of one or more qualified investment banking professionals
to the performance of its services hereunder following a request therefor, (i)
if such termination is prior to the first anniversary hereof, the Warrant shall
not be vested or exercisable for 250,000 shares of the up to 750,000 shares
covered thereby; and (ii) Gleacher NatWest shall be required to pay to the
Company immediately in cash an amount equal to (x) $3,400,000, minus (y)
$1,400,000 multiplied by a fraction, the numerator of which shall be the number
of days that have elapsed following the date hereof prior to such termination,
and the denominator of which shall be 720.
* * *
<PAGE>
WebMD, Inc.
January 27, 1999
Page 5
If the terms of our relationship as set forth in this letter agreement are
satisfactory, kindly sign the enclosed copy of this letter agreement and
indemnification form and return them to Gleacher NatWest. We look forward to
working with WebMD.
Very truly yours,
GLEACHER NATWEST INC.
/s/ Eric J. Gleacher
------------------------------------
Eric J. Gleacher
Chairman and Chief Executive Officer
/s/ Robert A. Engel
------------------------------------
Robert A. Engel
Managing Director
Accepted and Agreed to:
WEBMD, INC.
By: /s/ Jeffrey T. Arnold
----------------------
Jeffrey T. Arnold
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT II
GLEACHER NATWEST INC.
660 MADISON AVENUE
NEW YORK, NEW YORK 10021
Gentlemen:
In connection with the activities of Gleacher NatWest Inc. ("Gleacher NatWest")
pursuant to a letter agreement, dated as of the date hereof, between WebMD, Inc.
(the "Company") and Gleacher NatWest, as the same may be amended from time to
time, including without limitation any activities of Gleacher NatWest in
connection with any transaction contemplated by such letter agreement, whether
occurring before, at or after the date hereof, the Company agrees to indemnify
and hold harmless Gleacher NatWest and its affiliates, the respective limited
and general partners, directors, officers, agents and employees of Gleacher
NatWest and their affiliates and each other person, if any, controlling Gleacher
NatWest or any of its affiliates (hereinafter collectively referred to as the
"indemnified parties"), to the full extent lawful, from and against any losses,
damages, liabilities, expenses or claims (or actions in respect thereof,
including, without limitation, shareholder and derivative actions and
arbitration proceedings) related to or otherwise arising out of such engagement
or Gleacher NatWest's role in connection therewith, and will promptly reimburse
any indemnified party for all reasonable expenses (including reasonable counsel
fees and disbursements) as they are incurred by any indemnified party in
connection with investigating, preparing or defending any claim, action,
proceeding or investigation, whether or not in connection with pending or
threatened litigation to which any indemnified party is a party, arising in
connection with or related to Gleacher NatWest's engagement or Gleacher
NatWest's role in connection therewith. The Company will not, however, be
responsible for any losses, damages, liabilities, expenses or claims which are
finally judicially determined to have resulted primarily from Gleacher NatWest's
bad faith or gross negligence. The Company also agrees that no indemnified
party will have any liability (whether direct or indirect, in contract, tort or
otherwise) to the Company for or in connection with such engagement except to
the extent that a court of competent jurisdiction finally judicially determines
that such liability for losses, damages, liabilities, expenses or claims
incurred by the Company resulted primarily from Gleacher NatWest's bad faith or
gross negligence. If multiple claims are brought against any indemnified party
in an arbitration, with respect to at least one of which indemnification is
permitted under applicable law and provided for under this agreement, the
Company agrees that any arbitration award shall be conclusively deemed to be
based on claims as to which indemnification is permitted and provided for,
except to the extent the arbitration award expressly states that the award, or
any portion thereof, is based solely on a claim as to which indemnification is
not available.
In the event that the foregoing indemnity is unavailable to any indemnified
party for any reason or insufficient to hold any indemnified party harmless,
then the Company agrees to contribute to any such losses, damages, liabilities,
expenses, claims or actions and will do so in such proportion as is appropriate
to reflect the relative benefits received (or anticipated to be received) by,
and the relative fault of, the indemnified parties, on the one hand, and the
Company and the Company's securityholders, on the other, as well as any other
relevant equitable considerations, from any actual or proposed transaction. The
Company and Gleacher NatWest agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above.
The Company agrees that it will not, without the prior written consent of
Gleacher NatWest, settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not Gleacher NatWest is an actual or potential party to such claim
or action) unless such settlement, compromise or consent includes an
unconditional release of Gleacher NatWest from all liability arising out of such
claim, action, suit or proceeding. The Company will also promptly reimburse
Gleacher NatWest for all expenses (including counsel fees) as they are incurred
in connection with investigating, preparing or defending, or providing evidence
in, any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
Gleacher NatWest are actual or potential parties to such claim or action).
The foregoing agreement shall be in addition to any rights that any indemnified
party may have at common law or otherwise, and shall be in addition to any
liability which the Company may otherwise have. The Company hereby consents to
personal jurisdiction, service and venue in any court in which any claim which
is subject to this agreement is brought against Gleacher NatWest or the Company.
ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF
THIS AGREEMENT IS WAIVED. Gleacher NatWest may assign its rights and obligations
under this letter agreement to any partnership of which Gleacher NatWest is the
general partner or to any other entity, of which Eric J. Gleacher is a partner
or principal, which succeeds to the business of Gleacher NatWest, in each case,
without the consent of the Company. This agreement shall remain in full force
and effect following the completion or termination of Gleacher NatWest's
engagement and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company and any indemnified
party.
Very truly yours,
Accepted: Accepted:
WEBMD, INC. GLEACHER NATWEST INC.
---------------------------------- ---------------------------------
By: /s/ W. Michael Heekin By: /s/
---------------------------------- ---------------------------------
Date: January 27, 1999 Date: January 27, 1999
---------------------------------- ---------------------------------
<PAGE>
EXHIBIT 10.68
THIS WARRANT AND THE SHARES OF SERIES D COMMON STOCK OR 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 TRANSFER CONTAINED IN
ARTICLE IV HEREOF.
WARRANT TO PURCHASE SECURITIES
OF WEBMD, INC.
THIS CERTIFIES that, for value received, WebMD, Inc., a Georgia corporation
(the "Company"), hereby agrees to grant to Gleacher NatWest Inc., a Delaware
corporation, or its registered assigns (the "Holder"), the right to purchase up
to 750,000 shares of Series D Common Stock, no par value per share (the "Series
D 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, 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.
"Additional Shares of Common Stock": all shares of Common Stock issued by
the Company after the date hereof.
"Articles of Incorporation": the Amended and Restated Articles of
Incorporation of the Company, as further amended from time to time.
"Common Stock": unless otherwise indicated, the Company's authorized
"Common Stock," no par value per share, without designation as to series, as it
exists on the date hereof.
<PAGE>
"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": evidences of indebtedness, shares of stock or
other securities that are convertible into or exchangeable for Additional Shares
of Common Stock.
"Exercise Price": $20.00 per share.
"Fair Market Value": with respect to a share of Series D Stock or Common
Stock, as the case may be:
(i) prior to an Initial Public Offering, the fair market value
shall equal $20.00 per share unless otherwise determined by the Board of
Directors, in its sole discretion; or
(ii) subsequent to an Initial Public Offering, the Market Price.
"Gleacher NatWest": Gleacher NatWest Inc.
"Holder": as defined on the first page hereof.
"Initial Public Offering": as defined in the Company's Articles of
Incorporation.
"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.
"Market Price": with respect to a share of Common Stock on any business
day following the Initial Public Offering: (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.
2
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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.
"Registration Rights Agreement" shall mean that certain Registration Rights
Agreement dated as of January 13, 1999, to which Gleacher NatWest, the Company
and certain other shareholders of the Company are parties.
"Series D Stock": as defined on the first page hereof. Following the
occurrence of an Initial Public Offering, all references in this Warrant to
"Series D Stock" shall be deemed to refer to Common Stock, by virtue of the
automatic conversion of the Series D Stock into Common Stock that will occur
pursuant to the Company's Articles of Incorporation.
"Stock Unit": one share of Series D Stock, as such stock is constituted on
the date hereof and thereafter the number of shares of Series D Stock as shall
result from the adjustments specified in Article V.
"Vesting Date": each date on which rights to purchase shares of Series D
Stock pursuant to this Warrant may vest.
"Warrant Office": as defined in Section 3.1.
"Warrant Shares": the shares of Series D Stock or Common Stock, as the
case may be, 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 Series D
--------------------------
Stock shall vest and become exercisable in accordance with the following:
(a) The right to purchase 500,000 shares of Series D Stock shall be
granted and immediately vest and become exercisable on the date
hereof.
(b) The right to purchase 250,000 shares of Series D Stock shall be
granted on the date hereof and shall immediately vest and become
exercisable on the first anniversary of the date hereof,
provided, however, that if the services of Gleacher NatWest under
the Letter Agreement have been terminated by the Company prior to
the first anniversary of the date
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hereof, such right to purchase 250,000 shares shall not vest and
shall not become exercisable.
(c) Absent an adjustment pursuant to the terms of this Warrant, the
maximum aggregate number of shares of Series D Stock that may be
subject to purchase hereunder shall be 750,000.
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 pursuant 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 Series D Stock having a value computed based upon the Fair Market
Value, 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
Fair Market Value 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 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.
2.3 Shares to be Fully Paid and Non-Assessable. All Warrant Shares issued
------------------------------------------
upon the exercise of this Warrant shall be validly issued, fully paid, non-
assessable and free from preemptive rights.
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2.4 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 Series D 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 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, 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.
2.6 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
5
<PAGE>
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 Series D 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.
ARTICLE IV
RESTRICTION ON TRANSFER
4.1. Restrictions on 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
6
<PAGE>
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; provided, however, that the Company shall have the
obligation to register the shares of Common Stock issued upon exercise of this
Warrant on the terms set forth in the Registration Rights Agreement.
(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 Series
------------------------------------
D 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, 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 Series D 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 Series D Stock that a record holder of the number of shares
of Series D 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
7
<PAGE>
(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) Issuance of Additional Shares.
-----------------------------
(i) In case at any time prior to 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 Series D Stock thereafter
comprising a Stock Unit shall be adjusted to that number determined by
multiplying the number of shares of Series D 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.
(ii) In case at any time after 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 Market 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
8
<PAGE>
Common Stock that the aggregate consideration for the total number of such
Additional Shares of Common Stock so issued would purchase at the Market 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 Series D Stock or
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 Series D 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 Series D 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 have been made upon the issuance of such warrants or
other rights pursuant to this Subsection 5.1(d).
(e) Superseding Adjustment of Stock Unit. If, at any time after any
------------------------------------
adjustment of the number of shares comprising a Stock Unit shall have been made
pursuant to the foregoing Subsection 5.1(d) on the basis of the issuance of
warrants or other rights or the issuance of other Convertible Securities, or
after any new adjustments of the number of shares comprising a Stock Unit shall
have been made pursuant to this Subsection 5.1(e),
(i) such warrants or rights or the right of conversion or
exchange in such other Convertible Securities shall expire, and a portion of
such warrants or rights, or the right of conversion or exchange in respect of a
portion of such other Convertible Securities, as the case may be, shall not have
been exercised, and/or
(ii) the consideration per share, for which shares of Common
Stock are issuable pursuant to such warrants or rights or the terms of such
other Convertible Securities, shall be increased for any reason,
9
<PAGE>
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
(x) treating the number of Additional Shares of Common Stock, if any,
theretofore actually issued or issuable pursuant to the previous exercise
of such warrants or rights or such right of conversion or exchange, as
having been issued on the date or dates of such exercise and for the
consideration actually received and receivable therefor, and
(y) treating any such warrants or rights or any such other
Convertible Securities that then remain outstanding as having been granted
or issued immediately after the time of such increase of the consideration
per share for which shares of Common Stock are issuable under such warrants
or rights or other Convertible Securities;
and, if and to the extent called for by the foregoing provisions of this Section
5.1 on the basis aforesaid, a new adjustment of the number of shares comprising
a Stock Unit shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
(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 Series D 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
10
<PAGE>
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 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 Series D 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.
(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 Series D 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 Series D 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 Series D 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.
11
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(iv) Fractional Interests. In computing adjustments under this
--------------------
section, fractional interests in Series D 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 Series D 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 shares of its capital stock in
connection with any stock split, stock dividend or recapitalization by the
Company; (d) the Company issues any shares of common stock of the Company
pursuant to options, warrants or rights granted before the date hereof, or
granted before or after the date hereof if granted to purchase shares of such
common stock in favor of employees, directors, officers, strategic partners 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 hereof, 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 (e) the Company converts
any securities 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 days after any such action has
occurred.
12
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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 Series D 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 the fifth anniversary of their respective Vesting Dates.
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 Series D 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 Series D 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 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.
13
<PAGE>
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 lieu of any mutilated
Warrant, shall constitute an original contractual obligation on the part of the
Company.
14
<PAGE>
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 27th day of January, 1999.
[CORPORATE SEAL] WEBMD, INC.
Attest:
By: /s/ W. Michael Heekin By: /s/ Jeffrey T. Arnold
------------------------------- -----------------------
Name: W. Michael Heekin Jeffrey T. Arnold, Chief Executive
-----------------------------
Officer
Title: Executive Vice President
----------------------------
15
<PAGE>
WARRANT SHARES PURCHASE SCHEDULE
<TABLE>
<CAPTION>
NO. OF SHARES PURCHASED DATE OF PURCHASE NOTATION BY COMPANY OFFICER
<S> <C> <C>
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
- ---------------------------- ----------------------- ------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
---------
TO WARRANT
NOTICE OF EXERCISE
Dated:_____________________________
The undersigned hereby irrevocably elects to exercise its right to purchase
_____ shares of the [SERIES D STOCK] [COMMON STOCK], no par value per share, of
WebMD, Inc., such right being pursuant to a Warrant dated _______________ ____,
1999, as issued to Gleacher NatWest Inc., for up to ________ shares of such
[SERIES D STOCK] [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 [SERIES D STOCK] [COMMON
STOCK] for which the Warrant could otherwise be exercised such that such Market
Value equals the Exercise Price for such shares of [SERIES D STOCK] [COMMON
STOCK].
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature:______________________________
Shares Heretofore Purchased
Under Warrant:
___________________________________
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.69
DuPont Nutrition & Health
Walker's Mill, Barley Mill Plaza
P.O. Box 80038
Wilmington, DE 19880-0038
[DuPont Logo]
DuPont Nutrution & 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 *** 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
$***, 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, PO 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;
________________
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
<PAGE>
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
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/ W. Michael Heekin
- ------------------------------------
Name: W. Michael Heekin
Date: 1/28/99
2
<PAGE>
EXHIBIT 10.70
STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement (the "Agreement") is dated as of the 28th day
of January, 1999 by and between E.I. du Pont de Nemours and Company, a Delaware
corporation ("DuPont") and WebMD, Inc., a Georgia corporation ("WebMD" or the
"Company").
RECITALS
--------
WHEREAS WebMD desires to sell to DuPont, new issue shares of WebMD's Series
C Preferred Stock upon the terms and conditions hereinafter set forth, and
WHEREAS, DuPont agrees to purchase such Series C Shares of WebMD upon the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the provisions and the
respective agreements hereinafter set forth, the parties hereto hereby agree as
follows:
1. Purchase and Sale of Stock of WebMD
-----------------------------------
1.1 Agreement to Purchase and Sell. Upon the terms and subject to the
------------------------------
conditions set forth in this Agreement, on the Closing Date (as such term is
hereinafter defined), WebMD shall sell and deliver to DuPont, and DuPont shall
purchase and acquire from WebMD, authorized but previously unissued shares of
capital stock of WebMD in the form of WebMD's Series C Preferred Stock ("Series
C Preferred Shares").
1.2 Purchase Price. In express reliance upon the representations,
--------------
warranties, covenants and agreements of each party contained herein, DuPont
agrees to provide content material relating to nutrition in the behavioral and
psychological; metabolic; defense and immunity; and cardio-vascular areas for
the WebMD service website, and WebMD agrees to sell and deliver to DuPont One
Hundred Eighty Thousand (180,000) shares of its Series C Preferred Shares valued
at Twenty Dollars ($20.00) per share on the Closing Date (defined below).
WebMD agrees that DuPont shall have the exclusive right for thirty
(30) days to determine other Life Science participants in the WebMD Service and
business strategy, and DuPont and WebMD will negotiate in good faith during that
time period toward a more comprehensive business arrangement between the two
parties. Furthermore, for a twelve month period commencing March 1, 1999 DuPont
and WebMD will work in partnership to determine other participants in the WebMD
Service within the categories of pharmaceuticals and nutritional science.
1.3 Closing. The closing of the purchase and sale of Series C Shares
-------
provided herein (the "Closing") will be at the office of WebMD, at a date and
time mutually agreeable to both parties. Such date and time of Closing is herein
referred to as the "Closing Date".
<PAGE>
2. Representations and Warranties for WebMD
----------------------------------------
WebMD represents and warrants as follows:
2.1 Existence; Good Standing; Corporate Authority; Compliance With
--------------------------------------------------------------
Law. WebMD is a corporation duly incorporated, validly existing and in good
- ---
standing under the laws of its jurisdiction of incorporation. WebMD is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of all other jurisdictions in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary. The Company has all requisite
corporate power and authority to own its properties and carry on its business as
now conducted.
2.2 Capitalization. All of WebMD's issued and outstanding capital
--------------
stock, including rights of any kind to acquire by conversion or purchase future
shares of the Company's capital stock has been duly authorized, and is
completely and accurately described in WebMD's Registration Statement on Form S-
1 as filed with the Securities and Exchange Commission on January 28, 1999 (the
"Registration Statement"). Except for rights (1) granted pursuant to this
Agreement, (2) described in the Registration Statement or (3) as may be
described in any pre-effective amendments to such Registration Statement, there
are no outstanding rights, warrants, options, subscriptions, agreements or
commitments giving anyone any right to purchase any other capital stock of
WebMD.
2.3 Pari Passu/Convertibility. The WebMD Preferred Stock, Series C
-------------------------
shall rank junior to the WebMD Preferred Stock, Series A, and pari passu with
respect to all rights and preferences of the Company's Preferred Stock, Series
B. After the effective date of WebMD's initial public offering the Preferred
Stock, Series C shall be convertible into an equal number of shares of the
Company's voting common stock, all as more particularly described in the
Company's Articles of Incorporation.
2.4 Jurisdictions. To the best of its knowledge the Company has
-------------
complied in all material respects with all applicable laws of each jurisdiction
in which it is presently licensed or qualified to do business and all applicable
rules and regulations of each regulatory agency therein. WebMD has not been
denied admission to conduct any type of business in any jurisdiction in which it
is not presently admitted, has not had its license or qualifications to conduct
business in any jurisdiction revoked or suspended, and has not been involved in
any proceeding to revoke or suspend a license or qualification.
2.5 Title to Company Shares. All outstanding capital shares of WebMD
-----------------------
have been duly authorized and validly issued, and are fully paid and non-
assessable. Other than the rights and obligations of the Company's capital stock
as described in its article of incorporation, by-laws, and that certain Restated
Shareholders Agreement of Endeavor Technologies Inc., as amended, there are no
restrictions with respect to transferability of its capital stock, including the
Series C Preferred Share being purchased by DuPont. Upon delivery of the Series
C Shares to DuPont by WebMD, DuPont will receive good and marketable title to
such shares, free and clear of all security interests, liens, encumbrances,
charges, assessments, restrictions and adverse claims.
2
<PAGE>
2.6 No Brokers. WebMD has not entered into any contract, arrangement
----------
or understanding with any person or firm which may result in the obligation of
DuPont to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby, and WebMD is not aware of
any claim or basis for any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
2.7 Validity and Effect of Agreements. This Agreement constitutes,
---------------------------------
and all agreements and documents contemplated hereby when executed and delivered
pursuant hereto for value received will constitute, the valid and legally
binding obligations of WebMD enforceable in accordance with their terms, subject
as to enforcement to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. The consummation of the transaction contemplated hereby does not
require the consent of any third party not obtained, will not result in the
material breach of any term or provision of, or constitute a default under, any
order, judgment, injunction, decree, indenture, mortgage, lease, lien, other
agreement or instrument to which WebMD is a party or by which it is bound, and
will not violate or conflict with any provision of the by-laws or articles of
incorporation of WebMD.
2.8 Definitions. As used herein, the term "to the knowledge of WebMD"
-----------
shall mean matters that are known to any of the officers or directors of WebMD
or that should have been known to such officers and directors in the ordinary
course of fulfilling their duties.
3. Representations and Warranties of DuPont. DuPont represents and
----------------------------------------
warrants to WebbMD as follows:
3.1 Existence; Good Standing; Corporate Authority; Compliance With
---------------------------------------------
Law. DuPont is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation.
3.2 Validity and Effect of Agreements. This Agreement constitutes the
---------------------------------
valid and legally binding obligations of DuPont enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. The consummation of the transaction contemplated hereby does
not require the consent of any third party not obtained, will not result in the
material breach of any term or provision of, or constitute a default under, any
order, judgment, injunction, decree, indenture, mortgage, lease, lien, other
agreement or instrument to which DuPont is a party or by which it is bound, and
will not violate or conflict with any provision of the by-laws or articles of
incorporation of DuPont.
3.3 Authorization of Agreements. The execution and delivery of this
---------------------------
Agreement has been duly authorized by all requisite corporate action.
3
<PAGE>
3.4 No Brokers. DuPont has not entered into any contract, arrangement
----------
or understanding with any person or firm which may result in the obligation of
WebMD to pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby, and DuPont is not aware of
any claim or basis for any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement.
3.5 Investment Representation. DuPont represents that it understands
-------------------------
that (i) the Series C Shares being acquired pursuant to this Agreement have not
been registered under the Securities Act of 1933, as amended, and are being sold
in reliance upon the exemption afforded by Section 4(2) thereof and (ii) such
Series C Shares must be held unless a subsequent disposition thereof is
registered under the Securities Act of 1933, as amended, (the "1933 Act") is
exempt from such registration, or in compliance with regulations promulgated
under the 1933 Act. DuPont further represents that (i) such Series C Shares are
being acquired for investment and without any present view toward distribution
thereof to any other person; (ii) it will not sell or otherwise dispose of such
Series C Shares except in compliance with the registration requirements or
exemption provisions under the Securities Act of 1933, as amended, or the rules
and regulations thereunder, (iii) it has knowledge and experience in financial
and business matters in that DuPont is capable of evaluating the risks and
merits of an investment in WebMD, and (iv) DuPont is able to bear the economic
risks of such an investment.
4. Conditions of Closing.
---------------------
4.1 DuPont's Conditions of Closing. The obligation of DuPont to
------------------------------
purchase and pay for Series C Shares shall be subject to and conditioned upon
the satisfaction at the Closing of each of the following conditions:
4.1.1 All representations and warranties of WebMD contained in
this Agreement shall be true and correct at and as of the Closing Date and WebMD
shall have performed all agreements and covenants and satisfied all conditions
on their part to be performed or satisfied by the Closing Date pursuant to the
terms of this Agreement.
4.1.2 WebMD shall have delivered to DuPont certificates and
other instruments representing Series C Shares free and clear of all security
interests, liens, encumbrances and adverse claims.
4.2 WebMD's Conditions of Closing. The obligation of WebMD to sell
-----------------------------
Series C Shares shall be subject to and conditioned upon the satisfaction at the
Closing of each of the following conditions:
4.2.1 All representations and warranties of DuPont contained in
this Agreement shall be true and correct at and as of the Closing Date and
DuPont shall have performed all agreements and covenants and satisfied all
conditions on its part to be performed or satisfied by the Closing Date pursuant
to the terms of this Agreement.
4
<PAGE>
5. Miscellaneous.
-------------
5.1 Notice. Any notice required or permitted hereunder shall be in
------
writing and shall be sufficiently given if personally delivered or mailed by
certified or registered mail, return receipt requested, addressed as follows:
If to WebMD: WebMD, Inc.
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, GA 30326
Attention: W. Michael Heekin, Esq.
Executive Vice President
If to DuPont: E.I. du Pont de Nemours and Company
DuPont Nutrition and Health
Barley Mill Plaza
Building 38
PO Box 80038
Wilmington, DE 19880
Attention: Vice President & General Manager
with a copy to: Mr. Mark Fox
The Fox Group
115 W. 74th Street
Suite 4B
New York, NY 10023
(or to such other address as any party shall specify by written notice so
given), and shall be deemed to have been delivered as of the date so personally
delivered or mailed.
5.2 Execution of Additional Documents. The parties hereto will at any
---------------------------------
time, and from time to time after the Closing Date, upon request of the other
party, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to carry out the intent of this Agreement, and to transfer and vest
title to any stock being transferred hereunder, and to protect the right, title
and interest in and enjoyment of all of the stock assigned, transferred and
conveyed pursuant to this Agreement; provided, however, this Agreement shall be
effective regardless of whether any such additional documents are executed.
5.3 Binding Effect; Benefits. This Agreement shall be binding upon
------------------------
and shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
5
<PAGE>
5.4 Trademarks. Nothing in this Agreement shall be deemed to confer
----------
on either party the right to use any trademarks of the other party without the
prior written consent of such other party.
5.5 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Georgia.
5.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
5.7 Headings. Headings of the Sections of this Agreement are for the
--------
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
5.8 Merger of Documents. This Agreement and all agreements and
-------------------
documents contemplated hereby constitute one agreement and are interdependent
upon each other in all respects.
5.9 Severability. If for any reason whatsoever, any one or more of
------------
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
5.10 Assignability. Neither this Agreement nor any of the parties'
-------------
rights hereunder shall be assignable by any party hereto without the prior
written consent of the other party hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year hereinabove first
set forth.
WEBMD, INC. E.I. DU PONT DE NEMOURS AND COMPANY
By: /s/ W. Michael Heekin By: /s/ Thomas C. Humphrey
------------------------------- -----------------------------------
Title: Executive Vice President Title: Vice President and General Manager
---------------------------- ----------------------------------
6
<PAGE>
EXHIBIT 10.71
THIS WARRANT AND THE SHARES OF SERIES D COMMON STOCK OR 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 TRANSFER CONTAINED IN
ARTICLE IV HEREOF.
WARRANT TO PURCHASE SECURITIES
OF WEBMD, INC.
THIS CERTIFIES that, for value received, WebMD, Inc., a Georgia corporation
(the "Company"), hereby agrees to grant to Nationwide Medical Services, Inc., a
Virginia corporation, or its registered assigns (the "Holder"), the right to
purchase up to 50,000 Stock Units (as defined herein) 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 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.
"Additional Shares of Common Stock": all shares of Common Stock issued by
the Company after the date of an Initial Public Offering.
"Additional Shares of Series D Stock": all shares of Series D Stock issued
by the Company after the date hereof other than the Warrant Shares.
"Articles of Incorporation": the Amended and Restated Articles of
Incorporation of the Company, as further amended from time to time.
<PAGE>
"Common Stock": unless otherwise indicated, the Company's authorized
"Common Stock," no par value per share, without designation as to series, as it
exists on the date hereof.
"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": evidences of indebtedness, shares of stock or
other securities that are convertible into or exchangeable for Additional Shares
of Series D Stock.
"Exercise Price": Fair Market Value on the Vesting Date.
"Fair Market Value": with respect to a share of Series D Stock or Common
Stock, as the case may be:
(i) prior to an Initial Public Offering, the fair market value shall
equal $20.00 per share unless otherwise determined by the Board of
Directors, in its sole discretion; or
(ii) subsequent to an Initial Public Offering, the Market Price.
"Holder": as defined on the first page hereof.
"Initial Public Offering": as defined in the Company's Articles of
Incorporation.
"Market Price": with respect to a share of Common Stock on any business
day following the Initial Public Offering: (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.
2
<PAGE>
"Person": any individual, corporation, partnership, trust,
unincorporated organization and any government, and any political subdivision,
instrumentality or agency thereof.
"Series D Stock": the Company's Series D Common Stock, no par value per
share. Following the occurrence of an Initial Public Offering, all references
in this Warrant to "Series D Stock" shall be deemed to refer to Common Stock, by
virtue of the automatic conversion of the Series D Stock into Common Stock that
will occur pursuant to the Company's Articles of Incorporation.
"Stock Unit": one share of Series D Stock, as such stock is constituted on
the date hereof and thereafter the number of shares of Series D Stock as shall
result from the adjustments specified in Article V.
"Vesting Date": as defined in Section 2.1.
"Warrant Office": as defined in Section 3.1.
"Warrant Shares": the shares of Series D Stock or Common Stock, as the
case may be, represented by the Stock Units purchasable by the Holder upon the
exercise of this Warrant.
ARTICLE II
EXERCISE OF WARRANT
2.1 Vesting and Exercisability. The right to purchase Stock Units shall
--------------------------
vest and become exercisable immediately upon the execution and delivery of this
Warrant by WebMD (the "Vesting Date").
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 pursuant 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 Series D Stock having a value computed based upon the Fair Market
Value, equal to the then applicable Exercise Price multiplied by the number of
Stock Units 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 Fair
Market Value 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
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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.
2.3 Shares to be Fully Paid and Non-Assessable. All Warrant Shares issued
------------------------------------------
upon the exercise of this Warrant shall be 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 a certificate representing any
fraction of a share of Series D 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 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, 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
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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 Series D 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.
Notwithstanding the foregoing, the Company shall not be responsible for the
payment of federal, state, or local income taxes for the holder hereof for which
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<PAGE>
the holder is or may become liable for as a result of the exercise of this
Warrant or the issuance of Warrant Shares as a result of such exercise.
ARTICLE IV
RESTRICTION ON TRANSFER
4.1 Restrictions on Transfer. (a) 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.
(b) The holder of this Warrant, by acceptance hereof, agrees that it
will not 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 delivered to
the Company (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 Series D 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 or the Series D Stock issuable hereunder under the Act, the Holder shall
not be entitled to exercise or transfer this Warrant until such registration is
effective; provided, however, that the Company shall have no obligation to
register the series of Series D Stock issuable upon exercise of this Warrant
under the Act or any state securities law.
(c) The Company covenants and agrees that it and its counsel shall
cooperate with counsel to the holder of this Warrant by providing such factual
information as is reasonably necessary to determine whether an opinion pursuant
to this Section 4.2 may be given; provided, however, that the Company and its
counsel shall not be obligated to disclose any information if such disclosure
would, in the reasonable opinion of Company counsel, constitute a violation of
law.
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ARTICLE V
ADJUSTMENTS
5.1 Adjustments to Number of Stock Units. The number of shares of Series
------------------------------------
D 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 Series D Stock of any
series for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Series D Stock, or
(ii) subdivide its outstanding shares of Series D Stock into a
larger number of shares of Series D Stock, or
(iii) combine its outstanding shares of Series D Stock into a
smaller number of shares of Series D Stock;
then the number of shares of Series D 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 Series D Stock that a record holder of the number of shares
of Series D 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 Series D
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.
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<PAGE>
(c) Issuance of Additional Shares of Series D Stock.
-----------------------------------------------
(i) In case at any time prior to the occurrence of the Initial
Public Offering the Company shall (except as hereinafter provided) issue or sell
any Additional Shares of Series D Stock for a consideration per share less than
the Exercise Price, then the number of shares of Series D Stock thereafter
comprising a Stock Unit shall be adjusted to that number determined by
multiplying the number of shares of Series D 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 Series D Stock issued and outstanding plus the
number of Additional Shares of Series D Stock deemed to be outstanding pursuant
to Subsection 5.1(d) immediately prior to the issuance of such Additional Shares
of Series D Stock plus the number of such Additional Shares of Series D Stock so
issued and (ii) the denominator of which shall be the number of shares of Series
D Stock issued and outstanding plus the number of Additional Shares of Series D
Stock deemed to be outstanding pursuant to Subsection 5.1(d) immediately prior
to the issuance of such Additional Shares of Series D Stock plus the number of
shares of Series D Stock that the aggregate consideration for the total number
of such Additional Shares of Series D Stock so issued would purchase at the
Exercise Price.
(ii) In case at any time after 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 Market 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 Market Price.
The provisions of this Subsection 5.1(c) shall not apply to any issuance of
Additional Shares of Series D Stock or Common Stock for which an adjustment is
provided under Subsection 5.1(a). No adjustment of the number of shares of
Series D Stock or Common Stock comprising a Stock Unit shall be made under this
subsection upon the issuance of any Additional Shares of Series D Stock or
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
Series D Stock or any Convertible Securities, whether or
8
<PAGE>
not the rights to exchange or convert thereunder are immediately exercisable,
and the consideration per share for which Additional Shares of Series D 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 Series D 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
Series D Stock shall be deemed to be the minimum consideration received and
receivable by the Company for the issuance of such Additional Shares of Series D
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 Series D 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 have been made upon the issuance of such warrants or
other rights pursuant to this Subsection 5.1(d).
(e) Superseding Adjustment of Stock Unit. If, at any time after any
------------------------------------
adjustment of the number of shares comprising a Stock Unit shall have been made
pursuant to the foregoing Subsection 5.1(d) on the basis of the issuance of
warrants or other rights or the issuance of other Convertible Securities, or
after any new adjustments of the number of shares comprising a Stock Unit shall
have been made pursuant to this Subsection 5.1(e),
(i) such warrants or rights or the right of conversion or
exchange in such other Convertible Securities shall expire, and a portion of
such warrants or rights, or the right of conversion or exchange in respect of a
portion of such other Convertible Securities, as the case may be, shall not have
been exercised, and/or
(ii) the consideration per share, for which shares of Series D
Stock are issuable pursuant to such warrants or rights or the terms of such
other Convertible Securities, shall be increased for any reason,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Series D 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
(x) treating the number of Additional Shares of Series D Stock, if
any, theretofore actually issued or issuable pursuant to the previous
exercise of such warrants or rights or such right of conversion or
exchange, as having been issued on the date or dates of such exercise and
for the consideration actually received and receivable therefor, and
(y) treating any such warrants or rights or any such other Convertible
Securities that then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share
for which shares of Series D Stock are issuable under such warrants or
rights or other Convertible Securities;
9
<PAGE>
and, if and to the extent called for by the foregoing provisions of this Section
5.1 on the basis aforesaid, a new adjustment of the number of shares comprising
a Stock Unit shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
(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 Series D 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 Series D 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 Series D Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional Shares of
Series D 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 Series D Stock or Convertible Securities are offered
by the Company for subscription, the subscription price, or, if such Additional
Shares of Series D 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 Series
D Stock or Convertible Securities or any warrants or other rights to subscribe
for or purchase such Additional Shares of Series D Stock or Convertible
Securities shall be issued in connection with any merger in which the 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 Series D 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 Series D 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 Series D 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 Series D Stock
10
<PAGE>
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 Series D 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 Series D Stock or
Convertible Securities in payment or satisfaction of any dividends upon any
class of stock other than Series D Stock, the Company shall be deemed to have
received for such Additional Shares of Series D 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 Series D 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 Series D 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 Series D 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.
(iv) Fractional Interests. In computing adjustments under this
--------------------
section, fractional interests in Series D 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
- ---------------------
Series D 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 Series D Stock
purchasable upon exercise of this Warrant immediately prior to such event would
own or be entitled to receive immediately after such event.
11
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(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 shares of its capital stock in
connection with any stock split, stock dividend or recapitalization by the
Company; (d) the Company issues any shares of common stock of the Company
pursuant to options, warrants or rights granted before the date hereof, or
granted before or after the date hereof if granted to purchase shares of such
common stock in favor of employees, directors, officers, strategic partners 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 hereof, 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 (e) the Company converts
any securities 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 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 Series D 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 the fifth anniversary of the Vesting Date.
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 Series D 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
12
<PAGE>
of authorized but unissued Series D 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
REGISTRATION RIGHTS
Holders of the Warrant Shares issued upon exercise of this Warrant shall be
entitled to the registration rights set forth in that certain Stock Purchase
Agreement, dated January ___, 1999, among the Company and the Holder (the "Stock
Purchase Agreement"), to the extent set forth therein. A copy of the Stock
Purchase Agreement shall be kept on file by the Company and shall be made
available to the Holder hereof upon written request to the Company.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Warrant and the Stock Purchase Agreement
----------------
contain 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.
10.2 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.
10.3 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.
10.4 Filing of Warrant. A copy of this Warrant shall be filed in the
records of the Company.
10.5 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
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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.
10.6 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.
10.7 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 lieu of any mutilated
Warrant, shall constitute an original contractual obligation on the part of the
Company.
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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 _____ day of January, 1999.
[CORPORATE SEAL] WEBMD, INC.
Attest:
By: /s/ W. Michael Heekin By: /s/ Jeffrey T. Arnold
----------------------------- -------------------------------------------
Name: W. Michael Heekin Jeffrey T. Arnold, Chief Executive Officer
---------------------------
Title: Executive Vice President
--------------------------
15
<PAGE>
WARRANT SHARES PURCHASE SCHEDULE
<TABLE>
<CAPTION>
NO. OF SHARES PURCHASED DATE OF PURCHASE NOTATION BY COMPANY OFFICER
<S> <C> <C>
____________________________ _______________________ ____________________________________
____________________________ _______________________ ____________________________________
____________________________ _______________________ ____________________________________
____________________________ _______________________ ____________________________________
____________________________ _______________________ ____________________________________
____________________________ _______________________ ____________________________________
</TABLE>
<PAGE>
EXHIBIT A
---------
TO WARRANT
NOTICE OF EXERCISE
Dated:_______________________________
The undersigned hereby irrevocably elects to exercise its right to purchase
_____ shares of the [SERIES D STOCK] [COMMON STOCK], no par value per share, of
WebMD, Inc., such right being pursuant to a Warrant dated _______________ ____,
1999, as issued to Nationwide Medical Services, Inc., for up to ________ shares
of such [SERIES D STOCK] [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 [SERIES D
STOCK] [COMMON STOCK] for which the Warrant could otherwise be exercised such
that such Market Value equals the Exercise Price for such shares of [SERIES D
STOCK] [COMMON STOCK].
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature:___________________________________
Shares Heretofore Purchased
Under Warrant:
___________________________________
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.72
American Health Consultants and WebMD
LICENSE AGREEMENT
This AGREEMENT is made and becomes effective as of the date of signing of the
Agreement, by and between American Health Consultants, Inc. ("AHC") as Licensor
and WebMD Technologies, Inc. ("WebMD") as Licensee. This Agreement is only valid
if signed by Licensee within 30 days of signing by Licensor.
Licensor: American Health Consultants, Inc
3525 Piedmont Road, N.E.
Six Piedmont Center, Suite 400
Atlanta, Georgia 30305
Licensee: WebMD Technologies, Inc.
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
WITNESSETH
WHEREAS, AHC has developed and copyrighted certain proprietary healthcare
content ("Content"), as more fully described in Appendix A ("AHC Content"), and
in conjunction with delivery of this Content, AHC shall provide a Content
Service ("Content Service"), as more fully described in Appendix B ("Content
Service").
WHEREAS, the parties acknowledge that the Internet is neither owned nor
controlled by any one entity; therefore, AHC can make no guarantee that any
given End-User shall be able to access the Content Service at any given time.
WHEREAS, WebMD intends to engage in the marketing, sale and provision of
healthcare content to physicians and nurses, and wishes to license the Content,
and make use of Content Services to make the Content available through "WebMD"
and "WebRN", as more fully described in Appendix C ("WebMD Services"), and known
in this Agreement as the "WebMD Services".
DEFINITIONS
For purposes of this Agreement, the following definition of terms shall be used:
Advertising. Payment by a third party for placement of an advertisement in
- -----------
conjunction with Content.
Page 1 of 18
<PAGE>
Confidential Information. Confidential Information shall be limited to any and
- ------------------------
all information clearly identified as confidential by either party. A party's
Confidential Information shall not include information that: (a) is or becomes
a part of the public domain through no act or omission of the other party; (b)
was in the other party's lawful possession prior to the disclosure and had not
been obtained by the other party either directly or indirectly from the
disclosing party; (c) is lawfully disclosed to the other party by a third party
without restriction or disclosure; or (d) is independently developed by the
other party.
Effective Date. The date this Agreement is signed by both parties.
- --------------
End-Users. Physicians and Nurses who are paying subscribers to and continue to
- ---------
have access to the Service via WebMD, and WebRN, and WebMD's Health and Wellness
Center.
Repurpose. To re-format AHC's Content in such a way that allows the delivery of
- ---------
Content through the World Wide Web, without affecting content integrity as set
forth.
Subscription. Payment by a third party, healthcare related entity, or an
- ------------
individual healthcare professional for access to the WebMD Services through the
WebMD or WebRN professional web sites.
Sponsorship. All payments by a third party relating to End-User access to
- -----------
Content involving Advertising, placement of a company trademark, or notification
of a company identity in conjunction with Content.
Revenue. Payment by third parties for products and/or services after any
- --------
subtractions for expenses or costs. Revenue includes payments of advertising,
sponsorships and other sources that are unnamed, but may occur. Revenue does
not include Subscriptions.
WebMD Service or Service. Those services offered by WebMD set forth in Appendix
- ------------------------
C attached hereto and incorporated herein by reference.
NOW, THEREFORE, in consideration of the premises, mutual covenants, and promises
set forth herein, the parties hereto agree as follows:
ARTICLE I - DUTIES OF LICENSOR
1.1 Grant. AHC hereby grants to WebMD for the term of this Agreement the
-----
nontransferable and nonexclusive right and license to make available the English
language editions of the Content to End-Users and to consumers accessing the
WebMD Health and Wellness Center, all as more specifically set forth herein.
1.2 Nonexclusivity. This Agreement does not impose any obligation of
--------------
exclusivity upon either party.
1.3 Markets. End-Users of Content specified in items two (2) and three (3) of
-------
Appendix A are limited to physician and nurse professionals. Content specified
in item one (1) of Appendix A is the
Page 2 of 18
<PAGE>
only portion of the Content in this Agreement that AHC gives permission to also
be presented to consumers through WebMD's consumer website, the Health &
Wellness Center. WebMD agrees that its End-User terms and conditions of use
shall contain a provision providing that use of the Content in the Service is
limited to individual use and may not be recommercialized in any way for any
purpose.
1.4 Advertising and Sponsorship. Advertising and sponsorship may from time to
---------------------------
time occur in conjunction with the Content. WebMD may advertise and sell
sponsorships to the Content as listed in Appendix A provided that the
advertising or sponsorships do not jeopardize AHC's continuing education
accreditation status and conforms to AHC's Content use specifications as more
specifically set forth in Appendix D.
1.5 Distribution Territory. Use of Content is limited to the United States.
----------------------
1.6 Access to Content. AHC grants End Users of the Service (see Section 2.1
-----------------
below) and consumers access to the Content through use of an industry standard
Web browser.
1.7 Provision of Services. AHC agrees to provide Content Services as
---------------------
described in Appendix B.
1.8 Support for Content and Content Services. All support questions from WebMD
----------------------------------------
management and technical staff regarding Content and Content Services shall be
directed to a support liaison designated by AHC from time to time. This includes
prompt reporting of unscheduled disruptions to Content Services. AHC may
designate a new Support Liaison at any time and shall promptly notify WebMD of
any such decision in writing. AHC shall provide to WebMD up to twenty (20) hours
of support, during the sixty (60) business days following delivery of new or
updated Content. Support will be free of charge if the work needed is due to AHC
Content issues or problems or deficiencies in the hosting and/or support of the
site. Additional services shall be made available at WebMD's reasonable request
as to time, place and manner. Services based on additional product requirements
shall be charged by AHC to WebMD on a time and materials basis according to
AHC's thencurrent rates, but in any event on mutually agreeable terms.
Notwithstanding the foregoing, AHC shall guarantee its service rates for the
first year of this Agreement at $ per hour of requested technical service.
1.9 Updates to Content. For purposes of this Agreement, any change, update,
------------------
enhancement, revision, correction or replacement of Content and/or of
Documentation released by AHC is an "Update." To provide WebMD with fair and
equitable treatment, Updates shall be available to users of the Service
simultaneously with their release to any other commercial electronic vendor of
the Content or Content Services serving the professional market. Specifications
may change over time as improvements occur in the normal course of business that
requires AHC to change the layout and/or format of the Content delivered to
WebMD. In such instances, AHC shall provide WebMD with written notice not less
than forty five (45) days prior to the delivery of an Update to the affected
Content to WebMD.
1.10 Activity Reporting. WebMD shall maintain and provide AHC with quarterly
------------------
usage statistics of WebMD End-Users on its hosted site as related to the
Content.
- ---------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
Page 3 of 18
<PAGE>
1.11 Notice of Content Cessation. AHC shall have the right to cease normal
---------------------------
production or updating of any of the Content, provided that such cessation by
AHC is not with respect to WebMD alone but is part of a program by AHC to cease
production or updating of such Content on or through other electronically
accessed networks, including but not limited to the same or similar On-line
Distributors on which the Service is available. AHC shall give WebMD three (3)
months' written notice prior to AHC's requesting WebMD to cease use of any
Content set, as described above. Upon receipt of such notice and subsequent
removal of the subject AHC Content from the Service, WebMD shall have the right
in its discretion: (a) to obtain from AHC substitute Content acceptable to
WebMD and AHC as a replacement; or (b) to reduce the payments proportionate to
the reduction in Content. In the event that during the Term of this Agreement
AHC resumes production and/or updating of Content that AHC previously ceased
producing or updating, WebMD shall have the right but not the obligation to
again use such formerly discontinued or non-updated Content in the Service. If
WebMD does so, it shall be under the same terms and conditions as such Content
was formerly used hereunder.
ARTICLE II DUTIES OF LICENSEE
2.1 Availability of the Content to End-Users. WebMD shall provide a security
----------------------------------------
mechanism to identify the End-User and authorize the use of the Service by an
End-User. The security mechanism shall also deny entry to unauthorized users.
The parties acknowledge that the Health and Wellness Center does not contain any
log-on features and consumers will have free access to the Center and the Mini-
Conference Content only, as more fully provided for below.
2.2 Content Integrity. WebMD shall not edit or otherwise effect an editorial
-----------------
change in the Content text or bylines without AHC's consent, which consent
should not be unreasonably withheld. The foregoing shall in no way prohibit
WebMD from interlinking, indexing and cross-referencing the Content with
material from other content providers.
2.3 Repurposing of Content. WebMD may Repurpose and host on its servers "Mini
----------------------
Conference Content" (see appendix A), for usage as Internet based "Virtual
Conferences". AHC and WebMD shall market, sell and distribute these virtual
conferences. AHC may Repurpose the Mini Conference Content and has the right to
distribute the Mini-Conference Content through AHC's web site; provided,
however, AHC shall not market, sell or distribute the Repurposed Mini Conference
Content to a competitor of WebMD for a period of twelve (12) months after such
Mini Conference Content is either Repurposed by AHC or offered to WebMD for
Repurposing. If AHC utilizes the WebMD technology in the presentation of these
programs, AHC will split all associated Revenues and sponsorships with WebMD
***, and shall remit payment therefor within thirty (30) days following each
anniversary of the Effective Date. WebMD will have the right to distribute the
Virtual Conferences through Online and/or media venues of its choosing, and will
provide AHC ***% of all associated Revenue related to the sale of this Content
in accordance with Article III of this Agreement. This shall include
distribution of the Virtual Conference Content to Consumers in WebMD's Health &
Wellness Center.
2.4 Proprietary Interest. WebMD acknowledges that AHC has proprietary rights in
--------------------
and to the Content. WebMD shall not, by virtue of this Agreement or by virtue
of its access to the Content,
- ---------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
Page 4 of 18
<PAGE>
obtain any proprietary rights in or to the Content except the rights
specifically granted to WebMD herein. WebMD shall not use or transmit the
Content except as specifically authorized by this Agreement.
2.5 Audit and Review. As long as this Agreement is in effect, and for a one-
----------------
year period thereafter, WebMD shall maintain and supply to AHC upon AHC's
written request, every calendar quarter records that are used to calculate
payments to AHC. AHC understands and agrees that all of WebMD's financial
records and statements are confidential and subject to the Confidentiality
Agreement between the parties effective upon signing of this Agreement.
(a) Upon a minimum of twenty (20) business days' notice to WebMD, and
during business hours, AHC may itself or through an agent at its expense,
audit relevant books and records of WebMD for the sole purpose of
determining that WebMD is in compliance with all of the terms of this
Agreement and that the proper payment, as described in Section 3 below, has
been paid to AHC. Such an audit may not be made more frequently than once
every twelve (12) months and once within the twelve (12) month period
following conclusion or termination of this Agreement.
(b) In the event AHC determines that payments are due from WebMD, it shall
so notify WebMD and provide WebMD with a calculation and supporting
explanation. WebMD shall thereupon have thirty (30) business days within
which to pay the claim or submit a written dispute of the claim to AHC. In
the event that the amount of payments due from WebMD as a result of the
audit exceeds ten percent (10%) of the total amount due to AHC for the
audited period, WebMD shall pay the cost and expenses of the audit.
2.6 Copyright Notice. When making the Content available to End-Users as
----------------
permitted by this Agreement, WebMD shall cause a notice comprised of the
following elements to be conspicuously displayed during every End-User session
as appropriate to protect AHC's intellectual property rights: (a) the word
"Copyright" or the symbol (the letter c in a circle), (b) the year of first
publication of such document as specified by AHC, (c) the name of the copyright
holder or, if space constraints require, an abbreviation by which the name can
be recognized or a generally known alternative designation, and (d) the words
"All Rights Reserved" (or, if space constraints require, an abbreviation by
which such phrase can be recognized that is reasonably acceptable to AHC).
2.7 End-User Agreement. When making the Content available to End-Users as
------------------
permitted by this Agreement, WebMD shall cause to have included in the terms and
conditions of the applicable End-User agreement: (a) a provision prohibiting use
of materials retrieved through the Content Service in any fashion that may
infringe upon any copyright or proprietary interest therein; (b) a provision
prohibiting storage of materials retrieved through the Content Service in a
searchable, machine-readable database; (c) a provision limiting the liability of
AHC in a manner similar to that provided to WebMD's other licensor's as set
forth in the WebMD Terms and Conditions of Use, especially as it applies to the
use of healthcare information by professionals; (d) a provision prohibiting use
of all the Content from any commercial use, resale, or mailing list database
development, utilization or application. WebMD shall grant neither to On-line
Distributors, nor to any End-User of the Content or any third party, any
additional rights to reproduce the Content retrieved through the Service (by
photocopying, electronic transmission or otherwise) without AHC's prior written
consent
Page 5 of 18
<PAGE>
2.8 New Content. Ninety (90) days prior to the end of the first year and each
-----------
successive anniversary of the Agreement, both parties agree to meet to determine
and identify additional Content, pricing of additional Content, and delivery of
that Content to WebMD. Both parties shall use their best efforts to finalize an
addendum for additional content to this Agreement for the upcoming year, thirty
(30) days prior to the initiation of the Agreement to allow for technical
development and planning to occur. This stipulation shall in no way restrict the
parties from meeting at other mutually agreed times throughout the contract term
to discuss additional licensing opportunities. Failure to mutually agree does
not affect the validity of this Agreement and does not terminate this Agreement.
ARTICLE III PRICING AND PAYMENT TERMS
3.1 Pricing.
-------
In consideration of AHC's grant to WebMD of the right and license to access
the Content throughout the term of this Agreement, WebMD shall pay AHC a
fee equal to the greater of the following fees for each year:
(a) Year one $*** (***)
Year two $*** (***)
Year three $*** (***)
OR,
(b) *** percent (***%) of all Revenue derived from WebMD sale of
Content.
3.2 Payment Terms. WebMD shall pay AHC in arrears beginning on June 30, 1999 as
---------------
follows:
(a) Year one - partial payment of $*** due June 30, 1999
Year two - partial payment of $*** due June 30, 2000
Year three - partial payment of $*** due June 30, 2001
(b) Each year within thirty (30) days following the anniversary of this
Agreement, WebMD shall pay the amount remaining, if any, to achieve the
applicable payment set forth in Section 3.1 above.
(c) Upon signing of this Agreement, WebMD will make a payment of $*** to
cover the initial setup expense for Content Services. This payment will
be credited against WebMD's first year minimum payment.
ARTICLE IV TERM AND TERMINATION
4.1 Term. This Agreement shall be effective for an initial term beginning upon
----
the Effective Date and ending on the third anniversary thereof, unless sooner
terminated pursuant to this Article IV.
- ---------------
*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
Page 6 of 18
<PAGE>
4.2 Failure to Perform. If either party to this Agreement shall fail to
------------------
perform or observe any material term, covenant, agreement or warranty, or if any
material representation contained herein is untrue, the other party may
immediately terminate this Agreement if such failure is not corrected (if
reasonably correctable) within thirty (30) days of delivery of written notice
thereof to the other party.
4.3 Bankruptcy and Business Termination. If either party shall cease doing
-----------------------------------
business, become insolvent, or if a petition in bankruptcy shall be filed with
respect to a party, or upon an attempted assignment not permitted under Section
6.6 below, the other party shall have the right to immediately terminate this
Agreement upon written notice to the other party. The right and license granted
by AHC to WebMD herein with respect to the Content is deemed a software license
for purposes of Section 305(n) of the Federal Bankruptcy Act, and WebMD shall
have the full rights of a protected licensee thereunder.
4.4 Conduct Upon Termination. Upon termination of this Agreement for any
------------------------
reason, WebMD shall cease solicitation for and use of the Content.
ARTICLE V LIABILITY LIMITATION AND INDEMNIFICATION
5.1 Limitation of AHC Liability. AHC MAKES NO WARRANTY, EXPRESS OR IMPLIED,
---------------------------
INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE WITH RESPECT TO THE MARKETING, SALE OR USE OF THE CONTENT.
AHC SHALLHAVE NO LIABILITY TO ANY THIRD PARTY RESULTING FROM ITS PERFORMANCE
UNDER THIS AGREEMENT OR FOR ANY FAILURE TO PERFORM HEREUNDER. NEITHER AHC NOR
ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND SUBCONTRACTORS, SHALL BE LIABLE
TO WEBMD OR ANY OTHER PARTY FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS) INCURRED IN CONNECTION WITH SERVICES PERFORMED
OR PRODUCTS PROVIDED UNDER THIS AGREEMENT. AHC SHALL NOT BE LIABLE FOR DAMAGES
CAUSEDORALLEGEDLY CAUSED BYFAILURE OF PERFORMANCE, ERROR, OMISSION,
INTERRUPTION, DELETION, DEFECT, DELAY IN OPERATION OR TRANSMISSION, OR
COMMUNICATIONS LINE FAILURE INVOLVING THE CONTENT SERVICE.
Notwithstanding the above, AHC expressly limits its damages to WebMD for any
non-accessibility time or other down time to a pro-rata credit of AHC's charges
during system unavailability and as otherwise specified in Appendix B.
5.2 Force Majeure. Neither party shall be liable in damages for any delay or
-------------
default in performing its obligations hereunder if such delay or default is
caused by matters beyond the reasonable control of the non-performing party,
such as but not limited to power failures, wars or insurrections, acts of God,
acts of government, strikes, fires, floods, earthquakes, work stoppages,
embargoes and/or inability to obtain material; provided, however, that the party
experiencing such occurrence shall notify the other party at the earliest
possible date and take reasonable steps to mitigate and/or cure the cause of
such delay.
Page 7 of 18
<PAGE>
5.3 Indemnification.
---------------
(a) AHC shall indemnify and hold harmless WebMD, its affiliates, and its and
their directors, officers, employees, agents, successors and assigns against any
and all judgments, settlements, penalties, costs and expenses (including
reasonable attorneys' fees) paid or incurred in connection with claims by any
party which are attributable to: AHC's negligence or misconduct in creating,
writing, publishing, collecting, collating and compiling the Content from AHC's
original data sources (including but not limited to drug manufacturers); a
material breach of any warranty or representation made or obligation undertaken
by AHC under this Agreement or infringement or misappropriation by the Content
of any copyright or other proprietary right of any third party.
(b) WebMD shall indemnify and hold harmless AHC, its affiliates and its and
their directors, officers, employees, agents, successors and assigns against any
and all judgments, settlements, penalties, costs and expenses (including
reasonable attorneys' fees) paid or incurred in connection with claims by any
party which arise from WebMD's distribution of the Content under this Agreement
and are attributable to a failure of the hardware or software of WebMD's
computer system (other than the Content) or to a material breach of any warranty
or representation made or obligation undertaken by WebMD under this Agreement.
(c) If any claim or action is instituted or threatened by a third party against
a party to this Agreement for which it believes it is entitled to be indemnified
pursuant to this Agreement, it shall promptly give notice thereof to the other
party, and cooperate fully with the indemnifying party. The indemnifying party
shall solely control the defense and settlement of such claims. The indemnified
party shall be permitted to participate in such defense and settlement and
represent itself at its own expense and to use counsel of its own choosing.
5.4 Representations and Warranties. AHC represents and warrants that it is
------------------------------
authorized to grant the license herein to WebMD, and covenants that WebMD's
exercise of the license herein shall infringe no copyright or other right of any
person or entity. If any portion of the Content furnished to WebMD under this
Agreement becomes (or, in the good faith judgment of AHC, is likely to become)
the subject of a claim for infringement or misappropriation, AHC may, upon
notice to WebMD, request that WebMD remove such portion of the Content from the
Service, and WebMD shall comply with such request promptly; provided however,
that AHC shall not have the right to request such removal unless such materials
are required to be removed from the services of all other similarly situated on-
line vendors (if any) to whom they are made available by AHC; and provided that
in the event of such removal, WebMD shall have the same rights described in
Section 1.11 above. AHC represents and warrants that it is not aware of any
pending, threatened or possible claim or action by any third party with respect
to a possible violation of that third party's rights.
AHC makes no warranties or representations of any kind, whether expressed or
implied for the Content and Content Service it is providing regarding the
merchant-ability or fitness for a particular use or purpose.
Connection speed represents the speed of a connection and does not represent
guarantees of available end to end bandwidth.
Page 8 of 18
<PAGE>
The parties agree that WebMD makes no warranty or representation regarding, nor
is WebMD responsible for, the Content, which WebMD is obtaining from AHC under
this Agreement, and as to which WebMD has a duty not to edit or change (Section
2.2 above).
ARTICLE VI MISCELLANEOUS
6.1 Entire Agreement and Amendment. Together with all written amendments,
------------------------------
exhibits and appendices, this Agreement constitutes the entire agreement between
AHC and WebMD with respect to the subject matter addressed herein. This
Agreement can only be modified or supplemented by writing signed by duly
authorized representatives of both parties. This Agreement shall be binding
upon the parties, their successors, legal representatives and permitted assigns.
WebMD and AHC intend this Agreement to be a valid legal instrument and no
provision of this Agreement which shall be deemed unenforceable shall in any way
invalidate any other provision of this Agreement, all of which shall remain in
full force and effect.
During the term of this Agreement, the parties may under mutual consent reach a
new agreement on license of Content and provision of Content Services to WebMD.
At such time, this Agreement shall be amended to reflect any new understanding
between the parties.
6.2 Use of Trade Names, Trademarks or Service Marks. Neither party shall use
-----------------------------------------------
any trade name, trademark, or service mark of the other party in advertisements,
promotions, publicity releases or the like, except as expressly authorized in
writing, which authorization shall not be unreasonably withheld, by the other
party and in conformance with the quality control guidelines of the owner of
such name or mark which have been communicated to the other party. WebMD
acknowledges AHC's ownership of and title to the copyrights, trademarks, and
service marks of the Content. AHC shall be attributed as the source of the
Content in sales literature, in End-User documentation (if any), and AHC shall
not unreasonably withhold the authorization to use its trade names, trademarks,
and service marks by WebMD in connection with WebMD's distribution of the
Service. WebMD shall be attributed as the source of the Service in all material
produced by or for AHC where reference is made to the use of the Content as part
of the Service hereunder. WebMD shall not unreasonably withhold authorization
for use of WebMD's trade names, trademarks, and service marks by AHC in
connection with AHC's providing Content to WebMD and the Service. All trade
names, trademarks, and service marks, and attendant goodwill, now owned by each
party shall remain its sole property and all rights accruing from their use
shall inure solely to the benefit of such party.
6.3 Confidentiality. Each party shall preserve the confidential information of
---------------
or pertaining to the other party and shall not, without first obtaining the
other's written consent, disclose to any person or organization, or use for its
own benefit, any confidential information of or pertaining to the other party
during and after the term of this Agreement, unless such confidential
information is required to be disclosed by a court of competent jurisdiction or
by any governmental or self-regulatory organization or authority.
6.4 Notices. All notices, requests, demands and other communications or
-------
payments under this Agreement shall be in writing, and shall be deemed to have
been duly delivered if delivered by hand
Page 9 of 18
<PAGE>
or sent by traceable carrier or prepaid registered or certified mail addressed
as follows (or to such other address as may be designated by a party, in
writing, pursuant hereto):
WebMD:
WebMD Technologies, Inc.
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
Attn.: Jeffrey Arnold, CEO
with a copy to:
WebMD Technologies, Inc.
400 The Lenox Building
3399 Peachtree Road NE
Atlanta, Georgia 30326
Attn.: Corporate Counsel
AHC:
American Health Consultants, Inc
3525 Piedmont Road, N.E.
Six Piedmont Center, Suite 400
Atlanta, Georgia 30305
Attn.: Chief Financial Officer
6.5 Governing Law. This Agreement is made and entered into in the State of
-------------
Georgia and shall be construed according to internal laws, and not the laws
pertaining to choice or conflict of laws, of that State.
6.6 Relationship and Assignment. Nothing in this Agreement shall be deemed to
---------------------------
create an agency, joint venture, or partnership relationship between AHC and
WebMD. Except as expressly set forth in this Agreement, neither party shall
have authority to act on behalf of or bind the other party in any way. Neither
WebMD nor AHC may assign this Agreement or delegate any rights or obligations
hereunder without the prior written consent of the other party except to an
affiliated entity controlled by or under common control of a party hereto. Any
attempted assignment or transfer by either party without such consent shall be
of no effect.
6.7 Due Authorization. Each of WebMD and AHC represents and warrants that it
-----------------
is authorized to enter into this Agreement and that there are no outstanding
commitments, agreements, or understandings, express or implied, which may or can
in any way defeat or modify the rights conveyed or obligations undertaken by it
under this Agreement.
6.8 Headings. The heading of each Article, Section, and Appendix of this
--------
Agreement is for the purpose of convenience only and shall not affect the
interpretation of any provision hereof.
6.9 Survival of Obligations. Articles III, IV, V and VI shall survive the
-----------------------
termination or expiration of this Agreement.
Page 10 of 18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its duly authorized officer as of the Effective Date as described
above.
American Health Consultants, Inc. WebMD Technologies, Inc.
By: /s/ Jeff MacDonald By: /s/ Bruce Springer
--------------------------- ----------------------------
Printed Name: Jeff MacDonald Printed Name: Bruce Springer
Title: President and CEO Title: Executive Vice President
Date: February 16, 1999 Date: February 15, 1999
------------------------ --------------------------
Page 11 of 18
<PAGE>
APPENDIX A
AHC Content
1. "Mini-Conference" Programs. AHC shall deliver a minimum of 4, and maximum of
--------------------------
12 specialty "mini-conference" programs developed for WebMD in a mutually
agreeable format. WebMD shall have input on the topic areas to be developed.
The "Mini-Conference" programs are the only part of the Content listed in
this agreement that AHC gives permission to be presented on WebMD's Health
and Wellness Center.
AHC deliverables for a mini-conference are:
One nationally recognized speaker to provide:
a) a 1 hour recorded presentation,
b) associated slides and graphs,
c) bibliography for more information on the topic, and
d) speaker availability for a Q&A session, either chat or forum
based.
A mini-conference shall be worth 1-2 hours of CME credit.
Credits shall be sponsored by AHC.
AHC shall provide certification and testing for CME credit when
applicable.
2. Newsletters. AHC shall provide to WebMD all Physician and Nursing
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Newsletters, available online at the time of signing the Agreement,
including, but not limited to those listed below. WebMD may add up to six
(6) additional newsletters to the agreement each year without an increase in
the payment. AHC will deliver the Newsletters to WebMD as HTML files for
hosting on the WebMD servers. The initial delivery will consist of all
archived online Newsletters. Going forward, AHC will provide additional
Newsletter content in HTML files to WebMD within 48 hours of their
availability on AHC's website.
Physician Newsletters
(1) Alternative Medicine Alert
(2) Alternative Therapies in Women's Health
(3) Clinical Cardiology Alert
(4) Clinical Oncology Alert
(5) Critical Care Alert
(6) Critical Care Management
(7) Infectious Disease Alert
(8) Internal Medicine Alert
(9) Neurology Alert
(10) OB/GYN Clinical Alert
(11) Pediatric Emergency Medicine Reports
(12) Physician's Therapeutics Drug Alert
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(13) Primary Care Reports
(14) Travel Medicine Advisor
(15) ED Legal Letter
(16) ED Management
(17) ED Nursing
(18) Emergency Medicine Alert
(19) Emergency Medicine Reports
(20) The Managed Care Emergency Department
(21) Cardiovascular Device Update
(22) CHF Disease Management
* (23) Clinical Outcomes Measurement
(24) Compliance Hotline
(25) Cost Management In Cardiac Care
(26) Family Practice Alert
* (27) Managed Care Strategies
(28) Medical Device Week
(29) Pediatric & Adolescent Medicine Reports
* (30) Physician Relations Update
(31) Physician's Compliance Hotline
(32) Physician's Managed Care Report
(33) Physician's Marketing & Management
(34) Physician's Payment Update
(35) Rehab Continuum Report
(36) RN Advanced Practice Alert
(37) Sports Medicine Reports
(38) State Health Watch
* (39) Subacute Care Management
* These titles will not be updated
Nursing Newsletters
1) AIDS Alert
2) Case Management Advisor
3) Contraceptive Technology Update
4) Diabetes Management
5) Disease State Management
6) Drug Utilization Review
7) Healthcare Benchmarks
8) Healthcare Risk Management
9) Home Infusion Therapy Management
10) Homecare Education Management
11) Homecare Quality Management
12) Hospital Case Management
13) Hospital Employee Health
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14) Hospital Home Health
15) Hospital Infection Control
16) Hospital Peer Review
17) Medical Ethics Advisor
18) Occupational Health Management
19) Patient Education Management
20) Patient Satisfaction & Outcomes Management
21) Patient-Focused Care
22) Private Duty Homecare
23) QI/TQM
24) Same-Day Surgery
25) TB Monitor
26) Wound Care
3. CME and CE Test Modules.
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AHC shall provide WebMD access to all of the AHC CME testing modules available
online at the time of signing the Agreement, including without limitation, those
modules contained in the subject areas listed below. Additionally, if WebMD
adds any new newsletters (as listed in item 2 above) that are placed on cmeweb
or ceweb, WebMD shall have access to the associated testing modules. AHC shall
electronically update the testing modules of all CME subject areas. The CME
subject areas shall be updated once per month, one test per subject area. Each
test is worth 1.5 credit hours. AHC shall host this material, perform testing,
grading and issue certificates to healthcare professionals who successfully
complete a course.
(1) Clinical Cardiology Alert
(2) Clinical Oncology Alert
(3) Critical Care Alert
(4) Emergency Department Legal Letter
(5) Emergency Medicine Reports
(6) Infectious Disease Alert
(7) Pediatric Emergency Medicine Reports
(8) Primary Care Reports
(9) Travel Medicine Advisor
(10) Neurology Alert
(11) Internal Medicine Alert
(12) Pediatric & Adolescent Medicine Reports
(13) OB/GYN Alert
(14) Alternative Medicine Alert
(15) Emergency Medicine Alert
AHC shall provide WebMD access to all of the AHC CE testing modules available
online at the time of signing the Agreement, including without limitation, those
modules contained in the subject areas listed below. AHC shall make available
and electronically update the testing modules of all CE subject areas. These
areas will be updated twice a year with six months worth of tests provided each
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update. Each test is worth 1.5 contact hours. AHC shall host this material,
perform testing, grading and issue certificates to healthcare professionals who
successfully complete a course.
1) Hospital Peer Review
2) Hospital Case Management
3) Case Management Advisor
4) Hospital Employee Health
5) Hospital Infection Control
6) Contraceptive Technology Update
7) Home Infusion Therapy Management
8) Homecare Education Management
9) Homecare Quality Management
10) Hospital Home Health
11) Private Duty Homecare
12) Same-Day Surgery
AHC shall host the testing modules and allow access from the WebMD site as
specified in Appendix B, Content Services and the terms of this agreement.
AHC shall also provide to WebMD 50 current CME courses and 50 current CE courses
of WebMD's choosing from the above mentioned Content in HTML format for
Repurposing, use in the WebMD services, and hosting on the WebMD servers. For
purposes of this paragraph, "current" shall mean courses published no later than
one year prior to the date such courses were offered to WebMD for Repurposing.
AHC will continue to provide accreditation for such Repurposed courses and
certificates for healthcare professionals, who successfully complete the
courses.
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APPENDIX B
Content Service
The WebMD Service provides access to the Content through multiple indices:
including without limitation, search mechanisms, page linking, and logical and
useful navigation. WebMD is not allowed to provide end users access to all
articles from a single AHC publication except through the search mechanism.
WebMD will not allow access to the Content in any way that is similar to a
subscription to a single AHC publication, or replaces a subscription to any AHC
publication.
Content Services shall be available to WebMD within 15 business days following
execution of this agreement. The Content Services shall be operated and
maintained by AHC or its subcontractors with professional diligence and skill
and in a manner consistent with industry standards.
Content Service Performance Criteria:
a) Average less than *** seconds' response time for ***% of requests.
Measures server response time only, not network transmission time.
b) Average ***% up time for all AHC features provided to WebMD, exclusive of
scheduled maintenance. AHC shall give WebMD 48 hours advance notice.
c) Post a mutually-acceptable message in the event of a system outage.
In the event that AHC fails to meet the performance objective in any given
month, WebMD's remedy shall be limited to the pro-rata credit specified in
Section 5.1 Failure by AHC to meet these performance objectives for ***
consecutive months or *** out of *** months shall constitute a breach of this
Agreement and WebMD will have the right to terminate this Agreement upon thirty
(30) days prior written notice. WebMD agrees that the penalties and right of
termination described above shall constitute WebMD's sole and exclusive remedy,
and AHC's sole and exclusive obligation, for failure to meet the performance
criteria described herein.
It is the duty of WebMD to report unscheduled service outages of the Content
Service to the AHC support liaison. The support liaison is Marcus Underwood,
Director of Special Projects, phone 404 262 5490.
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*** Omitted pursuant to a request for confidential treatment and filed
separately with the Commission.
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APPENDIX C
WebMD Services
WebMD offers to physicians and plans to offer to nurses (through WebRN) a one
stop, "desktop solution" to consolidate key information and communications
services necessary for optimum practice management and patient care. WebMD
offers access to an online medical community and Internet gateway providing
access to vital information and communication services. WebMD consolidates into
a customizable Internet portal, fragmented services such as: proprietary
healthcare content and publications, an answering service, customized physician
web sites, chat and bulletin board sessions, an online universal inbox for
single source messaging and Continuing medical education (CME) and Continuing
Education (CE).
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APPENDIX D
Advertising/Sponsorship Criteria for
CME and CE Courses
Continuing education (CE) and continuing medical education (CME) programs cannot
be directly associated or presented with an advertising message supporting a
specific product. Sponsorships may be provided for CME or CE content, provided
that the sponsor does not influence Content creation, or specifically promote a
product or service in conjunction with the Content. Advertising or sponsorship
may appear in an introductory screen announcing the program, but may not be
displayed with the material that will be tested on.
These requirements do not pertain to the display of Content on the Health and
Wellness Site, as this site is targeted to consumers.
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